Week 51: A Couple of New Positions

Portfolio Performance

Portfolio Composition

Staying Smallish

I broke down and bought a position in MBIA at the end of the week last week.  I had mentioned in my post on the company last week on the company that I had planned to wait for lower prices.  I didn’t.  Over the past couple of weeks I have read through all the conference calls and the latest quarterly’s and the more I read about the court cases between MBIA and Bank of America, the more that I think that if I were Bank of America, I would be looking to settle before any further rulings come out.  With the first ruling (on the transformation of MBIA into two distinct entities that is being opposed by Bank of America and Societe Generale) due out in August I decided that I was willing to take the risk that the stock falls back to the $8-9 range in return for the potential reward if that settlement comes out.  I haven’t bought a lot of the stock, just enough to feel like I am participating. If it does fall back to $8 I would buy more.

I also started a very small position in JC Penney.  I could see it getting significantly larger.  I plan to put out a very detailed post at some point in the near future (probably next weekend) but to briefly summarize, I am fairly comfortable that the problems that JC Penney has will be worked through and that in time the stock will trade much higher.  What I am less comfortable with is whether the stock can trade much lower first.  I have been reading everything I can find about the company and I cannot believe how hated it, and its CEO Ron Johnson, have become.  Moreover, there seems to be a consensus that because the pricing strategy change that was announce in Q1 was not immediately successful, it should be concluded that the management team is a bunch of bumbling idiots who got lucky with Apple and will suffer a fate worse than death with JCP.  Yet as Johnson said on the first quarter conference call, they are trying to turn the titanic into a bunch of little speed boats, and that is going to take time.  The turnaround that Johnson is attempting will not miraculously happen in the next month or two, so there is room for further disappointing numbers.  I would love to see the stock fall to below $20, at which time I would load up.  I actually expect that it will, I mean there isn’t an immediate catalyst to the upside, and the negativity is so strong that its taking on a life of its own.

I haven’t added to my position in gold stocks, but I have changed it up a bit. Out is Canaco Resources, and lightened up on is Atna Resources.  In are Esperanza Resources and OceanaGold.

In the case of Esperanza, they are a company with a low cost development project (~$100M capex) and low expected operating costs (~$450-500/oz) that has been beaten up because they did a share offering that was over-subscribed and that diluted the share base.

I’m looking at the offering from the other side.  That is: they managed to do a share offering that was oversubscribed in this environment.  I think there are probably some games going on with the stock post-offering, and I suspect that is why we are able to get it as cheap as we are.  The only potential negative I have heard with Esperanza is that apparently because the offering was oversubscribed there were some unhappy subscribers who didn’t get all their shares.  Some have said that this could lead to lawsuits.  I admit I don’t fully understand the legal impacts of this, but it would seem to me that the ultimate responsibility would lie with the sponsoring bank and not Esperanza.

OceanaGold is a bit of a flyer.  I bought the stock at $1.80, I sold some, but not enough, at $2.15 to book some profits, and now its back to almost where I started at $1.90.  I placed this “bet” on OceanaGold based on the following expectations:

1. The gold price is about to rise
2. Didipio is going to be added into 2013 estimates shortly at which point the corporate cash costs of OGC will drop to sub $800 per ounce.
3. The falling NZD and falling oil prices are going to start working in OGC’s favor rather than against it, as has bee the case for the last couple of years

The problem with OceanaGold is that it is a trading stock and trading stocks can go up and down like a yo-yo while you wait for what you think should happen to play out. Its excruciating and it’s a reason to only have a small amount of your overall capital invested in such names.  I have a small amount of capital invested in OceanaGold right now and I would be hesitant to add more.  We’ll see how it plays out.

Next week marks Week 52 since I started tracking my portfolio on-line. I will try to publish a short wrap-up of the year.