Sold all of my ~3% position in MKS Instruments (ticker MKSI) at $24.55 for a profit of 13.3% after all fees from when I established the long position on November 4.
The main reason for the sale is to move the portfolio into a more conservative position prior to what I believe may be a market correction during the next couple weeks. As I mentioned in the last post, I foresee three things that may shake things up in the near future:
(1) New members of Congress looking to shake things up, starting with a debate over the debt ceiling.
(2) Spotty earnings - Sure, sales looked reasonably good in December, but costs may have risen more.
(3) Macro economic signals leading to speculation/ worries about Fed - Too hot = worries of rising interest rates; Too cold = worries of power to avoid double dip.
The eagerness by the Republicans to pick a fight over the debt ceiling is most concerning to me. It seems foolish simply because it is merely symbolic. There is no chance, in my view, that the debt ceiling won't be increased. More importantly, this action highlights the naivety of these fresh-faced Republicans about financial markets and the damage that can be done. If they insist on pressing the issue to win cheap political points I expect yields on treasuries to rise dramatically, which would increase lending costs, neuter the Fed's quantitative easing efforts, and needlessly hurt investors in treasuries who would see their principal shrink. There is also a good chance a steepening yield curve based on rising concern about U.S. debt payments would hurt the equity markets.
In my view we are walking along a narrow ridge and stupid decisions by our leaders based on politics instead of economic health risk pushing us off one side or the other. This is neither a Democrat nor Republican view, it is simply the view of someone trying to predict market movements.
Showing posts with label MKSI. Show all posts
Showing posts with label MKSI. Show all posts
Tuesday, January 4, 2011
Tuesday, November 30, 2010
November Performance - Up 1.5%
Performance Overview
In November my IRA account balance increased 1.5%, which is after all expenses and fees. The S P 500 was essentially flat. November was a wild ride as the portfolio raced up about 5% in the first half of the month before settling back.
During the month I entered a few more positions, reducing the percentage of cash in the account to about 10%. Domestic equities account for 38%, international equities 23%, commodities 15%, and inverse bond 14%. Within the equity positions, hardware is now the largest position followed by industrial materials. This weighting, coupled with the commodities positions, continues to highlight my opinion that deeper in the economy's supply chain, where I believe inflation is building, is a better place to position investments. In addition, it highlights a large weighting towards international with a large portion of revenue for domestic companies coming from overseas, specifically China and Asia. This weighting reflects my view that inflation, in the form of asset prices, likely continues to grow in this region for the foreseeable future. It also reflects my view that the yuan likely appreciates against the dollar as the Chinese government is forced to loosen the exchange rate in order to lessen inflationary pressures.
The largest drivers of growth in the account came from American Axle and Mfting (ticker: AXL), Kulicke and Soffa (ticker: KLIC), Huntsman (ticker: HUN) and ETFS Palladium (ticker: PALL). Each are positions greater than 4% and were up 11%, 11%, 12% and 8%, respectively. The reasons for the increases in AXL and KLIC, in my view, include relatively low expectations coupled with a brightening fundamental outlook. For AXL it appears as though car and truck sales have stabilized and 2011 should provide modest growth within the U.S. and international markets remain bullish. For KLIC the business is quite volatile but the U.S. economy continues to improve and the secular driver of the adoption of more copper components should drive business in 2011. For PALL the improving U.S. economy and robust growth in Asia is driving demand for Palladium.
The worst performances came from GT Solar (ticker: SOLR), MKS Instruments (ticker: MKSI), and China Gerui Adv Materials (ticker: CHOP), which were down 19%, 6% and 4% respectively. GT Solar has suffered from estimate cuts as analysts have fretted over supply growth outpacing demand, especially as government subsidies for solar likely come under pressure. I don't argue against the possible weakening of fundamentals as supply increases, however I believe the demand may prove more robust than expected and a weakening dollar should help the company. SOLR is trading under 6x the lowered consensus EPS estimate for C2011, suggesting a healthy risk/reward. MKSI is trading under 8x the consensus calendar C11EPS estimate, and thus my belief that the economy is improving should prove this valuation conservative. I do expect CHOP to begin to move upward, at the latest, when either production comes on-line mid-2011 or investors' risk appetite increases.
