Sunday, January 31, 2016

Portfolios With Purpose Update

At Oxford Club, the editors are engaging in a competition through Portfolios With Purpose. Thanks to our boss, Julia, we are competing against other professionals in paper trades. Whoever has the best paper trades over the course of a year gets to make a donation to the charity of their choice. In my case, the Roberto Clemente Health Clinic in Nicaragua.

The rules were: Start with 5 positions, long or short. You can trade in and out of these five positions over the course of the year, but no new positions.

I went into the contest with gusto, because this gave me a chance to work on a new trading system and track the results. I produced a 46-page top-down analysis of global economies and markets, and finished that in the last week of 2015. I then used a combination of global trends, macro US trends and market trends (using RRG charts) to pick those sectors I thought would do best in the U.S. market in 2016. And then I picked stocks that I thought represented good value and had the potential to be leaders this year, using criteria I spelled out in my report.
I also decided to track options on the stocks. This is not part of the contest, but options would be part of a new trading service.
The contest started January 18. Since that was Martin Luther King Day, we can assume the trades started January 19 (the Portfolios with Purpose website doesn't specify). The entry prices I am using are the ones Portfolios with Purpose is giving me.  Here are how my picks are doing so far.

Pick #1: Facebook (Nasdaq: FB). Went long at 94.97.

I bought this for fundamental reasons I detailed in my report. I expected Facebook to beat earnings handily, and that's what happened. The chart didn't look bad, either.

(Updated chart)

The green arrow shows the week I entered the position (on January 19). Facebook is breaking out now, and should go touch its upper channel before cooling off.

The stock is up 18.15% since my entry.

For options: Well, since this contest is going all year, I'd use longer-dated options (January 2017 expiry). I use at-the-money or near the money options.
Facebook January 2017 95 calls are up 77.3% since the entry. I would aim to take half-gains near the top of that uptrend, then let the rest ride.
Pick #2: Gilead Sciences (Nasdaq: GILD). Went long at 91.43.

I bought Gilead because it seemed to be the best bargain in biotech. It is becoming more of a bargain, and not in a good way. Friday saw a 5.18% drop on four times normal volume.

The Wall Street Press is convinced that Gilead will "shake off biotech gloom."  The price and volume on Friday says otherwise.

(Updated chart)

To be sure, the stock is down only 9.63% from my entry. But part of my reasoning for entering this trade was technical -- that support would hold -- and that just isn't working.

On Monday, I will exit GILD.
For options: GILD January 2017 92 calls are down 47% since the entry. We'll take the loss.
UPDATE: I did not exit GILD on Monday because of the news of approval of one of their new drugs overnight. Certainly, the stock was higher in the morning; we'll see how it finishes the day. Earnings come out on February 2nd, so we might as well wait and see if there is short-covering after the news.

Pick #3: Lockheed Martin Corporation (NYSE: LMT). Went long at 215.99

I am working on the premise that defense spending will only go higher in an election year. LMT's defense component is doing fine -- better than fine. But the company warned that helicopter sales at its Sikorsky division will be hit by the slowdown in the oil industry. The stock was punished on that warning on what were otherwise excellent earnings. But it is coming back strong.

(Updated chart)

My price target remains $237.

The stock is down 2.31% since my entry on January 19.
For options: LMT  January 2017 215 calls are down 9.3%. There is plenty of time.
Pick #4: Check Point Software Technologies (Nasdaq: CHKP). Went long at $75.95.

I believe cybersecurity is one of the megatrends of the coming decade. Check Point is well positioned to ride that trend, and it was a value when we picked it up.

(Updated chart)

Picking up Checkpoint near support seems to be working out. So far.

The stock is up 3.77% from our tracked entry.
For options: CHKP  January 2017 75 calls are up 15%. There is plenty of time.
Pick #5: Skyworks Solutions (Nasdaq: SWKS). Went long at 60.67.

This chip stock was dragged down by doom-and-gloom over Apple. Then Skyworks reported excellent earnings and outlook, and it headed higher.

(Updated chart)

Skyworks remains one of the best values in tech. This or Facebook will probably be where I put the money I take out of Gilead. 

Skyworks' share price is up 13.6% since our entry.
For options: SWKS  January 2017 60 calls are up 45.9% since our entry. The stock should run to at least 80, and potentially much higher, so these options have moonshot potential.
Summary: Out of my five picks for Portfolios with Purpose, only one pick is not doing well and will be replaced. Two of the five are doing really well. And so far, options are working out. 

So far, I am in 21st place in the PwP professional level contest. I know there are at least 85 professionals participating, because I've seen people listed that low. It's a shame we are restricted to the five we entered with, but rules are rules. We'll see how the year plays out.

No comments:

Post a Comment