Appaloosa 1st quarter changes in its portfolio

The other day  I read an interesting article on ZeroHedge (http://www.zerohedge.com/news/2018-05-18/tepper-trounces-competition-outperforms-peers-600-ytd). It was related to the portfolio changes on the Appaloosa’s portfolio. Appaloosa Asset Management is outperforming its peers, this is why I decided to investigate what they are doing differently from the rest. Reading the 13-F from the biggest hedge funds can help you understand how they take the investment decisions. However, you won't be able to know the price in which they entered or exited the positions.

I´ve only focused on the new positions:

Lam Research Corp (LRCX)

    Lam Research Corp, source: TradingView

The strong fundamentals and the high margins will help the stock to go up.

Lam Research Corp ratios, source: TradingView                               

Wells Fargo (WFC)      

    Wells Fargo, source: TradingView

This company has been punished in the markets due to the regulatory constraints. However, it showed earnings that beat expectations. I think Wells Fargo is capable to provide good returns for investors via earnings growth, dividends. The net margins are good and the P/E ratio is better than its sector peers.

UBS Group AG (UBSG)

    UBS AG Group, source: TradingView

This investment brings geographical diversification. It’s the largest global wealth manager and has a large exposure to Asia.  It offers a 4% dividend plus buybacks. It showed the best quarterly results in 3 years on the 23rd April. The lower revenues and rising cost are one of the main concerns. I think investing long term in this company is not a bad idea. However, I would prefer to buy under 15CHF.

Applied Materials (AMAT)

    Applied Materials, source: TradingView

The strong fundamentals are driving the price of this stock higher. The sound financial situation allows the company to increase the investments. The biggest concern at the moment is that the makers of displays and chips to store data in high-end phones are slowing some projects. (The best example is the disappointing sales from the iPhone X)

SMH semiconductor ETF (SMH)

    SMH semiconductor ETF, source: TradingView

This chart shows the incredible performance of this semiconductor ETF. I would like to remind you that I am not an expert on this sector. I can understand the growth from 2013 until now, basically, it has been driven by a strong demand for this devices. When something becomes popular there is two ways of making money:

                -Mass production with the smallest cost possible

                -Limited production of high performance devices

At this point is up to the clients. Will we see strong demand in the best devices out there? (We have seen disappointing sales in some of them) Will the price of these devices decrease ? If so, the net margins will do as well and their rating will be downgraded. I’m not saying that is a bad investment, I have only expressed my point of view.

ALPS ETF

There are 16 ETFs listed under this asset management. I believe that they use for diversification purposes. 

Knight Swift (KNX)

    Knight Swift, source: TradingView

This company has great fundamentals. The financial leverage is really small. The main concern is to hire and retain truck drivers as the company said when the 1st quarter earnings were released.

Boyd Gaming (BYD)

    Boyd Gaming, source: TradingView

It has good fundamentals for a short-term investment. The resistance is around 40 so it doesn’t have a lot of upside potential (in the short-term). The analysts think that this kind of business has one of the lowest growth prospects.

Platform Speciality Prods Cor (PAH)

    Platform Speciality Prods Corp, source: TradingView

It has an attractive P/E ratio and upside potential. I believe that Appaloosa bought under 10. One of the biggest problems is the financial situation.

United Contl Hldgs Inc (UAL)

    United Continental Holdings, source: TradingView

The enterprise value to sales under 0.80 and the P/E under 10 make it attractive for investors.

Nvidia (NVDA)

    Nvidia, source: TradingView

Nvidia is a successful company that its share price can continue to rise in the following year. The sales growth forecast is positive for the next years and if we consider that the margins are high, we will see this stock higher.

Sum Up

Today’s article has been different from the other ones. I haven’t analyzed all the stocks properly but I’ve given a quick overview. In the case of the stocks above, they have good fundamentals and some of them are down around 20% from the last max. If the market continues rising, Appaloosa will deliver a strong performance.

