Portfolio Spring Cleaning...

It is technically still spring, right? I know judging from the mid 50 degree weather here in Chicago that this seems about right! Although I have been really busy I am starting to understand my investing habits a little. I think I tend to get more interested in the markets when volatility begins to pick up. This could be it or maybe I am finally drinking my own Kool-Aid and using the volatility to find deeply discounted bargains. Well, lets hope its the latter because I have been tuning in alot more lately. I continue to write about the extraordinary run that we've been on lately. It started earlier in the year when one of our largest holdings was liquidated due to a buyout of Burlington Northern Santa Fe (NYSE: BNI). I felt good here because we owned this position for almost two years, and held strong (thanks to the dividend) through the downturn and watched the company get bought out by Berkshire Hathaway.

Next, we've seen positive moves in the stocks we screened so diligently during the market downturn and decided to keep. I've gone with a concentrated portfolio and this has served well since the market stabilized. Besides BNI, my concentrated portfolio includes:

Radisys Corporation (NASDAQ: RSYS) - Largest Position
BNI - Second largest, liquidated
Collectors Universe (NASDAQ: CLCT) Now second largest position.
Visa (NYSE: V) - Liquidated most of this position for a nice gain; Still retain a minor position
Boston Scientific (NYSE: BSX) - New, small position

I'll keep beating the drum on RSYS as it went from $4 to now $10. It was a rough ride but we should be seeing some upside as they outsource their production model and grow with new products.

Collectors Universe is easily my second largest holding and has been on an outright tear and we owe thanks to new management cutting costs and reimplementing the dividend. This has brought investors searching for yield running to this stock. It has seen a run also from $4 to now roughly $14 bucks. A recent increase in the dividend yield now it paying out a whooping 30c a share!!! This healthy dividend allows me to continue to grow ownership in the country.

Visa was a classic buy during the downturn as we began accumulating a large amount of shares at roughly the IPO price. This was a no-brainer as the downside risk could not have been much lower than the levels that analysts had expected for a public offering. So at one point V was my fourth largest position behind RSYS, BNI and CLCT, because I had a conviction that V wouldn't slip much further. After a nice return, I sold most of V but retained a small portion which I still hold.

URB Update: Visa is experiencing some downside risk in their stock due to some recent legislation. The CEO recently spoke about the amendments passed in the Senate and the affects they could have. Being in the industry I need to better understand what's in the potential amendment but it seems like there could be some additional regulation around the "interchange" or swipe fees that are paid by merchants. I do believe this could have the most impact in their bottom line because this is how they make their money on a per transaction basis. I think investors are concerned with this and with the fact that a major part of the amendment is limiting the fees around debit and even credit transactions. This part would only impact V if their issues see a significant decrease in volume.

My recommendation is to wait for this legislation to play out. V and other networks will not be impacted as much as issuers are. Keep the stock if you own it and use the dividend to accumulate more of a position. I will be keeping the small position that I own, however for the tracking portfolio I will take some profits.

Boston Scientific - I like this sector but my research shows that there may be too much risk involved in holding this stock. I may look to stay in this sector by finding a stronger company that offers a dividend.

I am exhausted but here are the stocks that I am still watching:

• Energy Partners
• Legg Mason
• Becton Dickinson
• CapitalSource
• Theravance
• ViaSat
• ADC Telecommunications
• Solar Capital

Lehman Brothers - Should I buy?

Now I hardly ever write about just one stock because I usually don't get caught up in one story. For instance if you ask me what's on my Wall Street playlist I could list a number of chart bangers like long ESIO, short BIG, long RSYS, long STV, long CLCT, long PBR, long BNI, long CSX, long FDX and a host of other names in a few minutes.

But I wanted to take some time out to comment on Lehman (LEH). Lehman is in a very tough position as it stock keeps plummeting to all time lows (down roughly 95%). They have well respected business lines like the investment banking and money management divisions. However, the trouble lies in their real estate and mortgage portfolio where they are unearthing a large portfolio of risky investments.