Proshares Ultrashort 20+ Yr Treasuries (ticker: TBT) has moved sideways during the quarter. An interesting tug-of-war is occurring in which Fed Treasury purchases, European contagion fears, and political unrest on the Korean peninsula are raising prices. Alternatively, healthy holiday demand trends thus far by U.S. consumers and rising inflationary concerns in Asia and in the U.S. are pushing prices down. I see the forces pushing the prices up and yields down as temporary in nature, and therefore I expect TBT to perform quite well during 2011.
Summary
The following is a summary of my positions and their performance during November:
In November my IRA account balance increased 1.5%, which is after all expenses and fees. The S P 500 was essentially flat. November was a wild ride as the portfolio raced up about 5% in the first half of the month before settling back.
During the month I entered a few more positions, reducing the percentage of cash in the account to about 10%. Domestic equities account for 38%, international equities 23%, commodities 15%, and inverse bond 14%. Within the equity positions, hardware is now the largest position followed by industrial materials. This weighting, coupled with the commodities positions, continues to highlight my opinion that deeper in the economy's supply chain, where I believe inflation is building, is a better place to position investments. In addition, it highlights a large weighting towards international with a large portion of revenue for domestic companies coming from overseas, specifically China and Asia. This weighting reflects my view that inflation, in the form of asset prices, likely continues to grow in this region for the foreseeable future. It also reflects my view that the yuan likely appreciates against the dollar as the Chinese government is forced to loosen the exchange rate in order to lessen inflationary pressures.
The largest drivers of growth in the account came from American Axle and Mfting (ticker: AXL), Kulicke and Soffa (ticker: KLIC), Huntsman (ticker: HUN) and ETFS Palladium (ticker: PALL). Each are positions greater than 4% and were up 11%, 11%, 12% and 8%, respectively. The reasons for the increases in AXL and KLIC, in my view, include relatively low expectations coupled with a brightening fundamental outlook. For AXL it appears as though car and truck sales have stabilized and 2011 should provide modest growth within the U.S. and international markets remain bullish. For KLIC the business is quite volatile but the U.S. economy continues to improve and the secular driver of the adoption of more copper components should drive business in 2011. For PALL the improving U.S. economy and robust growth in Asia is driving demand for Palladium.
The worst performances came from GT Solar (ticker: SOLR), MKS Instruments (ticker: MKSI), and China Gerui Adv Materials (ticker: CHOP), which were down 19%, 6% and 4% respectively. GT Solar has suffered from estimate cuts as analysts have fretted over supply growth outpacing demand, especially as government subsidies for solar likely come under pressure. I don't argue against the possible weakening of fundamentals as supply increases, however I believe the demand may prove more robust than expected and a weakening dollar should help the company. SOLR is trading under 6x the lowered consensus EPS estimate for C2011, suggesting a healthy risk/reward. MKSI is trading under 8x the consensus calendar C11EPS estimate, and thus my belief that the economy is improving should prove this valuation conservative. I do expect CHOP to begin to move upward, at the latest, when either production comes on-line mid-2011 or investors' risk appetite increases.
Proshares Ultrashort 20+ Yr Treasuries (ticker: TBT) has moved sideways during the quarter. An interesting tug-of-war is occurring in which Fed Treasury purchases, European contagion fears, and political unrest on the Korean peninsula are raising prices. Alternatively, healthy holiday demand trends thus far by U.S. consumers and rising inflationary concerns in Asia and in the U.S. are pushing prices down. I see the forces pushing the prices up and yields down as temporary in nature, and therefore I expect TBT to perform quite well during 2011.