As I said, we can learn a lot with the 13 F even if we don’t know the prices in which the trades were executed.  Obviously, we should do our own research but we can compare if some of the biggest funds are taking the same positions. Another thing to consider, that I haven´t mentioned, is the type of investor, maybe they are looking for a short-term investment while you can be considering a longer time frame.

Have a good trading!!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

European Financials review

Today is the turn of the European Financials. Are these companies in a good shape? Should we wait? We have seen an incredible run since 2009 and the main reason was the quantitative easing programs applied by the different central banks around the world. We can see that the Fed is tightening while the ECB and the BoJ keep running the easing programs. 

Eurostoxx

     FESX (Eurostoxx) continuous future, source: TradingView

As you can see the Eurostoxx has been raising since 2012 with the exception of 2015 and 2016. In this period we saw macro improvements in the European economy apart from the inflation data.

Eurostoxx banks 600

     FESB (Eurostoxx Banks 600) continuous future, source: TradingView

In contrast to the Eurostoxx, the banking index hasn´t shown a continuous growth. After the recovery from 2009, this index fell until 2012. We saw important highs in 2014 that couldn´t be broken in 2015. After that and due to the Chinese Black Monday, this index was falling until the middle of 2016. The last bull run was between 2016 and 2017. At the moment is testing a resistance around 127.00 that worked as a support in the previous year.

At this point, it is difficult to say if the movement will continue to the upside or will look for lows. The earnings picture so far has been mixed. HSBC, Europe’s biggest bank, reported profits matching expectations. On the other side, the French banks' earnings disappointed the market. Societe Generale and BNP Paribas traded lower on Friday due to their earnings report. The general concern in the sector is the rising costs. The monetary policy applied by the ECB doesn´t help the banks. Hopefully, the loan growth should pick up sooner or later.

EUFN iShares MSCI Europe Financial Sector Index

Let’s have a look at this interesting ETF. As a brief explanation, the iShares MSCI Europe Financials ETF seeks to track the investment results of an index composed of developed market European equities in the financial sector. The reason to invest in an exchange-traded fund is to avoid stock picking and taking advantage of tracking a sector in this case with a small cost. These are the portfolio characteristics:

       EUFN (iShares MSCI Europe Financials), source: iShares (Blackrock)

The P/E ratio is not the one that the value investors look for but it’s appealing if you compare with the current market levels. I would like a lower P/B ratio but it´s acceptable. One of the problems with the financial sector is that it´s cyclical, conservative and it’s not as profitable as it used to be. In the case of Europe is even harder to make money at the moment due to the ECB policy. Hopefully, adopting new technologies and AI will bring positive returns to this sector in the future but this is a long-term goal.

This is the current composition of this ETF:

      EUFN (iShares MSCI Europe Financials), source: iShares (Blackrock)

Diversification is one of the ETF advantages. As you can see, these are the top ten holdings on this fund. 

     EUFN (iShares MSCI Europe Financials), source: TradingView

The EUFN tried to rise to 2014 highs in the first weeks of 2018. Sadly this attempt failed and now is down 10% from the highs of the year. This product has been ranging between 14$ and 27$ in the last 8 years.

     EUFN (iShares MSCI Europe Financials), source: TradingView

This chart shows the EUFN prices for the last 3 years. After comparing the last two charts, I consider that buying below the 18 level is interesting for the long term with a take profit in 24. Obviously, you should be able to handle a 20% drawdown on this investment which is quite high for certain investors.

Sum up

I decided to introduce this ETF because I consider that it is an interesting instrument where you can diversify your portfolio for a reasonable price. In my opinion, I consider this ETF suitable for medium-term or long-term investment. This sector has good fundamentals. Some of the main risks are the correlation with other markets, these companies operate globally so they can be affected by shocks around the world, they are adapting new technologies to their operations and the central banks' policy affects them directly.

Have a good trading!!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved