Raw Greed’s strategy for the remainder of 2006

My Raw Greed portfolio is trading near the beginning of 2006 levels and has seen most of its gains for the year wiped out by the recent decline in the markets. For investors who have held out and control mostly cash positions, I would recommend going 50% in this market and holding 50% as cash. I see some attractively priced technology shares that I believe will rebound in the second half of 2006.

Most notably:

eBay, Inc. (EBAY)
Yahoo! Inc. (YHOO)
Microsoft Corporation (MSFT)
Intel Corporation (INTC)
Dell, Inc. (DELL)
Applied Materials, Inc. (AMAT)
Check Point Software Technologies, Ltd. (CHKP)
Semiconductor Manufacturing International Corporation (SMI)
United Microelectronics Corporation (UMC)

Due to the mounting uncertainty in the market and concerns over terrorism I believe gold will continue to be a major safe haven investment. Emerging markets such as India and China are building large reserves of gold. I expect to see gold make even larger moves upward in the second half of 2006. I also expect to see the economies of countries that are heavily involved with commodities continue to improve.

At the moment I would recommend investing in gold mining shares. Gold has corrected in the 5-10% range that I was anticipating. I expect gold to resume its uptrend in the next 1-3 months. I believe we might not see another attractive chance to purchase shares of gold mining companies in the short-term. My top two picks in gold mining stocks are Yamana Gold, Inc. (AUY) and Tanzanian Royalty Exploration Corp. (TRE).

A crash imminent?

I caught a Today Show video on MSN that delves into a Barclays report which compares current economic conditions to the economic conditions before the crash of 1987. The Today Show report cited the following economic conditions:

Increasing Interest Rates
Increasing Inflation
A Slowing Housing Market
Growing U.S. Current Accounts Deficit
New Federal Reserve Chairman
A Weakening Dollar

I don’t believe we are on the brink of a major economic crash in the short-term. Today we saw a nice reprieve from the consistent drops in the markets. I will post my strategy in a follow-up article for investing in the current market.

Purchasing Yamana Gold, Inc.

Today I purchased 1000 shares of Yamana Gold, Inc. (AUY) at $10.33. Instinct tells me that gold will drop more tomorrow, yet I decided incase I was wrong to buy one of my top gold mining stock picks on today’s dip.

A reminder of my top two gold mining stock picks

My top two gold mining stock picks are:

1) Tanzanian Royalty Exploration Corp. (TRE) I like TRE under $8.25.
2) Yamana Gold, Inc. (AUY) I like AUY under $11.

I believe these two stocks pose the greatest growth prospects and speculation surrounding them. I expect the stocks to rise quickly and drop quickly.

I would add Bema Gold Corporation (BGO) to the list as a possible third candidate.

Where the immediate growth is

I believe the areas with the largest growth potential in the short term, 3-6 months, are:

1) Gold
2) Country Funds

Gold is just in bull mode and it seems I can’t afford not to get in. I predicted a correction more than once but it seems like gold is in a perpetual bull mode now. I believe we might see gold pass the $850 mark this year. I still believe there will be some sort of correction in the order of 5-10% from today’s prices before gold breaks its historical high. Gold is currently trading at $718.40.

Country Funds are actually closed-end funds that trade like a normal stock. If you look at Country Funds many have posted gains of 50-100% in a very short period of time. With Country Funds you are basically betting that the entire countries economy will do well. Eastern European and some Asian funds have performed particularly well. I will post a list of funds that I would recommend as possibly gaining 20- 50% over the next 3-6 months. This is a high growth area that is simply exploding with opportunity. They go up fast and they drop fast similar to tech stocks in the 90’s.

I’m a bit late to the party in both areas. I will try to identify some opportunities that still exist since I think you can basically pick almost anything and expect it will go up in these two areas as long as you pick in the right sectors. I like mining or physical holding companies for gold and emerging Asian markets that are showing solid signs of economic prosperity. I will post a list for the Country Funds I am watching.

An Excellent Article

I read an excellent Motley Fool article extoling the virtues of patience in the market and in picking solid companies.

Here is a quote from the article:

“We constructed the Simpleton Portfolio,” Tom said, “to demonstrate to readers that if you find companies with superior economics, outstanding underlying financials, and great growth prospects, the real challenge is to be patient. If every Motley Fool member learned to think in decades rather than quarters, we would have a lot more Motley Fool millionaires in 2010, 2020, and 2030.”

