11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
Last week The Kelly Letter bought three new positions: . You could have picked up shares at lower price at several points during the week and you still can in one case. They closed the week at $45.20, $19.83, and $5.90 respectively, putting me up 0.5%, up 4.4% and down 1.7%.
I sent a note to subscribers suggesting that for a conservative way to get into the market you could do worse than to buy at $45. I picked it up at $45 on Friday. It's the world's largest brewer and a superb company that just keeps growing. While you should not expect Sun Microsystems-size gains, you could very well get 20% within a year. If you haven't bought yet, there's still time. It should touch $45 again in the near future.
Meanwhile, patience is still in order to buy the other positions listed in the Sept. issue.
had a wild week, hitting $26.60 on Thursday and then falling 4% to close at $25.50 on Friday. I'm adjusting my limit order buy price from $24 shown in the Sept. issue to $25.
fell 3.7% from Monday to Tuesday and I sent a note telling subscribers to move the limit buy price from $7.75 to $7.50. The stock got down to $7.70 and bounced along that level for two days before rising slightly to close the week at $7.78. I don't want to miss this one, so let's get those limit orders back up to $7.75 where I should have just kept them all along. We'll open this position yet.
fell to $3.90 on Thursday before closing the week out at $4.02. I'm keeping my limit order in place to buy at $3.60. The king of volatility may just get down there again before running higher over the winter.
hit $4.21 on Tuesday but closed the week at $4.47. I'm moving my limit order to buy at $4 to $4.25.
As much as I hate to chase momentum -- I'm much better at grabbing stocks near the cheap end before they recover than I am at grabbing them at the high end on the way higher -- we might have no choice with Japan. The decisive victory last week of Mr. Koizumi has greatly energized the country and all newspapers can write about is "mandate, mandate, mandate" for change. Without a doubt the Japan Post reform measures will finally pass, thereby injecting trillions of dollars into the economy. That should reinvigorate business activity and by extension the stock market. I've been trying to get into below $40, but last week the lowest we got was $40.95 on Wednesday before closing at $43.04 to finish the week 4% higher.
The fund has gained more than 40% in three months and has all the appearance of needing a rest and perhaps a little settling back. Surely the reforms cannot be enacted quickly enough to make a difference this year. Surely there will be some kind of disappointment with expectations so unrealistically high. That's what my gut tells me. Then again, my calculator tells me that Japanese stocks are still 75% cheaper than American stocks by almost any valuation measure. That's a lot of powder waiting to explode when Japan becomes the new hot international money target for the first time in 15 years. It's a classic case of being torn and in such situations I've been well-served by waiting. So we will. Let's watch what happens next week.
Now, a word about two of my investments that have some of you scratching your heads. are, indeed, not great companies. They don't fit the profile of great companies that I write about in The Neatest Little Guide to Stock Market Investing. What they are, however, are smart trades exactly the way Sun Microsystems has been a smart trade over the past few years.
has wisely diversified its offerings beyond China and remains a real bargain compared to its $35 price of two years ago. The steady implosion of its shares has brought the P/E down to 22 and the P/S down to a miniscule 0.30. The book value per share is $11.51. If we just get back to book, it'll be a 48.5% gain from $7.75.
is a key behind-the-scenes e-commerce company that's seen its business grow steadily despite bad profit margins. Having dropped some 60% so far this year, the stock has a P/E of 23 and a P/S of 1.2. Those are not bad figures for a high-tech leader. Such stocks are usually more expensive.
Value Line lists these two as its number 2 and number 4 highest estimated total annual return picks, projecting a 59% gain for the former and a 50% gain for the latter in the next 3-5 years. I expect those returns to happen much sooner than that.
As usual, there's a lot going on and we're slowly building a strong portfolio to benefit from a fall to winter rally. At the same time, the real world is reminding us that fall is not far away.
Here in Sano, we have beautiful weather making the transition from summer to autumn. The farmers are harvesting the rice that they planted last spring. Mornings and evenings bring the smell of smoke in the air as they burn the plant stalks after taking the rice. Monday is Respect For The Elderly Day, a national holiday, and I'll drive with friends to the mountain resort of Nikko for a hike and a dip in a hotspring.
I hope you're enjoying the weekend in your part of the world.
