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Jelly Roll Capital Equity Research |
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Market Analysis, Education, and Wall Street-Quality Stock Reports |
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Top Stocks: Two Month Checkup |
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Every month or so, it is worthwhile to do a performance evaluation and see how the top stock picks have performed. For this update, we are going to look at the March list and compare the returns from the top 25 to the S&P 500, which has returned a blistering 6.88% since March 7th. |
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For our top 25, the average return beat the S&P 500 by 2.49% during the current period (as of market close on May 10th). The list’s weighting toward basic materials, like copper (with Freeport McMoRan - FCX), coal (Alliance Resource - ARLP), oil and gas drilling (TGE, PTEN, HERO), and refiners (VLO and TSO) all contributed to the strong performance. On the other hand, biotech stocks (Aspreva - ASPV and TBV) both lagging and hurt overall performance. African oil driller Vaalco (EGY) bucked the trend in that industry, dropping 8% from the date of its original listing, largely due to a poor showing today. Looking forward, both ASPV and EGY still look to be promising stocks, as they remain high on the latest top 25 list. TBV, however, has plummeted from its high ranking and now sits much closer to the middle of the pack. With 13 stocks up double-digits, which ones still have room to run? I think Carolina Group (CG) remains a solid play, although Nucor (NUE) and Georgia Gulf (GGC) both offer more upside potential. Nucor is a great steel play, and I believe that industry will continue to consolidate down to a half-dozen or so players. NUE trades for 5.7x EV/EBITDA and generates tremendous free cash flow, and I think it goes above $70. Analysts are just starting to see some positives about GGC, with it catching a big upgrade from Citigroup today. I think GGC is ripe for a further 20% move, which means it should be sniffing the $22 mark sooner than later. Despite the attractive valuation on RAIL, the cyclicality of the railroad business does bother me, as does the price action in the stock. Money seems to be moving a bit faster these days, and I am having difficulty finding a catalyst that could give RAIL shares a boost. If the stock holds the $45 mark like it has several times, I might get a bit more optimistic, but I see a break below that more likely - which would send the stock to a multiyear low. Good company, lousy stock conditions right now… I’ll have to see if I can get a better handle on industry conditions. Railroads are a good place to be, and RAIL is certainly levered to that, but more toward coal demand than anything else - and for some reason (Could it be the Iowa caucuses? Senator McCain, when did you become a corn-based ethanol fan?) politicians aren’t being very friendly toward coal right now. Still, I stand by the importance of coal and nuclear over other energy sources, so keep an eye on RAIL and Headwaters (HW), which I also believe is a great play on coal (among other things) even if it didn’t make the top 25 list. Also, on a personal note, I’d like to wish my brother a happy birthday. Have a good one Ryan! |