Now let's fast forward to my interest in LEH. I am attempting to make a calculated bet here knowing all the pieces that have fallen into place in the last year. Bear Stearns, Fannie, Freddie, and numerous banks allow me to come to my own ODD conclusions of how this may play out. Well I do know a little about the financial industry and Bear Stearns, Fannie and Freddie were all to important for someone to just sit around and let go under. But the problem is that Wall Street and our government preach FREE MARKET CAPITALISM and this doctrine is supposed to allow the market of investors to decide the fates of these firms without interferences. Now here comes the glitch, the markets spoke and nearly drove all these firms to a state of BANKRUPTCY!!! So our government went against the FREE MARKET PRINCIPLE and stepped in and negotiated the Bear Stearns deals which lead to JP Morgan Chase buying that company out at a ridiculous price and more importantly the government assumed the liability of the risky assets that did Bear Stearns in. Then you have the Freddie and Fannie debacle, which are public companies but they are also government sponsored entities. If this doesn't make any damn sense to you either then raise your hand. Freddie and Fannie are owned by stockholders and when the stock began free falling the FREE MARKETS were telling us that there was lots of doubt around the financial health of these firms. Once again, going against FREE MARKET PRINCIPLE the government bailed out these firms by basically injecting the firm with loads of cash...and leaving the stockholders left holding an empty bag. Now many argue and I will agree that Fannie and Freddie couldn't be allowed to fail because they are too vital to our economy...backing roughly 1/2 of the country mortgage investments. I agree with these critics but then question why you would ever let a government entity of such importance ever trade PUBLICLY!!!

Knowing this lets move to Lehman. Lehman is just as important as Bear Stearns and signals to our country, economy and the global markets that our financial system is in BIG Trouble. The only problem is after bailout of Bear Stearns, Freddie and Fannie...the government can't afford to use MORE TAXPAYER money to rescue bad investments like it did with the other three firms. This point is very critical because it is what many believe is stopping Lehman from being acquired. Now bring the Federal Government back into the equation...because of the importance of Lehman (and what it means both locally and globally) the WANT a deal done to acquire Lehman. And WHAT THE FED WANTS THE FED GETS.

After analyzing this crazy turn of events I am taking a huge speculative bet and going LONG on Lehman's shares. Yup, I would take a little bit out of the piggy bank and buy Lehman because of the following reasons:

1. The Fed wants a deal done b/c Lehman signals financial disaster
2. The Fed will not use taxpayer money to buy bad Lehman assets (this will not cause the stock to become worthless like Freddie and Fannie)
3. Some parts of Lehman's business are actually worth buying

My shrewd calculations tell me that a deal gets done b/c the Fed says so and the stock with not become worthless b/c the government will not be injecting the cash. Very important b/c this is what left Freddie and Fannie shareholders crying. With some actual value still left in the company like Neuberger Berman, the headquarters it has to have some intrinsic value. My last support of evidence is the Bear Stearns collapse. The deal was initially negotiated by the Federal Government for $2 a share, which was the equivalent of handing a Lamborghini with a tiny scratch to a potential buyer for say $5,000...and the buyer was JP Morgan. Long story short, the government was forced to raise the value of the deal to roughly $10 a share. Now all things being the same...could Lehman go for $10 a share!!! I am willing to make that bet, however the only thing I struggle discounting is that RISKY BAD DEBT that the government won't buy...what's going to happen to it and who's left holding that worthless piece of investment (note: its looks like the Fed is strong-arming all major investment banking firms to pitch in and buy the bad debt). All that being said it I think an acquisition gets done, it may not be $10 but it should be higher than $4...right?!?

Ride the Rails

I continue to be upbeat after reading that CSX Corporation made the Zacks.com buy list. I believe Burlington Northern Santa Fe (NYSE: BNI) will share in the positive new about the railroad stocks.

This write-up was provided by Zacks.com:

CSX Corporation (CSX) shares received a very nice little pop when the company boosted its first quarter guidance on Mar 31. This news came on the heels of the company's very solid fourth-quarter and full-year results in which its quarterly profit was up 5% from the same period last year. Put theses two factors together and you have a recipe for a stock that is on the move. CSX shares are up close to 30% on the year.

See How It's Done...

