Alpha Select Portfolio Mid-Month Update

By David Nelson, CFA

Markets have had a rocky start to 2014 but I haven’t been shaken from my bullish perch. Monday’s fall was on the heels of a Goldman (GS) report labeling the market as overvalued and yesterday’s bounce was off of an in-line quarter from JP Morgan (JPM). Helping push the index higher was better than expected retail data. If January’s slow start ends up being the digestion and price we pay for the year end surge in 2013, I’ll take it. So far, the intra-day lows of the month came Monday with the S&P hitting 1815. (Not even a 2% correction) Traders all have their eye on the 50 day as a natural magnet for the SPX. Will the Index fall to the moving average or will it dance around while the 50 day walks itself up in the next few weeks. Until I see indicators like the NYSE Bullish Percent index rollover, I’m likely to stay fully invested.

Changes

While I’ve said I am bullish on content providers I’ve decided to swap names in the space. Estimates and its ranking in the Alpha Select Model have fallen. We pulled the trigger yesterday locking in a 45% return. Not sure what is driving the estimates lower but they are what they are. This morning, Merrill Lynch cut numbers as well going into their earnings report.

Net Neutrality

Comcast (CMCSA) and Walt Disney (DIS) have been added to Alpha Select. These were great names for us last year but sold too soon. We are back in with new catalysts that should drive the stocks higher. Even though CMCSA is a likely bidder for Time Warner Cable (TWC), I decided to pull the trigger yesterday once I saw the news on net neutrality. With the Washington appeals court striking down FCC rules on net neutrality we could no longer ignore the name. AT&T (T), Comcast (CMCSA) and Verizon (VZ) will be able extract higher fees from firms that require large amounts of bandwidth. In addition CMCSA isn’t just a dumb pipe. The purchase of NBC Universal changed that. I expect more deals like this one in the future. Let’s not forget they also made an attempt to take out Walt Disney (DIS). Remember, Content is King.

While Michael Kors (KORS) is one of the best positioned in the retail space we’ve sold the remaining shares locking in a 26% return. Christmas has not been kind to the bulk of retailers and a high multiple stock like (KORS) could get hit hard, even with just an in-line quarter.

We took a (-1.6%) loss in Steel Dynamics (STLD). Industry fundamentals just aren’t there yet.

Here We Go Again

Boeing (BA), our largest position for the last couple of years was in the news again yesterday with an apparent battery failure in a single Japan Airlines 787 Dreamliner. The stock took the usual hit but this time not as severe and ended the day only down modestly. It seems the new safety protections put in place did their job. This morning JAL grounded the aircraft in question but made no changes to the flight status of the other. I wouldn’t be surprised to see the stock tread water while the news is digested.

What if January is a Down Month?

Most of the financial media have run segments on the probability of a down year following a down January. While the odds of 2014 being negative are higher if this month ends in the red, I find it to be another one of those Investors Almanac indicators that works right up until the day I use it.

Funds managed by David Nelson own shares in JPM, DIS, CMCSA & BA