Epiphany Investing

Searching Out the Optimal Portfolio of “Revelation” Stocks

Secular Trends Analysis (BTU, FCX, POT, CAT, LVS)

Posted on | November 6, 2008 Time: 7:09 pm |

I’m still working on the best format to submit my thoughts and current areas of study relating to the Secular Trends Model Portfolio. Several readers have asked some good questions relating to the investment strategy and current equity weightings. First and foremost, the model portfolio is 100% invested in equities not because I recommend that as the optimal asset allocation at present. I absolutely, 100% do not advocate for any investors to hold more than 40% to 50% equities. The only exception is for those of you under 40 or with time horizons of 10 years or more.

It’s up to you to determine what equity allocation is best suited for you. If you’re in any way unsure, mutual funds, index funds, or direct professional management is the best route to take.

The Secular Trends Portfolio is a model for allocation within the equities asset class, not for aggregate investment allocations. More related stuff is in the Disclaimer page, but this post is in the interests of transparency; all of us are best served when the most important information is out on the table.

….and we’re back. On to the specific news: (full holdings viewable in the Portfolio Page and of course, via the tags and categories)

#1 - Peabody (BTU); shares are down over 15% following ArcelorMittal’s nasty profit warning yesterday. Coal is a big input for steel, and I was unfortunately expecting the stock to trade down sometime this week after reading about inventory levels and quotas in China. My level of concern is “medium” now but if the stock breaks $26.50 it will shift towards “high’. Metallurgical coal has been a nice boost to BTU’s profits and broad steel cutbacks could affect EPS guidance.

#2 - Freeport-McMoRan (FCX); this copper producer has been giving me fits. I disobeyed the gods of alpha and bragged about not selling when copper futures dropped down to the $1.80 level two weeks ago. I affronted the long-term focus of the investment strategy; copper is now trading at the same $1.80 level after continuing to register 3-8% moves each and every day. I still like the fundamentals of the equity, but I’m on the lookout for copper prices to break lower.

#3 - Potash Corp (POT); futures prices for wheat, corn, and soybeans continue to hold up ok, but there are some scattered anecdotes that farmers are having a difficult time obtaining credit financing. I’m always on the lookout for anything affecting potash pricing, but there have been announcements of production cuts at competitors Uralkali and Mosaic. I feel the s/d balance right now is still intact, but the stock remains ultra-volatile. Still well above the lows, but in these markets it could be one day away from them. This is a top 5 holding, and I’m still very comfortable with that.

#4 - Caterpillar (CAT); This company has gotten some attention since the election as a possible beneficiary of infrastructure spending by an Obama Administration. Regardless of whether this could be a driver of growth in the coming year (a maybe at best), I focus on the valuation here and broad secular trends. I am overweight this position as a top 5 also.

#5 - LVS - see my earlier post from this morning. Shares have been all over the place today, currently down 30% on 4x the average daily volume.

Ryan Barnes

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Category: Agriculture, Basic Materials, Gaming/Casinos, Industrials, Metals, Mining, Secular Trends Portfolio
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