Then watch me do me. Hopefully I didn't lose you but what I am yapping about is that my plan is to stick to what I know and what I do best. That's keepin' it real 24/7 and my assessment on how to beat the market. I told you that 2008 was in for a rough ride. I still think I owe you a write up about my recession fears for the economy, so I will have to find my notes written on the train sometime and post them. So as usual when the market is going through its rough moments...I usually sit back and get my PAC-MAN on...and that's chomping data day after day to get an assessment on what the heck is going on out there. So for anyone that tunes in I apologize for the gap in postings but thats what I've been doing, camping out in the financial trenches. What do I do for these silent weeks and how can you get in on it:

~ Get your PAC-MAN on with lots of data from newspapers, online financial stories, and economic reports. Recent new stories that you should be aware of:

• More weak data on the economy was just released (i.e., Manufacturing & Economic indicators)
• The price of oil passed the infamous $100 a barrel mark
• Reports show jobs are being lost (unemployment claims are lost), and companies are cutting their workforce
• Gold is breaking through new levels
• International stocks have suffered but have done well on days the US economy is down

~ Pay attention to earnings reports

• Many companies are reporting that as they look through their crystal ball...it ain't looking pretty
• Investors are hammering stocks that report a negative outlook going forward
• The few good companies are getting rewarded for producing positive future earnings

So I try not to panic and reassess what this means to me. And what I got so far is the economy sucks, stocks are getting killed, and "sell the rips and buy the dips" (taken from an analyst on Fast Money on CNBC...I believe Jeff Macke). This has been consistent with my view of the market for the last 3-4 months so I am not making very many changes to what I do...Umma do Me (I'll explain in a sec). But I am listening to the last thing that I have learned and that's sell into positive gains in our stock positions and buy when good stocks tumble hard...and that's sell the rips, buy the dips. This lesson has been learned the hard way this year b/c we've experienced something kinda unusual and that is our companies are not being rewarded for good quarters, rather the analysts are focusing more on future outlooks. Radisys (NASDAQ: RSYS) reported blowout numbers but got hammered because their outlook was not going to be as good. The same can be said for Crocs (NASDAQ:CROX), the plastic flip flop maker. And the last thing I am noticing is that the poor performers are getting absolutely punished. AVID Technology (NASDAQ: AVID), Collectors Universe (NYSE: CLCT), and maybe even Zhone Techonologies (NASDAQ: ZHNE) have all seen death sentences.

Umma Do Me
I plan on doing me by evaluating my current portfolio and trying not to make drastic changes unless needed. I will sell the rips and buy the dips.
Burlington Northern (NYSE: BNI) - Railroads companies are hot, so I am not touching this position but watching it closely
RSYS - Should have sold before the earnings when it shot up to the $14 range. Got hammered after earnings by over 20% and I buying into the dips and creating a new price point @ the 52 week low. I like anything below $10.50 and placed my point @ $10.10
AVID - This stock also was running up before earnings if you recall hit $28, got crushed and saw lows of $17. I have bought in on the dip here and like the range of under $20, especially in the $19 range.
CLCT - Their earnings report was disappointing but I am still confident that private equity will closely watch the direction of this company. Also they have muscled the company into paying a handsome dividend to shareholders. So each quarter we are getting almost a handsome check to offset some of the losses @ almost a 8-10% yield on an annual basis (Most companies yield 1-2%) So buying into the dip will be difficult here. I bought in at $9.50 but recommend $9 or a really aggressive stance here and see if this touches the 8 dollar range.
ZHNE - Gets the heartburn of the year award because just last week it shot up to $1.18 and we were in very good shape. Then in one day the market took 20% cut into the stock. There have been active buys into this stock and if it gets to levels of $1.01 or lower I am a buyer again.

Disclosure: I own RSYS, and rebought RSYS at stated price point, CLCT own and rebought, AVID own and rebout, ZHNE own, CROX I do not own

So people ask what am I going to do, and I keep it simple: "UMMA DO ME" (courtesy of ROCKO):

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Playoffs...

"Playoffs...Don't talk to me about playoffs" is the infamous line in the Coor's commercial by coach Jim Mora. And even though its early in the year you have to treat your portfolio like its the playoffs. Its game time this weekend for the National Football League (NFL) and only the best of the best are around to fight for the title. And this is the approach that must be taken with your portfolio...only the best of the best will be accepted. The current market conditions: the value of the dollar, the credit crunch, the housing bubble, higher unemployment, deteriorating earnings, high gas, and the threat of inflation are just a few of the strengths working against you...kinda like the opponents defense in a playoff game. So the past week has seen me actively paying attention to the market. I gave you Bear Stearns (NYSE: BSC) just a few days ago as a momentum play as James Cayne stepped away from the company. That was a tough day for stocks you could have gotten in BSC anywhere from $71-$77 dollars. At all of these levels you would still be showing a profit at this point. I am not a huge fan of owning any financial companies at these levels.

