Trading Diary: Our stock portfolios heading for Splattsville?

North Korea, Houston oil-patch issues hit our stock holdings. But a YUGE short squeeze in Calumet shares makes us smile. No fallout shelters. Yet.

Wile E. Coyote, flattened. Like today's stock market. (Screen capture from YouTube video version of Warner Brothers cartoon character for satirical use.)

WASHINGTON, September 5, 2017 – As we’ve noted in our companion column, news of North Korea’s latest blatant act of nuclear one upsmanship has sent U.S. stocks into a swan dive Tuesday. Other market fundamentals, however, are still transfixed by one key question: How quickly all manner of energy companies with business in the Houston-Louisiana axis – a great many, BTW – will recover and restart operations?

The follow-up question to this one: What kind of impact will the Hurricane Harvey-caused disruptions have on upcoming quarterly reports?

Read also: North Korean test blast nukes U.S. stock markets Tuesday

So far, analysts are reporting that, save for the residents of devastated Houston itself, things might not be as bad as originally thought. Pittsburgh’s big regional bank, PNC (no link available), recently reported to investors:

“Despite the devastation in parts of Texas and Louisiana from Hurricane Harvey, the impact on the national economy will likely be minor. Localized national disasters generally have minimal impact on the overall economy. Houston is the fourth-largest metro area economy in the United States, but the metro area accounted for less than 3% of national GDP in 2015 and just 2% of national employment in 2016. While
some output will likely be lost in the wake of the storm and other smaller metro areas should see reduced production as well, we expect most of the difference will be made up in the months ahead. Reconstruction efforts, funded by the federal government and insurance payouts, will help add to growth later this year and
in 2018. U.S. real GDP may take a slight hit in the third quarter, but we believe that should be made up in subsequent quarters. There could be some drag on consumer spending from higher nationwide gasoline prices because of temporary refinery shutdowns and restricted supply, but given solid consumer fundamentals we do not think that will be a significant weight on household spending.”

Other sources predict that U.S. growth may actually achieve 3 percent in Q3 regardless of Hurricane Harvey. However, these estimates don’t factor in possible conflict with North Korea – or worse. Nor do they estimate what might happen to that optimistic figure if incoming Hurricane Irma actually hits any part of the continental U.S. (or even the Florida Keys) as a horrific Category 4 or Category 5 storm.

What to do with our portfolios? Not much at the moment.

Trading Diary

We spent much of August gritting our teeth as stocks rapidly declined, holding on to most of our positions. However, we did shed a few small positions that we felt would end up hurting us worse if we continued to hold them. This sometimes worked and sometimes didn’t.

Today at least, we’re wondering whether we did the right thing by holding onto our modest position in one of our biggest winners this year, the formerly downtrodden shares of Calumet Specialty Products, LP (symbol: CLMT), an MLP that was once one of our regular holdings back in the day when it paid a huge dividend. CLMT briefly spiked to $9 per share Friday before settling in to the $8.50 range. That should have been our sign to sell, as that move, or thereabouts, put us in the range of a 60 percent gain on the stock.

But we held, and have taken a 73 cent-per-share haircut on the shares at the moment, dropping the potential gain down to 47 percent and change. We think this may be a profit-taking blip, so we continue to hold. Hope we’re right.

Almost DOA last year due to over-investing missteps plus unfortunate economic events that could not have been foreseen, the company nearly breathed its last as management began to sell unprofitable assets to raise case.

But these and other aggressive moves seem to have restored CLMT to profitability, at least as of last quarter. So suddenly, from out of nowhere, after the company announced an unexpected and impressive Q2 profit, a massive August short squeeze gave a big boost to the shares, as bearish doomsters closed out their short positions by buying the shares.

We think CLMT can head up at least to $10 per share by the close of the year. But it all depends on… whatever. One reason for the hit on CLMT today was a downgrade by Janney from “buy” to “neutral” while still holding its price estimate to $9 per share. Companies often do this when companies hit or exceed their current investment target, and CLMT hit Janney’s bullseye, albeit briefly, on Friday.

We suspect Janney is being more than a bit conservative here. But then again, if I were an analyst in this market and wanted to keep my job, I’d probably do the same. If CLMT recovers quickly from today’s hit and keeps going, Janney’s current analyst or analysts might want to lie low in the weeds.

We continue to do well in our modest positions in Home Depot (HD) and Dollar Tree (DLTR). Both stocks, however, remain quite volatile, sometimes retracing an entire day’s substantial gains on the very next trading day.

But, in the currently very uncertain, post-Amazon realm of retail, these bricks and mortal retailers, one geared toward home restoration and improvements, the other toward economically marginalized and largely neglected consumers, should continue to see improvements in sales and profits notwithstanding the exogenous events that continue to hit stocks in 2017.

Back to oil and gas, our holding in big refiner Valero (VLO) took a hit today after behaving with surprising bullishness last week, given its big refinery presence in the Houston-East Texas area. Today’s damage appears to be due to problems with contract pipeline companies moving product in and out of Valero’s refineries. We’ll need to do a little more research on this, but we continue to hold.

That’s about it for today. Fingers crossed for the rest of the week.

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