Free Investing

Last winter through the spring it was very obvious that the long home improvement / short housing trade was on big time. Consumer spending led the way as people who refused to sell their houses at the bid which was most likely about 5-7% lower decided to fix up their existing houses instead and live in them. We saw names like Bed Bath & Beyond (BBBY) and Home Depot (HD) go nuts to the upside with momentum traders taking notice. This while homebuilding stocks floundered, save for one push during mid April as the short got fried. That trade is over. For whatever reason, maybe the consumer is just flat broke, maybe they decided that it’s not worth it to fix up their homes, or maybe they have all done so now and there just isn’t any demand anymore. I don’t know, but the action in these stocks bore this out, and I think over the next few quarters we'll see some pretty awful numbers from all kinds of home improvement companies. Think beds, Tempur Pedic (TPX) and Select Comfort (SCSS) look horrible as that trend has ended. HD and BBBY look like they are perched on a cliff. Another former momentum darling, Dolby Laboratories (DLB), is completely broken. Other home improvement brands look bad as well; I don’t see a single one I’m interested in on the long side.Complete Story »

Trader Mark submits:As we await the breakout over S&P 1100 (if not today, then surely in premarket tomorrow or Friday, when all the important work is done) let's do some chart review.A lot of stocks have taken a quite substantial turn for the better after Tuesday's low volume surge. I am seeing countless charts that look like the one below (for Caterpillar (CAT)). What is so interesting is how little "resistance" has meant when the computers go hardcore on the "inverse dollar" trade. It is as if the pretty red line means nothing. [click to enlarge any chart]Complete Story »

Market Folly submits:This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.For the first time in our series we'll be tracking Matt Iorio's White Elm Capital. Previously, Iorio had spent six years at Stephen Mandel's Lone Pine Capital. Prior to that, Iorio graduated from the University of Virginia (McIntire School of Commerce) in 1993 and then went on to receive his MBA from Dartmouth's Tuck School of Business. After leaving Mandel's fund, he started his own hedge fund and we are tracking him due to his contributions to Lone Pine's success in the past. White Elm uses a long/short strategy with the goal of outperforming the market indices with less risk. The hedge fund employs a fundamental, bottom-up investment process focused on company specific research, very similar to the process employed at Lone Pine (Stephen Mandel) and before that at Tiger Management (Julian Robertson).Complete Story »

Steve Alexander submits:Every year, Forbes creates a list of the top 200 best small companies in America. To be eligible for the list, a company must have annual revenue between $5 and $750 million, be publicly traded for at least a year, and have a stock price of at least $5. The rankings are done based on earnings growth, sales growth, and return on equity. Forbes has found that this group of stocks has outperformed the benchmark Russell 2000 of small stocks by about 10% annually.This list is especially interesting for Magic Formula investors, as a staple of MFI is purchasing small-cap stocks, which are often under-followed and thus inefficiently priced in the market. Taking the Forbes list and pulling out the current Magic Formula stocks could find us some attractive investment ideas from the number of declining businesses or cyclical entities on the screen. Here is a table of current MFI stocks that appear in the top 200 list:Complete Story »

The Mole submits: The S&P 500 managed to eek out a 0.2% gain overnight Tuesday, largely thanks to the industrials and basic materials sectors, together with an M&A-driven jump in the transport sector as Warren B. plays Texas Hold’em and goes all in on the future of the US economy. Considering the pressure that the US equity market was under at the open, many investors will see this price action as somewhat encouraging. Stocks have started on the front foot Wednesday with insurer Hartford Financial (HIG) lifting its profit forecast after beating Q3 expectations. Alcoa (AA) is also on the rise, and Time Warner (TWX) is up on reported EPS of 61c versus Street estimates of 54cComplete Story »