First quarter 2012 returns are in as follows:
While the S&P 500 returned 12.6% (total return)
RMHI Growth accounts returned 18.31%
RMHI Moderate Growth returned 16.76%
RMHI returns are net of all fee’s and expenses.
Quick comment: While I’m very pleased with these returns the RMHI model performance exceeded our client returns due to accounts having diversified positions in Gold and in some cases a higher level of cash than normal. Portfolios diversified from equities lagged in performance due to the lack of upward price momentum in gold and bonds. Realizing that the government may not be in support of QE 3, we’ve sold our gold positions and would prefer to own cash in lieu of metals or bonds.
All market models remain in Bullish mode where any form of market weakness is being fought by aggressive buyers. While we do see some signs of incoming economic weakness (today’s poor job creation stats for example) the weakness has not translated to declining equity prices.
Just when you think the American Factory Food industry can’t get any worse:
Arsenic in our chicken NY Times
Speaking of food and the opening day of baseball one of our largest holdings is a food stock: John B. Sanfilippo and Son symbol JBSS. JBSS sells raw and processed nuts including peanuts. Before you speak up, yes peanuts are a legume and not a nut.
Unquestionably the stock is cheap as book value is $18 and the shares sell for $12.88. The stock is also very close to being a classic Graham “net net” but only if you don’t deduct 50% off the value of their inventory of nuts. If you take into effect that the price of nuts is strong and only deduct 25% off the value of their inventory it could qualify.
JBSS ranks at the very top of our proprietary ranking system and we own the shares for our clients. I own them as well.
Investing in Solar and other alternative energies has been a hazardous experience for investors for several reasons:
- Too much competition which results in price cutting and profit margin pressure which results in volatile earnings and significant stock volatility.
- Reliance on government subsidies in an era of budget restraints.
But these issues are the primary problems associated with investing in solar cell manufacturers.
What about investing in Solar Farms that have their infrastructure in place and long term selling agreements with credible utilities? This is an entirely different enterprise than just selling solar panels since this is really an issue of cash flow.
Warren Buffett’s MidAmerican Energy Holdings Co. agreed to buy the Topaz Solar Farm in California from First Solar Inc. on Dec. 7. The project’s development budget is estimated at $2.4 billion and it may generate a 16.3 percent return on investment by selling power to PG&E Corp. at about $150 a megawatt-hour, through a 25-year contract, according to New Energy Finance calculations.
“After tax, you’re looking at returns in the 10 percent to 15 percent range” for solar projects, said Dan Reicher, executive director of Stanford University’s center for energy policy and finance in California. “The beauty of solar is once you make the capital investment, you’ve got free fuel and very low operating costs.”
With Treasury yields in the 2% to 3% range solar farms offer a viable alternative to bonds. In my opinion its only a matter of time before solar farms are offered in either a REIT or MLP structure to the public, where the cash flow generated is passed on to shareholders with special tax considerations. Best of all, the cash flow comes without the risks and headaches of solar panel manufacturing and sales.
Now we’re finally getting somewhere.
Brad
No positions
Since the start of this rally in December market declines have been rare and limited to just three days of selling. Thus, I’m looking for the markets to regain their footing or we must consider a potential change in trend.
There are several issues to keep in the radar including debt worries in Spain and a further slow down in China. No doubt there will be a market correction at some point and even if 2012 turns out to be a terrific year there are always potholes along the way. Yesterday I spent a few hours sifting through data of how our model reacted in 2004. The back test data showed a terrific return by any measure but there were also two pullbacks in the range of 10%.
At this point in time only Investor Sentiment measures are in the warning zone, all trading and momentum models remain bullish. For the time being we remain fully invested.
Buyers are obviously in control of this market today with the Dow up 127 and the Russell 2000 up 12, a very nice way to start the week. There can be no doubt that we’re in the midst of a very vigorous bull market in the intermediate term. Internal market momentum and breadth remain excellent so I remain fairly optimistic in all time periods but with an eye open for the facts to change.
The current psychology of the market is “risk on” which also means alternative investments that need “risk off” such as bonds and gold are doing poorly and I don’t expect this situation to change anytime soon. While I have almost no bond positions, I am liquidating our GLD holdings into strength and just holding cash with the proceeds. GLD has become a drag on performance and until there is a change in the trading trend of GLD, I prefer to take the most conservative option.
While most market participants are transfixed on Apple shares I continue to look elsewhere for largely unknown names that are quite cheap with positive trading trends.
Intertape Polymer Group symbol ITPOF represents a socially benign company, a Canadian small cap company with interesting postential: They manufacture a wide variety of tape for retail and industrial clients. Example are masking and packaging tape, cloth tape foil and film tapes, packaging tapes, and duct tape.
The market value is small: $270 million but the Price to Sales is just .30%. After several years of lagging operational profits but losing money after tax the company has seen accelerated growth in revenues and margins along with a sharply reduce tax expense. Revenues have risen from $615 million in 2009 to $786 million in 2011 and net income of (-$14,389,000 2009 / -$48,549,000 2010 to a profit of +$8,954,000 in 2011).
Long ITPOF, GLD
It doesn’t matter what the market is: real estate, tulip bulbs, stocks, bonds or baseball cards when the price move becomes parabolic the ending is never far way nor is it pretty. A parabolic move in the price of Apple is a warning sign that must be heeded. Its impossible to say when the run will end, MSNBC is breathless in their reporting but parabolic moves are unsustainable and a sign that the buying has gotten out of hand.
I have great admiration for Apple and the legacy of Steve Jobs and today my gorgeous wife finally got her Ipad. My guess is we have 9 Apple products in our home (does the Jobs bio count?) and love them to bits but being a consumer and owning the stock are two different things.
No positions.
