End Of Year Portfolio Readjustment

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December 31, 2007 | SIN Picks | | Author Asif

As the last trading day of the year approaches, I am going to make some final portfolio changes by selling two winning positions, selling two losing positions, opening one new position and increasing the amount of cash in the portfolio to approximately $45,000 or 20% of the overall portfolio. These trades will be finalized utilizing the end of trading day prices on Dec 31st and the online model portfolio will be updated late that day.

I am going to close our short position in luxury RV manufacturer Monaco Coach (MNC) for a gain of about 28% in less than four months. Monaco was mentioned as one of five potential short opportunities in the September 2007 edition of SINLetter. Since this is a short position, the maximum possible gain from it is 100% (unless you utilize margin). I don’t expect Monaco to go bankrupt and in light of a couple of recent events, I think covering this position would be wise. Another RV maker Fleetwood Enterprises (FLE) posted better than expected quarterly results in early December and this provided a temporary boost to the entire RV sector. While I think the housing downturn is far from over, Monaco’s decision to buy back $30 million of its stock (representing more than 10% of its market cap) implies that management believes the stock is undervalued at this point.

I am also selling our $50 LEAP puts on ex-homebuilder St Joe (JOE) for a gain of approximately 122%. As some of you may realize, these puts were posting a gain of over 220% just a few days ago and given all the bad news about double digit home price declines in Florida, I expected the price of St Joe, which owns vast tracts of land in Florida, to decline further. However Fortune magazine’s decision to feature St Joe as one of its best stocks for 2008 lit a fire under the stock and helped it post a gain of over 24% in just two weeks. While I still believe in the bearish case for St Joe as outlined in this blog post on One Family’s Blog, our options expire on January 18th and I am going to book the 122% gain now.

One of the key reasons I am writing this blog entry just ahead of the next newsletter that is due out on January 1st is because I want to sell Airspan Networks (AIRN) for tax loss reasons and Dec 31st is my last chance to do this. I wanted to give Airspan Networks until the end of 2007 to see if the company could recover from the loss of its biggest customer Yozan but after holding the stock for over two years and watching it lose almost a third of its value, I think it is time to close this position and register the painful loss. I still believe that WiMax has excellent potential and 2008 will be the breakout year for the technology. Our position in Airspan’s competitor Alvarion (ALVR) will hopefully help us benefit from this trend. Despite the competition from Cisco (CSCO) after its acquisition of Navini Networks, if things improve at Airspan in 2008, one could consider reinitiating a position in Airspan again provided you wait at least 30 days to avoid the wash sale rule.

I am also selling our position in Ambassadors Group (EPAX) for a loss of approximately 37.95%. For the first few months we owned travel company Ambassadors Group, the stock performed very well but dropped off the cliff in October when it announced that bookings for 2008 had unexpectedly dropped 30%. I believe that the nearly 50% drop in price the stock suffered in a single day was unwarranted but given the gloomy outlook for the economy in 2008, I doubt the stock will post meaningful gains anytime soon and have decided to take the loss.

I am also starting a new position in Japanese electronics giant Canon (CAJ) as I believe that the stock is significantly undervalued at these levels. Canon took a hit earlier this year on account of the weak Yen as mentioned in this stocks that almost made the cut blog entry. The stock fell once again in recent weeks after a Japanese newspaper reported that the company will post a lower than expected increase in profits for 2007. The paper attributed this drop in earnings to an accounting change at Canon but the odd thing is that Canon had already announced this accounting change and its impact on earnings weeks before the newspaper brought it up again. Canon’s announcement that it is likely to increase its dividend by 10% in 2008 (pushing the dividend yield to over 2%), is probably an indication that all is well with the company and I am going to start a position in Canon by purchasing 200 shares of the company.

Wishing all of you a happy and prosperous 2008.

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  1. blair
    January 12th, 2008

    Regarding Cannon: It seems with the US Federal Reserve set to lower interests rate, I would expect that the yen should rise slightly against the dollar for the next few months. Why not wait on this one until the currency shakes out a bit?

  2. Asif
    January 12th, 2008


    Yen weakness was the primary reason I featured Canon in the September stocks that almost made the cut blog entry but waited more than 3 months before adding it to the model portfolio.

    While it is next to impossible to time the exact bottom of a stock, I felt that Canon’s valuation warranted starting a position in it. I think the currency situation is also factored into the stock and the stock is probably heading lower now because of general market weakness and forecasts of a recession.

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