Summary
The following is a summary of my positions and their performance during November:
| Name | Ticker | % Portfolio | Chg |
| RF MICRO DEVICES INC | RFMD | 2.1% | (3.8)% |
| KULICKE and SOFFA INDS INC | KLIC | 4.4% | 10.8% |
| HUNTSMAN CORP | HUN | 4.8% | 11.7% |
| FREEPORT MCMORAN COPPER and GOLD INC. | FCX | 4.1% | 6.9% |
| GT SOLAR INTL INC COM | SOLR | 3.4% | (18.9)% |
| DUOYUAN GLOBAL WATER INC SPONS ADR | DGW | 1.5% | 0.0% |
| JEFFERIES GROUP INC NEW | JEF | 2.9% | 0.9% |
| CA INC COM | CA | 1.9% | (1.3)% |
| LYONDELLBASELL INDUSTRIES N V COM CLASS A | LYB | 2.4% | 8.7% |
| CHINA GERUI ADVANCED MATERIALS | CHOP | 3.6% | (4.3)% |
| PERKINELMER INC | PKI | 1.9% | (0.6)% |
| AMERICAN AXLE and MFTING | AXL | 6.6% | 10.9% |
| MKS INSTRUMENTS | MKSI | 2.5% | (5.9)% |
| MULTI SECTOR COMMODITY TR PWR DB AGR | DBA | 9.5% | (2.1)% |
| ETFS PALLADIUM TR SH BEN INT | PALL | 5.6% | 8.1% |
| PROSHARES ULTRASHRT LEH BROS 20+ YR TREAS | TBT | 14.3% | 2.3% |
| ISHARES INC MCSI CHILE INVESTABLE MKT INDEX | ECH | 4.7% | 1.0% |
| ISHARES INC MSCI HONG KONG INDEX FD | EWH | 4.6% | 0.9% |
| MATTHEWS CHINA FUND | MCHFX | 10.0% | 0.5% |
Thursday, November 4, 2010
MKS Instruments (Ticker: MKSI)
Bought a ~3% position in MKS Instruments, ticker MKSI, at $21.64.
The company has a broad customer base of over 4,000 companies. Many of the industry verticals to which the company is selling are expected to exhibit double digit CAGRs over the next couple years. Customer industry verticals include Semiconductor Equipment and Manufacturers, Data Storage, Solar, Environmental, LED and MEMS, and Life Science. The three business segments are Instruments and Control Systems, Power and Reactive Gas Products, and Vacuum Products - representing about 50%, 41%, and 9%, respectively of revenue.
The company should benefit from President Barack Obama's proposed capital investment tax break, assuming it is passed by Congress. The tax break should encourage businesses to invest in capital, including company products. The company should also benefit from the weaker dollar since it should improve the price competitiveness of its products overseas, where the company realizes about 40% of its revenue.
Management expects to have about $400 million of cash (almost no debt) on the balance sheet (close to $8 per share) after benefiting from a $26 million income tax refund in the fourth quarter.
The consensus revenue and EPS estimates for C2011 are $880 million and $2.61, implying flat growth. This conflicts with management's outlook of successful penetration into new markets and an improving global economy. It also seems quite conservative to me since I believe the U.S. economy likely appears to accelerate over the next few quarters and foreign economies continue to perform well, albeit with greater worries about inflation.
At a stock price of $21.64, the EV-to-TTM EBITDA is about 4x and the P/E is 8.3x. Both of these appear to price in a more challenging economic environment and/ or miscues by the company. Therefore I believe there is opportunity for both the estimates to increase and the multiples to expand.
The company has a broad customer base of over 4,000 companies. Many of the industry verticals to which the company is selling are expected to exhibit double digit CAGRs over the next couple years. Customer industry verticals include Semiconductor Equipment and Manufacturers, Data Storage, Solar, Environmental, LED and MEMS, and Life Science. The three business segments are Instruments and Control Systems, Power and Reactive Gas Products, and Vacuum Products - representing about 50%, 41%, and 9%, respectively of revenue.
The company should benefit from President Barack Obama's proposed capital investment tax break, assuming it is passed by Congress. The tax break should encourage businesses to invest in capital, including company products. The company should also benefit from the weaker dollar since it should improve the price competitiveness of its products overseas, where the company realizes about 40% of its revenue.
Management expects to have about $400 million of cash (almost no debt) on the balance sheet (close to $8 per share) after benefiting from a $26 million income tax refund in the fourth quarter.
The consensus revenue and EPS estimates for C2011 are $880 million and $2.61, implying flat growth. This conflicts with management's outlook of successful penetration into new markets and an improving global economy. It also seems quite conservative to me since I believe the U.S. economy likely appears to accelerate over the next few quarters and foreign economies continue to perform well, albeit with greater worries about inflation.
At a stock price of $21.64, the EV-to-TTM EBITDA is about 4x and the P/E is 8.3x. Both of these appear to price in a more challenging economic environment and/ or miscues by the company. Therefore I believe there is opportunity for both the estimates to increase and the multiples to expand.
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