My formal recommendation is to SELL Bear Stearns. However, informally if you got into Bear Stears near the 52 week low, I would licking my lips and thinking about keeping holding at those levels.

The next thing I recommend at this point is to closely watch analyst revisions and warnings of certain industries and companies. For instance, if you don't understand that the credit crunch is the real deal at this point and that ALL retailers are being affects EXCEPT for your discount and low cost retailers than you are napping on the market and deserve to be invested in index and mutual funds.

My next move this past week was to part with any RETAILERS that I own with a gain. The only retailer that I owned was BEST BUY (NYSE: BBY). BBY was sold for a small profit but this is an retail darling that I would keep a close eye on. As this stock continues to reach low levels and nears its 52 week low I would take our old price point and build in a 5-10% margin of safety. Our old price was 43.95 (need to verify that) and then I would think about buying in. I personally will lean towards a 5% margin because I think people with still shop at BBY for CDs, electronics, video games, and all discount priced electronics.

My formal recommendation, SELL BEST BUY (NYSE: BBY); look for points of reentry later

Lastly SELL gains with limited upside or in industries that will continue to lag the market. The following stocks are formal SELL recommendations:

Maximus (NYSE: MMS) - limited upside here after large institutional investors sold their stakes in the company...I walk when the big money walks!!!

Online Resources (NASDAQ: ORCC) - Sold after it soared to $12 and showed resistance at those levels (this was a nice gain in two months of over 20%)

Supertel (NYSE: SPPR) - I have owned this for at least a couple of years now. It was originally Humprhey Hospitality. Limited upside at this point (nice gain of over 60% in over 2 years)

Remember only go into the playoffs with the best players for your team. Now some of the best players can be guys that have performed in the clutch for you in the past. I say this because I am a believer of this philosopy. Need proof, check out Buffett's additional purchases of Burlington Northern Santa Fe's stocks at levels where he originally purchased the stock. My only wish is that I would have sold this stock (which we bought around $77) when it hit $86 and now we would be in position to buy again. So sell non-performers and hold cash for the Michael Jordan's, Magic Johnson's, and Larry Bird versions of stocks. My FORMAL BUY RECOMMENDATIONS will be a good number of stocks because the market is getting crushed here and I think plenty of stocks will surface with attractive values:

Burlington Northern Santa Fe (BNI) - Buffett's back and so am I love at our old levels of $77

Best Buy (BBY) - This sector (retailers) is getting crushed so wait for proof that the bad times are over and catch this stock, further build in a margin of safety so you can sleep easy at night; consider buy with a safety @ 40, give a hard look @ 42

Maximus (MMS) - This is an attractive stock with mostly buy and strong buy ratings by analysts. The biggest long shot of my buy group; buy at my old post rec price of $29 & 30 dollars.

Online Resources (ORCC) - We loved this stock when the CEO promised he would put up his own money to buy shares of this stock. And we bought around $8.9 dollars a share. Anything under screams BUY

Radisys (RSYS) - Guess who's back! This stock was a 50% gainer for us last year, when we dollar cost averaged our purchase prices on this stock at levels between $10.60-13. We sold when it hit @17 and smiled all the way to the bank. Well it hit my STOCK SCREEN AGAIN, and I will be adding Radisys back to my portfolio. The recent 10 - 15 low is $12.25 and that is where I will set my buy target. This stock closed at 12.19, and with this stock back to my old buy recommendation levels, I am RE-Recommending this stock. I truly don't believe it will test its 52 week low of $10.50 and we have the help of an earnings release in early February that could propel this stock forward.

Zhone Technologies (ZHNE) - I am going to recommend Zhone Technologies and believe that dollar cost buying down at these levels will have positive upside. This has buy a roller coaster ride and hopefully after the short sellers have to recover there will be huge swings to the upside for this stock.

It Must Be Butter...

It must be butter, cause we’re on roll! Now I have to give credit to my boy, Stuart Scott from ESPN who popularized this phrase. Another pioneer who is doing big things, appreciates hip hop, and changed the way we view our television hosts. Now hopefully I can do that for you through this site and on the subject matter of financials (mainly stocks).


