Professional Documents
Culture Documents
Of Note:
The worst decliner today was TRW Automotive (TRW), down 5.69%, due in part to the decline in the market and more likely due in part to an announcement that its largest
investor and part of management would together sell 10 million shares in a secondary offering, with the company receiving zero proceeds. Secondary offerings tend to come
right before peaks in the market, so it is no wonder that investors are spooked. At the same time, we would note that the company itself is not raising money -- it is just the
managers cashing in. In addition, we are just a few days away from the General Motors IPO -- one of the biggest IPOs in history. It makes sense that some investors will be
reducing positions in one auto related stock and reallocate it into GM. We have no way of knowing if this is in fact what is going on, but it is something we would do.
The second worst decline in our long models today was Freeport McMoRan (FCX), down 4.30%, but high volatility on the way up or down is normal for this stock. FCX in our
opinion is the most attractive stock of any sector. An Energy and Material sector sell off may or may not continue, but demand for copper and gold will not dissipate overnight,
and inflationary fears will always be lurking around the corner. Caterpillar's (CAT) announcement it intends to acquire Bucyrus (BUCY) at a large premium is just one more data
point backing the FCX theme.
The recent market action has caused us to lose almost all the gains we had made for the MTD, and even though the S&P 500 is down for the MTD, we are still ahead slightly.
The recent price action s is a reason why we have favored closing out our models once they reach a certain return during the month. Unfortunately this time around the
portfolio target return was not achieved, which is why the models remain long. Today's sell off may or may not have much longer to go, though it is difficult for us to be overly
worried about continued huge declines given the strength and momentum behind corporate profits.
11/15/2010: A short position in Fortune Brands (FO) was assumed closed at $57.33 for a 6.01% loss after closing above its stop price of $58.23 the previous trading day.
11/11/2010: A short position in General Growth Properties (GGP) was assumed closed at $15.44 for a 8.1% gain and replaced with cash after closing below its target price of
$15.48 the previous trading day.
11/10/2010: A long position in Fossil Inc. (FOSL) was assumed closed at $69.70 for an 18.2% gain and replaced with cash after closing above its price target of $66.92 the
previous trading day.
11/10/2010: A short position in Range Resources Corp. (RRC) was assumed closed at $42.75 for a 14.3% loss and replaced with cash after closing above its stop price of $40.95
the previous trading day.
11/9/2010: A short position in MGM Mirage (MGM) was assumed closed at the end-of-day price of $13.00 for an 18.9% loss after closing above its stop price of $12.81 the
previous trading day.
11/4/2010: A short position in EOG Resources, Inc. (EOG) was assumed closed at the closing price of $88.29 for a 7.8% gain and replaced with cash, after closing below its price
target of $88.64 the previous trading day for an assumed 7.76% return.
11/11/2010: Williams-Sonoma (WSM) -- "Wells Fargo raised its Q3 estimates for Williams-Sonoma above consensus levels ahead of the company's Q3 results. The firm thinks
the company will also beat Q4 consensus estimates and it believes the stock's valuation is favorable. The firm maintains an Outperform rating on the stock." --
theflyonthewall.com
11/10/2010: Williams-Sonoma (WSM) -- ThinkEquity upgraded the stock based on a recovery in home-related purchases and raised price target to $40 from $33. Oppenheimer
identified WSM as a top pick in the hardlines retail sector.
11/5/2010: American Express Corp. (AXP) -- Argus upgraded the stock and raised price target to $50 due to reduced loan losses and volume growth. See also our 10/25/10
article on Seeking Alpha, "Why American Express is Finally Worth a Look."
11/5/2010: TRW Automotive Holdings Corp. (TRW) -- Deutsche Bank raised its target to $57 from $52.
11/3/2010: TRW Automotive Holdings Corp. (TRW) -- S&P Equity raised its price target raised to $62 from $50.
11/3/2010: Union Pacific Corp (UNP) -- Deutsche Bank raised price target raised to $102 from $92.
11/2/2010: Fossil Inc. (FOSL) -- BB&T Capital Markets initiated with a Buy rating.
The "Naive" Model is so named because it excludes risk management and other refinements and is intended to show the returns due to fundamental factors alone, which
include operating momentum, relative value, fundamental quality and analyst revision momentum. Typically the Naive Model comprises of approximately 80-100 stocks.
The Core Model is a refined version of the Naive Model and uses stock-specific price targets and stops. Over the backtest, the number of stocks in the Core Model has
comprised on average approximately 22 stocks in the long portfolio and 15 stocks in the short portfolio.
The Opportunistic Model uses the same stocks and stock-specific price targets and stops of the Core Model, but it additionally applies target and stop loss rules to the long and
short portfolios. This model is usually dollar neutral, but when target or stops are reached this model could change to 100% long or short or to 100% cash at any given time.
Return of Stocks in the Long Portfolio - Return of Stocks in the Short Portfolio = Return of Overall Portfolio. YTD returns are based in part on backtested returns. Returns of the
Naive Model have been tracked in real time since December 31, 2009. Returns of the Core Model has been tracked in real time since July 31, 2010. Returns of the Opportunistic
Model have been tracked in real time since August 31, 2010. Cumulative returns and the Sharpe Ratios are calculated from the 12/31/2004 "inception." The risk free rate used
in the calculation is the 90-day T-bill, which has averaged ~2.36% since 12/31/2004. None of these models assume any kind of expenses.
The stock picking methodology among our Core and Opportunistic Models are the same.
Our Opportunistic Model differs from our Core Model in that it incorporates portfolio-based risk-management strategies, which are continually under
refinement.
Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio
strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should
generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to
outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise
of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion.
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