I put my trader hat on during earnings season. Tomorrow, I'm watching Microchip Technology (MCHP), Harsco (HSC), Curtiss-Wright (CW), Watts Water Technologies (WTS), Qorvo (QRVO), NN (NNBR) Xerium Technologies (XRM) and Belden (BDC).
Microchip is a bellwether for the semis. I really like watching how inventory flexes on the balance sheet to get a sense of the health of the supply chain. I usually wait for weakness before I get interested in the semi stocks. They tend to be extremely cyclical over time, so buying low is smart here. MCHP is not at a buy spot at the moment. Watching MCHP's results and balance sheet could be a soft signal to get more interested in the "growthier" semi stocks like Skyworks Solutions (SWKS) and Qorvo -- stocks that have gotten completely hammered in recent months. Honestly, though, that feels a bit forced to me. I still think we have to wait for more of the momentum to drain out of the semis and for expectations to right-size themselves in the next couple of quarters. The automotive exposure at these companies could prove to be problematic this year as well, despite longer-term secular tailwinds for technology and connectivity in the vehicle.
I love Harsco here and own shares personally. I still believe the rotation into small-cap industrials that have been beaten down hard since last summer is very much alive and well. Look at Rayonier Advanced Materials (RYAM), Cognex (CGNX) and CTS (CTS) today. These are three names I pointed out in my earnings previews from yesterday. RYAM is up 30%, CGNX is up 14% and CTS is up 13% this morning, just as the market is getting roasted.
Harsco is abandoned, but my sum-of-the-parts (SOTP) valuation thesis dictates a valuation that could triple the stock from here over time. I will go into much more detail on my Harsco investment thesis later. But just know this: Harsco has a compelling portfolio of decent industrial businesses that have no business being together, and I believe management is working hard to change that.
In the same small industrial camp is Xerium Technologies. The stock is down to $5 from $18 last summer and their position in industrial components for paper-related products is strong and enviable.
I'm watching NN as well, but still trying to get my head around the M&A plan at that company and how its industrial and auto exposure will move in a weaker demand environment.
Curtiss-Wright, Watts and Belden are solid mid-cap industrials that just aren't buyable today. But I love studying their quarters to keep continuity with my cumulative and very-long-term understanding of these companies. Of these three, I want Curtiss to get something wrong so I can buy the stock.
Take advantage of this morning's weakness and buy shares in Harsco and Xerium ahead their reports tomorrow.
May 3, 2015 | 06:00 AM ET
My Basic Tenets of Investing
Investing can, most times, be confusing and emotional.
Here are my basic tenets. These are rules and reminders that help guide me through the decision-making process. Investing can, most times, be confusing and emotional, so I try to remind myself of certain rules, as cliché as some are.
There is no reason not to be open about the confusing nature of investing in equities, but it is rarely discussed because there are generally no correct answers in the near term and everyone is an expert. You can be proven absolutely right and terribly wrong in the same stock in a matter of days.
Yoga helps too. Ujjayi breathing is a technique used in the yoga practice to keep the mind and body in sync through movement or meditation. It is existent throughout an entire practice to remind us of the present, like an ocean's wave, unique to the moment. The technique also assists in powering through challenging moments with serenity. This breathing technique can be applied everywhere else in life, including investing. Give it a try.
- I have felt very alone in the beginning of a good investment thesis.
- Stairs up ... elevator down.
- No need for greed.
- Don't ignore the obvious by trying to outsmart yourself and the market.
- Put yourself in the shoes of the opposite side. What are the shorts thinking if you're long? This helps with derivative, layered thinking and helps conceptualize the risks of a long or short thesis better.
- Value the franchise. Flex the accordion. Trim on strength. Buy on weakness.
- Consider keeping a core position for long-term compounding. Build wealth.
- Do not be afraid to tour a burning building to find a unique value. Companies breathe.
- It's OK to be early sometimes. Be patient. Be courageous. Be unique.
- You can't call any bottom. But, jeez, it's fun to try.
- I like cash flow valuation -- and I like prudent allocation of cash flow.
- I like anticipating inflection points in momentum stocks on the short side. It could be painful at first.
- Everything secular is eventually proven cyclical. Nothing, absolutely nothing, grows in a straight line forever.
- Look for optionality. A solid organic growth story, bought well, is exciting. Identifying structural change for incremental value creation is also exciting.
- Develop a farm team with an action plan and wait patiently for when the time feels right.
- There is a herd. It is big. Remember more and more low-conviction money is chasing fewer and fewer ideas. It's OK to be a contrarian.
- Buying low provides good long-term value and creates the all-valuable compounding feature that creates real wealth. Plus, the herd rarely resides here.
- Mistakes are key to learning. Analyze and talk about them, don't hide from them. Everybody makes them. Yes, even me.
- Catharsis can be achieved when you finally relieve yourself of a stressful investment.
- It is impossible to make money and win every single day.