Time to Read the Reports

 | Feb 13, 2012 | 1:30 PM EST
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It was an interesting weekend to say the least. We were treated to pictures of Greeks voting and burning all weekend. There was Iranian saber rattling, Israeli embassy bombings and the continuing saga that is the GOP primaries. New York was Lintensely focusing on the Knicks for the first time since the season started, Kentucky kept rolling and Maryland still could not find a way to beat Duke.

It was a dreary weather weekend, so I downloaded some Michael Haskins novel (a new find of enjoyable reading material similar to Randy Wayne White) and spent the weekend in search of the perfect bonding experience with the couch. In the midst of all this I found some time to focus on the growing stack of 13HF filings that have been dribbling in over the last week. The deadline is Wednesday, but this quarter we have seen even more early filers than usual. One suspects even big-time money managers need to plan a decent Valentine's event and being late at the office getting the 13HF filing done is just not going to fly.

As I have for the past few quarters, I went to the filing of Michael Price as soon as it hit the tape again this quarter. Price has purchased some community bank stocks in the past year that have done extraordinarily well so I was hopeful of stealing yet another Trade of the Decade idea from the legendary investor. Unfortunately, he did not buy any banks this past quarter. But there were some interesting ideas. Price has been buying the spin-off stocks from the ITT (ITT) breakup and it looks like there is some value in these names. I am particularly attracted to Excelis (XLS), the defense communications and technology company. Defense stocks have been weak, but the company makes surveillance and reconnaissance equipment as well as command and control communication and cyber security systems. All of that will remain in demand by military and other government agencies in spite of defense cuts.

Xylem (XYL) is another ITT spinoff company that could attract a lot of attention in the years ahead. The global water treatment and test company should do well as the world's demand for water continues to grow and pressure fresh water supplies. Mario Gabelli suggested this stock in the Barron's roundtable this year and pointed out that Xylem would probably be attractive to a larger company. The stock has moved up since the spin off as water stocks have been hot, but it belongs on your research and potential Buy list. Having Mario Gabelli and Michael Price both buying a stock suggest a huge future for the company and the stock price.

The filing form Seth Klarman is always mandatory reading around Chez Melvin. I noted with some interest that he sold his entire stake in PDL Biopharma (PDLI), a  stock I won that has done very well for me in the past year. I never blindly follow anybody. but I do acknowledge that a whole lot of people are a whole lot smarter than me. Klarman is at the top of that list. I will sit down and review my reasons for owning later today. The fund also exited its stake in Breitburn Energy (BBEP), a stock that treated us very well before I sold it in early 2011. He also reduced his stake in News Corp. (NWS) by more than 25% in the quarter.

Klarman also increased his funds position in gold stocks buying more shares of both Novagold Resources (NG) and Allied Nevada (ANV). His new purchases in the quarter included another small biotech company, Targacept (TRGT). Baupost bought 6 million shares of the company, which is almost 17% of the company. Targacept had disappointing results from a trial for a new depression drug last year and the shares have plummeted since. I have little or no understanding of biotech, but will be farming this one out to some associated with deeper knowledge than I. I will report back their conclusions on this stock.

The other new position in Klarman's fund is Tronox (TROX), a company that will have me digging though filings most of the day. At first glance the stock doesn't appear overly cheap, but the business is fascinating. The titanium oxide manufacturer recently merged with a South African company that mines the feedstock materials for titanium dioxide making the company an integrated producer of the pigment material. The company emerged from bankruptcy last year and not only has a stronger balance sheet, but roughly $30 a share in tax loss carry forwards. Given the wide range of uses for titanium dioxide pigment products the company will do very well in an economic recovery is worthy of deeper research.

I have a stock of these reports left to read and more coming in over the next few days. I will report back any additional interesting ideas that are uncovered.


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