Activities: Recent Stock Buys and Sells
Posted on 18. Jun, 2011 by TheFreeInvestor in Portfolio, Stock Analysis
It’s good to be back ! I was out for few weeks of vacation and other engagements. Now, back to blogging again. To better track my successes and mistakes, I added the closed/sold position to the portfolio page. Here is a quick update about recent activities in my portfolio.
Bought
Aeropostale (ARO): My record with retail apparel stocks is not positive. Especially, my investment thesis about turn arounds never worked out. Some of the past losers include Gap (GPS), Bebe Stores (BEBE), Pacific Sunwear (PSUN) and American Eagle Outfitters (AEO). Other not-so-steller investment names include Zumiez (ZUMZ) and Volcom (VLCM). I am giving it another try with my recent position in Aeropostale. It is one of the most widely known teen retail stores. Teen retail fashion trends tend to be fickle and Aeropostale missed the mark in recent past. As a result the stock has been sharply down – in last one year, the stock is down more than 40% and currently trading at a PE ratio less than 8. I am betting that the valuation is too low for this well known brand and the valuation will be back to at least 10-12 times earning if they get the fashion right for a season. Over long term, I am hopeful that the recent rise in commodity prices and discounting war among teen retailers will abate.
Infinera (INFN): I bought an initial position in Infinera betting on the success of their 100G switch late this year or early 2012. Infinera is a small player in the optical networking industry. The investment thesis is based on the successful transition of its current 10G product users to 100G network over next year or so. It is a bet on technology. The current stock valuation seems to be attractive as most of the investment community doesn’t want to buy into a stock in anticipation of a hit product after many quarters. I have a longer investment time frame of 3-5 year or more than most professional fund managers. So, I can wait.
EBIX Inc (EBIX): EBIX is the leading provider of on-demand software and e-commerce solutions for insurance industry. It is the top player in the area. EBIX’s long time CEO was instrumental in turning the company around many years ago. I believe, the company has significant competitive advantage / moat around its business. It provides insurance exchange solution that are fairly complex which makes switching difficult and expensive. In recent months, some anonymous research firm started posting article in Seeking Alpha questioning EBIX’s accounting practices. So far, I haven’t found any impropriety with in EBIX and it looks like a deliberate short attack. After those suspicious reports, the stock price tumbled down more than 20% which gave me a great entry point to open my position.
EnerNOC (ENOC): EnerNOC is a rising player in a new industry – demand response and energy management solutions for electric power grid operators. It is on the high risk side of my investments. The industry is so new that it is difficult to project who will be winners and what course the industry will take. But, in past few years EnerNOC has been growing rapidly and turned cashflow positive. I have no doubt that there will be growing need for demand response solutions and I am betting that in long term EnerNOC will be a player. Recent regulatory moves has been positive for the industry. (Here is a link to PDF of FERC 745). Public verbal dual with its top customer has created some downward pressure on the stock and gave me a good starting point for building my long term position.
Sold
Volcom (VLCM): Volcom announced in early May that it is getting acquired by PPR for $24.50 in cash per share. So, the stock price short up almost to $24.5o and I sold for slightly less than that price. It was one more of my not-so-happy retail investing endings. I had four positions in the stock since 2006. Overall though I made a modest 6.5% return on investment, it was not impressive given the 5 year holding period. Well, that’s the world of small caps.
(Disclosure: As of the publication of this post, I hold long position in ARO, EBIX, ENOC and INFN. Please read the full disclaimer on this website.)
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