So spend more time outside, at the mall, or on the couch watching the Stanley Cup playoffs. Just stop — yes, right now! — poring over an endless pile of financial reports. (Unless, of course, that’s really how you want to spend your time.)

If Tom really constructed the portfolio in advance of the July 7th, 1995 date the performance of the Simpleton portfolio is simply amazing. Congratulations to Tom and his stock picking ability.

Purchasing JetBlue Airways Corporation

Today I purchased 2000 shares of JetBlue Airways Corporation (JBLU) at $9.75. The company provides passenger air transportation services primarily in the United States. As of February 14, 2006, it operated approximately 369 daily flights serving 34 destinations in 15 states, Puerto Rico, the Dominican Republic, and the Bahamas. I purchased JBLU as a hedge against lower crude oil prices. Traffic for JetBlue grew 24.8% in April, 2006. The stock has taken a beating after posting 2 consecutive quarterly losses. The other airlines on my watchlist have risen a little too aggressively for my taste. My target sell price is $11 in 3-6 months and $12 in 6-12 months.

Purchasing Navarre Corporation

Today I purchased 3000 shares of Navarre Corporation (NAVR) at $3.98. The engages in publishing and distributing various home entertainment and multimedia products. Its Distribution segment distributes and provides fulfillment services in connection with various finished goods that are provided by its vendors, which include personal computer (PC) software and video game publishers and developers, music labels, and motion picture studios. I first wrote about Navarre as an idea for an investment in console gaming stocks. NAVR should go up as we approach the release of next generation high definition DVD players and the Sony Playstation 3 and Nintendo Revolution (Wii) consoles are released. My target sell price for NAVR is $6.00 in 6-12 months and $8.50 in 1-2 years.

Here is my original article about Console Gaming Stocks.

Purchasing Corporate High Yield Fund, Inc.

Today I purchased 2000 shares of Corporate High Yield Fund, Inc. (COY) at $7.59. COY currently pays a monthly dividend of .059, equivalent to 8.9% annually. I believe interest rate hikes are about to end. My guess is another two rate hikes to 5.25%. The economy seems to be steadily improving which should benefit closed-end bond funds that invest in low investment grade corporate bonds. My target sell price is $7.80 in 1-3 months. If COY meets my target the return will be 3.5%-5%, not terribly exciting but I believe very achievable and safe. If COY drops below $7.50 I will likely pick up additional shares.

I wrote this post about COY on December 19th, 2005:

I’ve been watching COY, Corporate High Yield Fund, Inc. for over a year now and waiting for it to drop below $8. COY operates as a diversified, closed-end management investment company. COY currently pays a monthly dividend of $0.062, equivalent to 9.8% annually. The company was founded in 1993 and the stock price has rarely traded below $8. COY is currently trading less than $7.50. I expect the stock to drop a bit more before rebounding. I might pick up some shares of COY if the stock drops below $7.40. I expect the shares to rebound within 1-3 months and pass $8 again.

COY closed at my earlier target price of $8 on February 22nd, 2006.

Watching other dividend paying coal stocks

I’m watching two other coal stocks that pay a high dividend like Fording Canadian Coal Trust (FDG) .

Fording Canadian Coal Trust pays a dividend of $4.78*. My target buy price is $34-$35.

Added to my watchlist:

Alliance Resource Partners, L. P. (ARLP) pays a dividend of $1.84.
Natural Resource Partners L.P. (NRP) pays a dividend of $3.16.

*Note: I believe the quarterly dividend payment has a high chance of dropping.

Watching Supervalu Inc.

It looks like Supervalu Inc. (SVU) will be a major stock for me to watch during 2006-2007. SVU is trading near it’s 52-week low of $28.24 set on April 27th, 2006. SUPERVALU pays a 2.3% dividend of .65. It appears that SVU has dropped after the company announced a 93% drop in 4th Quarter 2005 profit.

Taken from this AP article:

The drop stems from $72.4 million Supervalu spent in the fourth quarter to close some of its stores in preparation for its purchase of Albertson’s Inc. Supervalu will pay about $6.3 billion in stock and cash and assume about $6.1 billion in Albertson’s debt.