~Urbanomics Update ~

Yes sir how did you like the last post where we analyzed Advent Software (ADVS). Just two months ago I told you that this stock, which was already moving in a positive direction, had more room to go. And you know through my investment style all we needed was what I have called a catalyst (Use the search tool to see how many times I talked about catalysts) Now in my short time of watching the market, I’ve noticed that a number of stocks move quickly up or down after a catalyst has been communicated to the masses. That catalyst for ADVS was apparent to a few of us in a number of different ways. Once we found our entry point into this stock, we paid attention to the information that ADVS was giving us through its press releases. I know your thinking, now how hard was that!!! Sorry no magical equation, we just simply paid attention to the fact that ADVS was disclosing through press releases that business was cranking through the roof. In one of their releases ADVS told us that they have developed or enhanced a new product and tons of their clients were signing up to use. Now again, I’m not a genius but this sounds like a solid indicator that their earnings are going to move higher over time, which means the stock price should follow...this was confirmed early through our daily ritual of looking for information on our stocks (See Zacks Newsletter disclosure). So the stock didn’t just take off over night…it was creeping here and there giving us a number of times to buy in at great prices. Remember, ADVS was recommended by URBANOMICS @ 39.25 (click here for: ADVS Recommendation ) and has been up between 15-25% since that recommendation.

But a well known secret that I believe savvy investors take advantage of it was I call the Water Cooler Investor effect. This happens when everybody and their mother get the inside tip from a website, the news, or a friend that a stock is going to do well. When this happens, a catalyst has triggered your Water Cooler Investors to jump on board and we will see huge trading volumes in those stocks. This is what happened to ADVS...it reported earnings (catalyst) confirming exactly what they had told us in press releases for the past few months and when this was discussed in their Earnings Release Conference Call, major news outlets spread the news to our Water Cooler Investors. What was the result, hordes of investors flocked to ADVS and raised the stock up roughly 19% in one day. This was the Leading Percentage Gainer of the Day yesterday and made us all very happy. I will now recommend that you sell ADVS at these levels because while they will continue to grow, the effect of our catalyst will die down in the weeks and months to come.

The perfect scenario is that you own alot of the stock, sell enough to gain your original investment back and some profits, and they play with the house's money. ADVS will be a great stock for years to come but unless you own a substantial amount we can put these gains to better use. I often get the call you show you more proof that our strategy works here at Urbanomics, well do a quick review of some of our recommendations:

ADVS - a return of over 30% in the last three months
MSFT - up 9% today as a result of a catalyst; up 30 since first recommended
RSYS - up 9% today b/c of catalyst; up roughly 5 - 30% depending on when you bought it
BBY - a large value stock that is up 10%
BNI - a large value play that is up almost 10% since first recommended

We also highlight the stock that could do better:
Rite Aid (RAD) - recommended @ 4.45, I still believe in Rite Aid and believe this should be bought at 3.95 or lower to build up our shares in this stock.
Avid Technology (AVID) - This stock was up and could have been sold for a profit; recommended @ 32 and now at 28; I believe that AVID has a longer road to recovery but this stock should be repurchased at levels that approach its 52wk low of 25.55
Adaptec (ADPT) - This one could have been sold for a profit; check the press releases b/c private equity is tightening the reigns around this company in trying to win a board seat. Superman price is 3.23, but nibble at building positions whenever the stock drops below 3.40

Reader Response - Berkshire Hathaway

Fred's comment:

I would have to agree that Buffett is the MJ of investments. No doubt BNI is pleased with the attention. Your love and knowledge of BNI is clear, so would you say that Buffett is trying to position Berk Hathaway for a takeover? (This article from NewsVisual makes a case for it: http://www.newsvisual.com/newsvisual/2007/08/as-berkshire-up.html ).

Urb Reader Response:

Fred, I wanted to say thanks for reading the article and throwing a very good question into the hat. After reading the article, it does make an interesting viewpoint on the many connections that BRK has with BNSI. However, I will use that same article and take a slightly different stance. I don't think that Buffett will buy BNSI because of the following:

- He has made multiple purchases in the sector and a quick SEC search will review his ownership in Union Pacific (10.5M shares) and Norfolk Southern (6.4M shares). I view these purchases as Buffett being bullish on the sector as a whole. Another long shot viewpoint could be he may try to use his influence to stir up further synergies amongst the companies. I would even say a possible merger, but I am unsure of the regulatory scrutiny over that type of transaction in this very mature industry.

However, I recently learned that Buffett had added an additional 845K shares to up his stake to 15% today. This again is another bullish sign for long term buyers.