Monday, November 27, 2006

Position Update

The following is Part 2 in my series of comments from Street Insight:

We run a fairly concentrated model portfolio at our firm. I try to do most of my stock picking from a bottom-up standpoint, with a top-down analysis as an overlay. By that I mean that I try not to let any one sector become so overweight that it could really hurt me. I also usually try to maintain at least some exposure to all sectors, for diversification purposes.

As the market began to bottom in late summer, my portfolio moves had a bit of a common theme, and that was to decrease my exposure to energy and add to my weighting in technology (and growth in general).

Here are my current top five positions heading into year-end, and why I like them:

1. Google (GOOG). I made GOOG my biggest position (in several years) as it emerged from its correction in September. The move has paid off nicely, but I have yet to take any off of the table. I continue to believe that GOOG still has excellent growth prospects ahead, will continue to take market share in global search, and will be a beneficiary of multiple expansion of large-cap growth stocks. $500 is just a weigh station along the way.

2. Apple (AAPL). As the law of large numbers catches up with iPod growth, it seems reasonable to be concerned with AAPL's multiple. But I think what some failed to anticipate was the market share gains in PCs that AAPL would enjoy due to the halo effect. Mac sales have helped boost earnings, and more importantly, bridged the period until the company rolls out new and exciting products (iPhone, movie downloads, media center, etc). If the stock ran to $100 in the near term, I would likely lock in some profits.

3. Goldman Sachs (GS). I have a long-time love affair with GS, and recently wrote up my bullish thesis in the Long/Short Investor. Despite the strong run the shares have enjoyed lately, I believe the stock still sells for too low of a multiple. Last week, Bear Stearns took their estimates for 2007 up sharply to $19.50. I think more firms will follow suit shortly. That makes the stock even cheaper than it currently appears. I am looking for a quote well over $200 before I let any go.

4. International Securities Exchange (ISE). This is another stock that I laid out in the Long/Short Investor. The Global Exhange universe of stocks are on fire, and they were on fire even before the Nymex (NMX) IPO last week. ISE is one of the faster growers in the group, with excellent profitability, yet it sells at the lowest multiple. The speculation for consolidation in this group is likely to keep a bid underneath the stocks, and help them maintain their premium multiples. I will probably look to lighten up in the mid- to upper-50s, if and when.

5. B/E Aerospace (BEAV). The company that sells a wide range of aircraft products is benefiting from several trends, including the surging demand in air travel, especially internationally; the trend towards wide-body planes from narrow-body; and the push to retrofit older cabins. Its backlog recently hit $1.6 billion, up +60% from last year. And the CEO expects revenues to grow at least 25% annually through 2009. Talk about visibility. BEAV still has not returned to its spring highs. Nonetheless, I think it will make news highs and be a nice holding for years.



Post a Comment

<< Home