Curious Investments Update

Posted by Dan Hung

September 19, 2007

With the Fed rate cut yesterday, it seems that the market has received just the catalyst that I’ve been waiting for. I’ve always felt that, at worst, the subprime crisis would result in a soft landing for the economy but not a recession and surely not a depression. Now, with the added impetus of lower interest rates and a likely torrent of new cash flow into equities markets caused by investors loosening the purse strings and what will hopefully be a resurgence of M&A activity, it looks like a short term investor’s dream. I’m planning on adding yet another full position to Portfolio A in order to take advantage of this. Not entirely sure if I’m going to keep it this way or if the money will eventually be taken out and returned to my bank accounts, but, at this moment, it’s time to take stock of your investments and get some skin in the game.

So, where do the Curious Investments portfolios stand? Well, the Equity Income Strategy looks as strong as ever. For those looking to get in, those dividend yields will be shrinking, so it’s time to get buying. I won’t be making any moves in my recommendations there. For Portfolio B, we’re looking at airlines which have had a terrific year despite record oil prices, rumors of softening domestic demand and tightening credit markets. On an average they are profitable and I remain confident that Southwest will emerge with the top of the pack. I’m reluctant to make a move right now as I believe there’s some short-term appreciation/reflation to be had, but, if I were to make a move in this portfolio, it would be with money from a Southwest sale. J. Crew was unfairly knocked down during recent economic worries and looks to be headed back to its old highs. It’s last earnings report was strong and included an increase of its earnings guidance for this year. I’m in this one for the long haul and believe that its a beautiful anchor for Portfolio B and a likely double (from my buy price) in the foreseeable future.

In Portfolio A, Google looks to be reclaiming the gap from its last earning report. With expectations low, the company which only missed by three cents last quarter probably has an upside surprise coming in the next. I’m looking for a technical breakout above 560, and am hoping for a run to 600 sometime after Google reports earnings in early October. China Mobile continues to show unbelievable strength. I’m not sure what is behind this, but I’m along for the ride. Having hit my profit targets and, then some, I’m waiting for a retracement period in which I’ll likely take some profits. I love the China Mobile story, so even if I do sell for profits, that doesn’t mean you should. I’m being bold and trying to time trades to maximize profits. For most, it’s likely just safer to hold on to a terrific investment. Piper Jaffray is once again showing strength and has always rebounded easily and with vigor whenever financials in general have moved. With renewed speculation over consolidation within financials, Piper might be building up some more steam. I’m setting a price target of $55.50 and this is the last rally that I’ll participate in with Piper. With three positions that I think will provide market beating returns as the current rally ensues and opportunities throughout the market remaining abundant, I can only do one thing. Commit more capital! So, where will the money go?

Here are a few stocks which are on my radar.

Aetna (AET)

Aetna

Aetna had what appeared to be a text-book breakout yesterday. At just 16 times earnings and holding a mega-sized market cap, one would have to assume that downside risk is manageable. MACD is bullish, volume came in yesterday after improving buying over the previous four trading sessions, and we have a breakout along with a relative high in RSI after what looks to be about a 3-4 month base. I’d be comfortable trading this on the 3-6 month scale and given the looks of the chart, I would bet that, should I do a little more digging into Aetna’s recent performance, we might have a gem of a long-term investment here. This one is one of the rare candidates which meat my criteria for both Portfolio A and B.

Masco (MAS)

MAS

A lumber and wood producer which has been hit hard by the housing slump and worries about just how bad it’s going to get. We didn’t get follow through on yesterday’s pop like I had hoped, but with most of the banks having already cut their recommendations on it, the majority of selling pressure should be priced in. Short float remains 7.2% and a little bit of a turn around could spark a real nice day for those willing to go long. RSI and MACD have just crossed signaling modest bullishness at best. A prudent investor might wait a bit to see how the chart sets up. In the time being, it’d probably be good to do a little research into Masco’s core business.

Mastercard (MA)

Mastercard

This one is a gem. And, you should thank your lucky stars for the correction over the last few months for providing you an opportunity this good. The Mastercard play is a play similar to the current Google play in the short term. Both stocks were hit hard for different reasons. Google for a slight miss on earnings. Mastercard simply for being too close to poor credit markets. Mastercard, however, had very little to lose as it does not actually lend any money. The company markets its brand and payment solutions and, while softening consumer demand could take its torrid growth down a notch, its core business remains a strong one.

Mastercard beat Q2 earnings estimates on August 1. It’s margins continue to grow and the management has added a small regular dividend for shareholders. As financials find some strength here, I expect a swift rebound to old highs which would mark a quick 17% gain at current prices. While the pullback in MA’s stock looked scary, a look at the longterm charts shows that the pullback was rather orderly and maintained strength above its long-term trend (since IPO) so one has reason to be bullish on the stock even past the 170 levels provided Mastercard continue to perform. For more information check out The Deipnosophist who I must credit for putting Mastercard on my radar. He also shares my views on J. Crew though we found both stocks independently of each other so you know he’s a good stock picker.