Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

A Hungry Blind Man at the Buffet

Posted on | October 21, 2008 Time: 3:20 pm |

These are the days that make investors - and economists - and analysts - try to pull their hair out. I suppose some succeed. It’s not that we can’t handle down days; our skin is impervious to them now. But a day like today is rife with contradiction, uncertainty, changing rules, and low rates of involvement…in aggregate they are devastating, because we can’t look at, or parse the individual elements to see their contribution to the whole.

Add to that the ever-increasing amount of black box trading, trailing stops, and otherwise “auto-trading”, and you have a terrible market to read. Higher volatility levels only make the aforementioned more profitable, and therefore more prevalent. But here’s the great choice we have - we can just choose to stop trying to take the pulse of the market. Today’s global markets are running a marathon on no sleep (much like some of us?), and it’s barely coherent, let alone accurate.

We have to make a choice. Each one of us can decide to look at the fundamentals, calculate the earnings run-rates, and read the forecasts. We can study the economic indicators that matter most to our corners of the market. Or we can try to read what the market is telling us. The market that gave us the current set of contradicting talking heads on CNBC, in our local media, and in our Congress. The market where a volatility index can “settle in” above 50%. It’s not the source of huge amount of credibility.

Here at Epiphany Investing, I aim to always lean on the fundamentals, the real data. I’ll still be pulsing the market every day…it’s a necessary task at present. Earnings are flowing in this week, and 4 holdings in the Secular Trends Portfolio are on board today.

PFE

I’ll start with the easiest - Pfizer (PFE) today reported higher earnings despite a 15% drop in U.S. sales. As stated in my investment thesis, I’m really here for the balance sheet and yield. They beat estimates by a couple pennies minus all the one-time expenses, and international sales were up double digits. Not too bad all in all. I’m still waiting for a potential acquisition by the end of the year, but for now I’m happy with the position’s place in the portfolio. About 11 times earnings and 7.2% yield is comforting investors, as shares are up about 2.5% today and have bounced nicely off the October lows.

FCX

Freeport-McMoRan (FCX) is down big on a cautious & weak outlook for copper & gold. Average realized price dropped from $3.53 to $3.14 in the third quarter. Copper briefly traded below $2.00 today. Ouch….I am wondering if I should be angry with myself for not heeding my earlier advice to sell after being a shareholder of record for the 4th quarter dividend. I looked at selling yesterday before earnings, which would have gotten me out of the position at a net 1% gain. Not too bad considering I started buying in on Oct. 6, when shares were at $37-$38.

Copper is down big today, and I don’t want to sell into that kind of pessimism, so I’ll wait out today. But if copper doesn’t have a relief rally tomorrow, I’ll cut my losses and get out of the way on this one.

Schering (SGP) also just reported, and while I haven’t had time to read through the whole report, it looks like they topped estimates by 7 cents at $0.39. That’s a pretty solid beat - overseas sales were strong, and the Organon buy continues to be a real growth engine. Shares are up about 2.5% also on the day…

In case you’re wondering what the title of this post means, that’s how I see the market right now. The low prices on stocks still looks like a buffet to me, but I can’t see through the weak forecasts and lagging economic data. I don’t want to go and stuff my face with just anything.

Ryan Barnes

As always, Epiphany Investing welcomes your comments.

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