WASHINGTON, March 29, 2017 – Stocks continue to shuffle back and forth in a sideways correction of the Trump Rally that has begun to get a little boring lately. That’s because in this kind of environment, any stock that you buy will likely go down. At the same time, however, any stock you give up on and sell will tend to sharply rebound the very next day.
This kind of market generally leads a self-directed investor like yours truly to do one of two things: either pull out what remains of his hair; or drink Maalox (or some drugstore giant’s equivalent) by the quart.
Fortunately, between the hair-yanking and Maalox-guzzling, we do try to make modest portfolio moves here and there, while otherwise keeping a high cash position, the better to lie low in the weeds while awaiting greater bargain opportunities.
Here’s what we’re currently up to, although we must admit, it’s not much.
Snap, Inc. (symbol: SNAP). Snapchat’s parent, a recent IPO, skyrocketed the day of the offering and the day after, but then came under attack from the many Wall Streeters who hated the nonvoting stock they sold to the public as well as the company’s secretive CEO. We actually agree with them, although we took a chance requesting shares and were surprised to get them from our broker, as “hot” IPOs (which this one initially was) tend to go only to rich clients, something we’ve complained about before.
At any rate, the long knives of Wall Street came out the following week, putting “hold” or even “sell” recommendations on the new shares, smashing that awesome short-term gain into nearly 0%. Unlike many IPO investors who flip (dump) their shares for an outlandish profit the second they begin trading, this investor is more or less required by his brokerage to hold new IPO shares for a minimum of 30 days after they open for trading.
So, to protect what profit we had left, we bought a “put” option, good through mid-April, which will let us sell our small position at a fixed price above the IPO price of $17 no matter what the actual price happens to be. Day before yesterday—Monday—that looked like a super panic move as a couple of “buy” recommendations caused SNAP shares to soar again.
But yesterday, alas, always super-competitive Facebook (FB) announced a new app that essentially copycats everything Snapchat does, instantly endangering SNAP’s potential for profitability via ad sales. Next, you guessed it, SNAP got hammered once again, and the beating has followed through in today’s trading action, although the stock is struggling to come back again.
This is what you risk in an IPO, particularly when management doesn’t like to tell you anything. But we routinely do IPOs, and more of them work than those that don’t. Our put should enable us to eke out at least a modest profit if this one doesn’t hugely tank again. Fingers crossed, since we have to hold it.
B&G Foods (symbol: BGS). This is a position we’ve held for some time in our smaller portfolio. It’s a major yet unknown purveyor of food products to grocery stores and thence to the public. It has, over the years, acquired nationally famous but neglected “orphan brands” from other companies no longer interested in them. Having done so, B&G polishes the brands up, actually advertises and promotes them, and turns most of them profitable once again, having acquired such legacy brands at a bargain price.
To give you a flavor (pun intended) current brands include Ac’cent, B&G, B&M, Baker’s Joy, Bear Creek Country Kitchens, Brer Rabbit, Canoleo, Cary’s, Cream of Rice, Cream of Wheat, Devonsheer, Don Pepino, Emeril’s, Grandma’s Molasses, Green Giant, JJ Flats, Joan of Arc, Las Palmas, Le Sueur (frozen veggies), MacDonald’s, Mama Mary’s (pizza), Maple Grove Farms of Vermont, Molly McButter and Victoria (pasta sauces). Most American families have one or more of these brands in the house at any time.
B&G’s recent major acquisition of Green Giant branded frozen vegetable products hit a snag last quarter, oddly due to a severe shortage of product to package. This shortage became so astonishingly bad that Green Giant-branded products temporarily disappeared entirely from grocery frozen food shelves, a situation that’s only now being rectified. As a result, B&G’s previous quarter took a monstrous and unexpected hit which did exactly the same thing to its shares. Too bad for us, as we owned a modest position
After the clobbering, however, we waited for what we thought was the bottom and doubled down. The stock seems to be making a weak recovery now, and we think B&G should be back in fighting form in the second half of 2017. Meanwhile, “Wile-U-Wait,” the stock pays a phenomenal and sustainable 4.5% dividend. We’ll keep the stock and maybe pick up more shares. Pass the Emeril’s Essence, please. BAM!
Cliffs Industries (CLF). Again in our smaller portfolio, this major U.S. iron ore mining company, after its near death experience with its coal holdings courtesy of the energy hating Obama administration, divested these holdings, cleared up its debt and has been restored to profitability. Yet as it began to rally early this year, it was suddenly interrupted a couple of weeks back and has literally been smashed back down by rash investors fleeing for the exits, based on weakening resource prices. We’ve bought into the decline several times, amassing a fairly large position at this point. It’s under attack once again today, and we may pick up a bit more to average down. Recent earnings thus far have been great, and it’s projected forward PE Ratio is an absurd 5.75, considerably below the average PE in this sector. It currently doesn’t pay a dividend (it used to) and that may eventually return as well. Meanwhile, the stock is still clearly undervalued.
Finally, we’ve been dying to get back into a few financial issues again, since they’ve corrected sharply after a huge, months-long rally. The Federal Reserve will be periodically helping this sector out each time it raises interest rates, permitting banking and insurance company profitability to rise, based on higher loan rates.
However, these shares have been crushed for the last 2-3 weeks, and we largely suspect fears of the UK “Brexit,” which, BTW, became official today as the UK PM formally announced its intention to withdraw from the Eurozone.
The whole process here, we suspect, will go back and forth like the current, possibly mythical Obamacare repeal and replace dance in this country, with every ebb and flow of this complex process alternating feelings of joy and heartburn among bankers and investors alike.
Today, it’s heartburn, although things could be worse. At Wednesday noon, the Dow is off a quarter percent after Tuesday’s YUGE rally: typical for the day after. But the S&P 500 is up just a tad and the techy NASDAQ is humming along like it did yesterday, up another quarter percent as of now.
But, aside from what we’ve just told you, we’re doing little else right now until Mr. Market makes up his mind where he wants to go next.