State of Play

By Declan Fallon - August 18, 2012 | Tickers: CHK, PAAS, P, PPC | 0 Comments

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My time as a contributor on the Motley Fool kicked off in March and over this time I have covered a number of stocks from a range of sectors.  But the proof of the pudding is in the eating, so how have these stocks fared the past few months?

My investment strategy for these stocks is outlined here.  Based on this strategy there hasn't been a qualifying 'Buy' month since October 2011. It's also looking unlikely there will be a 'Buy' month over the next few months.  However, under this system, March qualified as a 'Profit Take' month as the S&P was more than 10% above its 200-day MA.  Should the S&P get above 1,460 it will trigger another 'Profit Take' month. 

Having said that, I did personally take small positions in Atlas Pipeline at an average price of $31.85, and Freeport-McMoran Copper at an average price $32.41 in April/May. At the time of the purchases the Energy/Commodity sector was underperforming against the broader market (decline) as measured by a breadth metric of S&P SPDRs I generate.  However, I remain primarily in cash until the market meets the criteria for investment.  

Of the stocks on this list the chief underperformer has been Pilgrims Pride (NASDAQ: PPC).  Unfortunately, the provider of chicken products has been stung by a nearly 30% rise in corn prices, driven by severe drought conditions.  I have initiated a small position in the stock, despite downgrades and negative opinion.  The next quarter (October 24th) will sting; rising costs last year contributed to a string of quarterly losses of -$0.54, $-0.60 and -$0.52 and if this was to repeat it would mean earnings well below expectations of +$0.07.

Of the strugglers, Chesapeake Energy (NYSE: CHK) saw its price fall through the $20 support generated by buyers to becoming bound by $20 as an exit from sellers.  During this time there has been a rise in short interest which just adds to the selling pressure. The company (amongst others in the sector) has issues around reporting of fracked wells, although this in itself wouldn't impact the price given it's not the worst offender.  The real problem for the stock has been its failure to rise in line with recovering Natural Gas Prices. This has seen money channel into rivals like Encana and EOG Resources. Chesapeake is looking like one to ignore for now.

In April it was clear Pan American Silver (NASDAQ: PAAS) was in decline and not looking like it was going to stabilize until Silver prices started to improve.  Well, five months on, Silver prices look to have stabilized at around $27/oz which has given Pan American Silver a floor of around $16 a share.  Hedge Funds remain cautious on future silver prices and this view will likely contain buying interest for silver mining stocks, but analysts have set a mean target of $22.63 on the share. Unfortunately, development of its flagship project Navidad is under threat from Argentinean regulators and until this is resolved Pan American Silver is unlikely to enjoy sustained buying barring a sharp rise in silver prices.  

The other underperformer on the list was Pandora Media (NYSE: P).   It has struggled on a relative scale to the S&P rather than an outright collapse in its price.  The stock is caught in the social media black hole that has sucked in the share price of Facebook, Zynga and Groupon. The stock is caught in the balance of either breaking even from revenues or running out of cash next year. Its long term future will be determined by how it pays for its royalty costs; if it's able to move from the current fixed payment system per song to a more sustainable one derived from profits per song.  On the positive front, the company is looking to shift its advertising model from a national level to a local level as U.S. radio market share rose sharply to 6.1% (up from 3.6% in 2011 and 1.8% in 2010).

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