We are close to finishing up this earnings season - the most surreal one I've ever been a part of. We've had a few misses along the way, but with such a large portfolio that will always happen - by and large the companies have surprised me to the upside - but the vast majority have sold off, and hard, on the news as sector rotation dominates earnings news. Our portfolio will be heavily affected by earnings reactions Monday and Tuesday as a few names at the top of the holdings are set to report - usually I cut back positions going into earnings to reduce risk but I decided to increase since some of these names are fantastically undervalued versus growth rates and have been beaten to smithereens. In this market of "buy the carnage" I am hoping we get some bounces. This week is dominated by Chinese names reporting; as they are usually apt to report near the end of the earnings cycle. Also another week of retailers, last week's darling as company after company said - hey we plan on showing negative growth for this year and we have no visibility on next year either, but gas is down from $4.19 to $3.89 so please push our stock up 25%. The market said "of course!"
Monday
China gaming company Perfect World (PWRD) - they did very well last quarter but provided light guidance (sandbagged it) - the market took them to their word and pummeled the stock; they quickly said "just kidding" and moved guidance up - but the market has treated the stock with disinterest since China's growth will crater from 12% GDP growth to 7% and hence all activity will stop in that part of the world (or so say the quant hedge funds). Here we have a company growing in the 40% range selling for a forward PE of under 15.
Trina Solar (TSL) reports - I actually had this stock up to a major weighting ahead of last quarter's earnings assuming a huge beat versus estimates in their operations - this came to be - the company reported $0.67 versus $0.48 on operations. However, management decided to do what they do almost every quarter and surprise the Street with something; this time it was a currency change and that knocked a full 16 cents off the quarter. Meanwhile all its peers were benefiting from currency gains and smashing estimates as much from currency changes as operations. No one cares - because we live in a world where everyone "bets" on the headline number and never bothers to read a press release - so Trina "only" beat by 3 cents and proceeded to lose half its value in the following months. This is called a management credibility gap. This has been our biggest loser in the fund as we've lost nearly $30K - that said their operational business continues to be among the best of breed - it is the lack of communication and "surprise decisions" by management that constantly upsets Wall Street - when you do that you get punished. One day management will learn; I hope. Analysts currently show a $3.27 2008 for Trina; I think that is light but considering it "true" - we have a stock growing in nearly triple digit rate for a forward PE of... under 10. Management discount - through and through. Although the sector as a whole has been out of favor. For growth at value guys like me, it is simply hard to abandon this sort of ship. I have retailers showing negative year over year growth rates for double the valuation. Lovely Home Depot (HD) for example trades at 16x forward earnings for 5% growth.
Tuesday
ReneSola (SOL) is a new name to our portfolio but so far so good - while there are always potential surprises in any solar name (dilution announcement) this company sells mostly in country so we have neither benefit nor negative from currency; or at least not much. Hence a bit easier to model. With a recent dilution their share count is jumping so earnings PER share might not bounce quite so much but their business is simply booming. Even with this past week's 30% gain the stock went up from a forward PE of 11 to ... 14. For triple digit growth. Or I could buy Home Depot... or an unprofitable airline.
Wednesday
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Thursday
Our retailer Buckle (BKE) aka The Buckle reports - and has been posting 20% year over year growth in a terrible environment. Most likely this will mean the stock will be sold off since it cannot show the negative year over year growth this market is wishing to buy. Some analyst will say "yes nice results but now year over year comparisons are going to be much more difficult from here as the company has done nothing but execute - can I interest you in some Macy's (M) instead? Or Home Depot. " Buckle trades at 16 forward PE - or... exactly the same as Home Depot (how ironic)
Friday
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