Nvest Monthly Review April 2015

In this edition, we look at our top Nvestor of the month, Dale, and sum up Nvest’s recent seminar at York University. As usual, we conclude this edition with the monthly market summary.

Top Nvestor of the Month

Dale Mitchell, 30-day return: 53.6%

Dale has been recommending various positions in the energy sector for some time now, with impressive results. Regarding his general strategy, he says that he prefers sticking with what is familiar to him, and that he doesn’t feel he particularly over-performed: “I don’t think I have performed better than others, mainly because I don’t like competition as this leads to arrogance which can be detrimental to a trader or investor as emotion cannot be involved in such decisions. What has worked for me is to stay away from sectors or stocks which I do not understand… other traders/investors may advocate diversification into other stocks and sectors but that’s just my style, to stick to familiar industries. I believe in doubling down on what already works instead of making it more complex and strategic.”

We also asked this energy sector enthusiast for his opinion on the current state of oil. After a huge price decline, crude has finally climbed back to the $60 mark. Dale says he sees the move by OPEC last year to not cut production as “an attempt to capture the energy industry (crude oil and natural gas exports) and force the smaller competitors out of the market, thus making them the superior and dominant force when prices return to normal.” Naturally, we asked: what exactly is normal? At the time of the interview, oil had not gone up beyond the $60 point. Dale predicted, “what I am looking for now is in the short-term for oil to push through $60 as driving season approaches, and in the longer term, for OPEC to reduce its output as it cannot continue to produce such vast amounts of oil without having issues storing what they produce.” On the effect of stabilizing oil prices on other industries: “I am looking forward to greater performance from the metals and minerals industry as they too are dependent on countries having a good output and a desire for steel to make drilling equipment, rigs etc.,” while adding “I would definitely like to see a move from this sector slowly into alternative energy, hence the reason I have invested in solar stocks such as SCTY(Solar City).”

Our favourite question: what stock should an investor look for? Dale has his favourites. “Buy solid stocks,” Dale elaborated, “I mean companies which have shown solid growth which has also been substantiated by a good product with a good demand for it, for example it could be a restaurant, technology, or household items which have been established and as I indicated before, shown growth and have good paying dividends. When I indicate good earnings ratios, I mean I like to see stocks beat earnings and have good guidance for the next quarter. Stocks may not always be able to do this but paying attention to earnings in each quarter can be a good indicator for growth.”

You can follow Dale’s trades here: http://www.nvest.me/King_Dale/

Top Recommendation of the Month 1: Buy CRR

Dale gained 39.59% on the trade, with a holding period of 14 days.

(http://www.nvest.me/companies/CRR/posts/5020)

CRR has shown great volatility in April. Starting out at its almost 52-week low of $30, the stock surged to $41 in two weeks; a week after that, it was trading at $31. After it went ex-dividend just before its earnings announcement, it traded close to $45, eventually closing the month at $44.23.

Dale was able to capture the high point of this volatility, although his entry seemed high at the time (his entry came in the middle of the month). “Generally the CRR trade was done because I noticed, like most people, that as oil rose, so did most oil stocks,” which has been true for quite some time for CRR. “This particular stock was at support and was showing some signs of strength. After my initial entry, the oil price rose very close to the $58-$59 range which propelled the stock to 10+ percent.” His sell decision was based on approaching earnings data and his concern of where the oil price was heading: “The main reason I sold was for the simple observation that the stock announced earnings after the closing of the trading session and their products at the moment are not widely sought out as much with low demand for drilling and other manufacturing equipment etc… there was a high probability that the stock would pullback after earnings and if oil could not break the $60 level, would erase most of my profit.”

Top Recommendation of Month 2: Buy GE

Hertel gained 8.52% on the trade, with a holding period of 20 hours.

(http://www.nvest.me/companies/GE/posts/4969)

In 2015, GE’s stock was not doing very well until April. Once GE Capital’s restructuring plan was revealed, the stock sharply increased in the same trading session. Hertel’s entry actually came after this rise, holding it over after hours and premarket trading.

“People asked me how I captured that,” Hertel explained. “It was not so much a simple decision, but the start was simple in this way: I knew GE Capital was always going to be a problem in GE’s portfolio. Once I heard that GE was restructuring its capital arm, I had to look it up.” He continued, “and it became clear to me, while it was showing good momentum, it seemed undervalued to me… I didn’t think the market was accurately registering the effect this would have. I didn’t really make calculations, but I had this scenario in mind when I was thinking of GE last year, and I knew the price level could be much higher.” On his exit decision, he admitted, “to be honest, I wasn’t sure it was as high as it could go. But technically, it seemed like a dangerous play to me. I wouldn’t enter at that level, so I exited right away the next day.”

Nvest at York University

Nvest held a seminar this month at York University, with top trading Nvestors Hertel and Yuchen invited to share their insights. Hertel held a session on basic mistakes that beginners make in the market and how to improve on each, and Yuchen talked about his trading setup and importance of trading psychology.

Nvest thanks everyone who came out to the seminar.

April Market Summary

Is the market weak or strong? This seems to be on every investor’s mind. The market has not been convincing in 2015, but at least in April, it showed some gain, which is a turnaround from March. But volatility still remains rampant; the market ended the month erasing all of its returns of the last two weeks of April.

Although the exact timing is still unknown, everyone is aware that the Fed’s interest rate hike is approaching; the consensus is that the earliest it could happen is June, and while this seems unlikely given the mixed news regarding the US economy, investors should account for this possibility.

April has also been a difficult month for the USD. This has been the first time in a year that the USD has weakened. The USD index (DXY) dropped to a level (94.6) last seen in February. This is still very strong, but not relative to the level of mid-March (above 100), when people were worried about the economic effects of such a strong dollar. Meanwhile, the price of gold is not exhibiting any sign of picking up.

Crude prices, on the other hand, showed steady growth from $50 to $60 by the end of the month. In big-caps, MSFT and AMZN both impressed, as MSFT reversed its fall in price from the last earnings season.