Taken from this AP article:

“Fiscal 2007 will be the year we begin the transformation of Supervalu into a national retail and pharmacy powerhouse,” said Chairman and Chief Executive Jeff Noddle.

SUPERVALU and CVS are leading the acquisition of Albertsons Inc. in a deal that is worth $9.7 billion. I expect shares of Supervalu to remain flat or continue to drop while consolidation efforts continue. There may be a good opportunity to purchase shares as we get closer to the completion of the consolidation. Supervalu will nearly double its 1381 stores to approximately 2500 stores when the deal is completed. Supervalu is making a huge push into the organic foods market which I am heavily bullish on. This month Supervalu is introducing a line of 50 organic products called Nature’s Best that will be priced 10-15% below national competing products.

Taken from this WSJ article*:

Chains are also looking to push back against specialty-food retailers like Whole Foods Market Inc., which have siphoned away customers in recent years. The U.S. organic-food market generated about $13.8 billion in sales last year, up from $11.9 billion in 2004 and $3.6 billion in 1997, according to market-research firm Nutrition Business Journal. The firm estimates organics will reach $15.5 billion this year.

Following the acquisition of Albertsons, Supervalu will be the nations second largest grocer. Supervalu may become an interesting growth opportunity depending on the success and growth of its push into organic foods. Supervalu may pose some competition for chains like Trader Joes or Whole Foods Market, Inc. (WFMI).

Selling Taiwan Semiconductor Manufacturing Company Limited and United Microelectronics Corporation


Raw Greed Portfolio Value, 05/05/2006 - $165,176.66
Stock Symbol Company Name QTY Purchase Date Avg. Cost Last Target Sell Price
TSM Taiwan Semiconductor Manufacturing Company Limited 2000 Various $9.02 $11.26 $12
NT Nortel Networks Corp. 9000 Various $2.58 $2.80 $5.00
UMC United Microelectronics Corporation 10000 11/11/2005 $3.17 $3.90 $4.50
INTC Intel Corporation 1000 1/31/2006 $21.35 $19.51 $24.00
FLWS 1-800-FLOWERS.COM, Inc. 3000 Various $6.39 $7.20 $7.00
F Ford Motor Company 1000 4/12/06 $7.20 $6.93 $8.50
MSFT Microsoft Corporation 1000 4/28/06 $24.26 $23.80 $27

Notes:
Today I sold 5000 shares of UMC, United Microelectronics Corporation at $3.90. I purchased my shares of UMC at an average cost of $3.17.

My profit was $3639.41 or 22.96%

Today I sold 2598 shares of TSM, Taiwan Semiconductor Manufacturing Company Limited at $11.21. I purchased my shares of TSM at an average cost of $9.02.

My profit was $5678.72 or 24.23%

I purchased 1000 shares of Ford Motor Company on April 12th, 2006 at $7.20.

I purchased 1000 shares of Microsoft Corporation on April 28th, 2006 at $24.26.

Raw Greed portfolio 5-5-06


An opportunity in coal

I’ve found an interesting company that I believe is an undervalued company with good short-term growth prospects. Fording Canadian Coal Trust (FDG) operates as an open-ended mutual fund in Canada. The trust owns a 60% interest in Elk Valley Coal Partnership, which produces and sells seaborne metallurgical coal. The partnership’s primary product is hard coking coal, which is a metallurgical coal that is used primarily for making coke in integrated steel mills. Elk Valley Coal owns interests in six open-pit mines that consist of Fording River, Coal Mountain, Line Creek, Elkview, and Greenhills mines that are located in the Elk Valley region of southeast British Columbia; and Cardinal River mine located in west central Alberta. Fording Canadian Coal Trust also owns 100% interest in NYCO, which engages in wollastonite mining operations in New York State and Mexico, and Tripoli mining operations in Missouri.

Why am I so interested in this company?

  • This company which has a $5.3 billion market cap pays a juicy 13% dividend.

  • The pretax earnings yield is 12% and the pretax return on capital is greater than 100%.

    • These are the two basic criteria for investing in undervalued companies found in The Little Book That Beats The Market. I highly recommend purchasing the book.

  • I am bullish on steel demand even in light of a softening housing market. Emerging markets like China and India will keep steel prices high in the short-term. The hard coking coal Fording Canadian Coal produces is used in steel production.

    • I will likely get in at the $34-$35 range.

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