The Covestor editors asked me to respond to a few questions for this year-end writeup.
What is your market and economic outlook for 2013, and why?
We think 2013 is likely to be a positive year for the stock market. The primary reason is there’s really nowhere else to go, in our opinion. When you look at today’s asset classes, we believe the best combination of liquidity and value for the long term investor is found in the stock market.
What was your outlook for 2012, and did it come to fruition?
In a Covestor interview at the start of 2012, we suggested the past year would likely be a bumpy ride and urged caution with a focus on managing downside risk.
We mentioned four stocks that we thought had the potential to do well in the year: Hutchenson Technology (HTCH) (non-replicable by Covestor), Aveo Pharmaceuticals (AVEO),, ChipMos Technologies (IMOS) (no longer held) , and Bank of America (BAC).
Despite doing rather well with two of the four picks, the rest of the portfolio did not perform up to expectations. Overall portfolio performance year to date has been somewhat disappointing.
What are your favorite stocks for 2013 and why?
We have three for 2013 and they are all carryovers from our 2012 picks. Aveo pharmaceuticals (AVEO) could have a very good year, in our opinion. The stock has got hit due to FDA concerns about overall survival data for their RCC drug Tivozanib. The market is taking the view that Tivozanib will not be approved.
In our opinion, we think the market is wrong and believe Tivozanib will get FDA approval in H2 2013. AVEO may also be an attractive takeover target for their Tivozanib partner Astellas.
Our next idea for 2013 is Bank of America (BAC). Despite a big move in 2012, we think there’s more to come in 2013. The pig is moving through the python at BAC. In 2013, we expect to see buybacks and/or dividend increases and more stock price appreciation.
Our third idea for 2013 is more speculative. Hutchinson Technology (HTCH) is a troubled hard disk drive component supplier whose turnaround plans were endangered by the Thai floods that damaged much of the hard disk drive industry. But we believe HTCH may finally be at a turning point here. If it can get back to breakeven or turn a profit during 2013, the stock could move a long way fast in my opinion.
What will be your top sector investment for 2013 and why?
Bank of America (BAC) is our largest position. We think the financials will continue their price recovery in 2013.
Will you continue to invest in dividend stocks? Is it a crowded investment?
We think dividend stocks in general offer very little value at the moment. Buying dividends alone with very little value underneath them is not a smart investment idea, in our opinion. We view income stocks to be a crowded trade. Caution is warranted.
What is the biggest opportunity where hardly anyone is looking?
Europe could be a candidate for that as we believe there is some value to be found. But for those brave enough to walk where angels really do fear to tread, Argentina is a veritable basket case of potential long term value in our opinion.
But first the Christina Fernandez de Kirchner ship of state must hit the unforgiving rocks of reality. We own YPF SA (YPF) and took a bath when Christina seized a controlling stake from Repsol. With any change in government, however, the investment climate and prospects for Argentina may also change. We believe there’s value in Argentina. But the question right now is who gets it?
The investments discussed are held in client accounts as of December 1. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
I am a self-taught individual investor and a portfolio manager with more than 20 years of experience. I focus on deep value and special situation investing. You can read more about me and the unique way I became a portfolio manager on my own website, located below my picture.
I believe, my personal investment expertise is in creating and managing concentrated investment portfolios.
I am featured in the book The Warren Buffetts Next Door: The World's Greatest Investors You've Never Heard Of and What You Can Learn From Them by Matthew Schifrin.