Portfolio update – August 2010

 

I have been lax in posting (not that anyone has been reading, but let’s just pretend). So I thought I would just update some of my portfolio additions over the last month. 

1) Seahawk Drilling (HAWK) – After reading the various posts on Greenbackd regarding Seahawk I finally took the plunge and opened a position, which I subsequently added to. I’m still thinking about increasing my position when/if the shares fall a bit further. Perhaps 3Q window dressing will depress shares into the $6 range? Liquidation value is the key here. I think the panic about the cash bleed could result in a price that provides a really good value investment… if they just don’t run out of liquidity, that is.

2)   Avatar Holdings (AVTR) – I have been looking for the best vehicle to begin some exposure to the real estate market. I was looking at MIM for a while but I find it difficult to evaluate. AVTR is much more transparent. Not that the two are in any way similar, Avatar is a play on the residential sector and MIM a play on value in the commercial sector but as a captive REIT. The thesis behind AVTR is rather simple and was laid out nicely in a recent post at the Value Investors Club. The attraction here is positive cash flow coupled with large GAAP losses and management who, having cash, continue to invest in potential bargain land.  I’ve put my foot in and plan to add when the shares dip into the $16s

3)  Contango Oil and Gas (MCF) – Oil crisis issues are so far away from anyone’s thoughts these days that I think it is time to increase exposure to the sector. What could be more contrarian than a Gulf natural gas play? With all the fallout from the BP spill, MCF’s June announcement that proven reserves were reduced and the subsequent 25% share price decline, I think there is potential for some nice long-term gains. The question here is where will the bottom be for MCF’s stock price? I’ve started to build a position at $44/share and will add as shares go lower. What really impressed me, though, was the CEO’s announcement that no bonuses would be paid to employee for fiscal year 2010 (ended 6/30/10) due to the poor operating performance. Additional important consideration: the CEO owns 20%+ of the outstanding shares and there has been very little share dilution over the years. Manual of Ideas did a nice little analysis on MCF in the August newsletter.

I also have a number of smaller holdings in microcap stocks that I want to review in more detail, but I thought I would like to have the blog portfolio look more like my own value portfolio so I needed to fill in the pieces quickly. As I stated elsewhere I don’t add stocks to the blog portfolio without first mentioning them here.

Market outlook

Generally I have no idea where the market is going. Sometimes overall valuation can provide a clue as to long term direction, but right now I don’t find the market either significantly overvalued or undervalued, so there are no clues there. However, I do tend to get more bullish when the general sentiment turns bearish and vice versa (too soon most of the time). The latest news about the increasing possibility of a double dip recession is inducing me to become a little more bullish and reallocate from cash to stock. Furthermore, the news that more and more ‘economists’ are concerned about deflation rather than inflation leads me to think that an inflationary trend is more likely than not. After all, how can all this excess liquidity the Fed has been creating for the last two years not eventually translate into inflationary pressure? It just takes a long time to turn the battleship. I’m beginning to think about companies that do well in inflationary times, companies with assets that appreciate and those with pricing power. Likewise the time is coming to dump companies with fixed income streams and variable cost of debt.