Righting the ship...

I was waiting to say anything it until I was at least 3% into the black on my Roth IRA, but I am now officially Back in Black (by 5%)! I have had trouble the last six months finding a profitable portfolio and wanted to readjust into some safe value minded stocks and ETF's that should be good for the long run.

Key sales: STP, PBD, PNCL, Polaris Global Value Fund

• STP and the entire solar market started to fall after a big markup; I wanted to keep this for the long term but selling at this time still allowed for me to collect some profits. I still think Suntech is the Toyota of the solar market and along with Sunpower are the best of breed if you are looking to find a long term solar investment.
• PBD fell based on that same big solar put back. I got out at $27.45 a share, but later I got back in $25.62 a share (now at $29.70 a share). I know that this ETF is getting lumped in with the other solar stocks in investors minds, but as I have stated before in my first evaluation of this ETF, it is the best of all available alternative energy technologies in the world not just the US. The best technologies being windmills. This is great long term ETF that is in my opinion the best and safest alternative energy play.
• PNCL may be a good play some time, even right now, but I am out. It is a suggestion out of a magazine that I thought, "Hey, this makes sense" and bought shares without my usual research. Pinnacle is basically a small airline partnered with Northwest Airlines and others to take care of some of the lesser puddle jumping locations in the states. It made sense until one day I remembered this is one of the industries that tied to gasoline charges and then they made a purchase of another small airline that, low and behold, has a lot of unforeseen debt. Bad call by me.
• The Polaris Global Value Fund is a formerly well liked, low expense mutual fund that typically invests in global value rated small cap businesses. Historically small cap value businesses don't do well in rough economies and then takes off when the economy turns back into a bull market. Well I bought this fund in a bull market and then it has slowly been leaking profits ever sense. I may purchase this again, but my money is currently better stored in PWV.

Key purchases: BEZ, PXE, PWV, PBD

• BEZ was written up in this post a few weeks back and has already helped my portfolio greatly. I still like this company in this economy and for the longterm for the same Buffet'esce reasons as I have listed before and feel that is still in a "buy" stage. Wait for another couple of pull back days; it has been on a tear again. I would buy anything below the $34 range.
• PXE is a stock that I have owned for over a year now and I decided to add more. It is the Powershares Dynamic Energy Exploration & Production Portfolio and it makes a whole lot of sense to just keep adding more and more of this ETF. I am a firm believer in alternative energy and fuels, but currently gas is what makes the world go round. Spend some time in checking this ETF's top five stocks and you will see several of the price explosion stocks over the past year. This ETF is going to continue to keep growing for at least the next three years, so at almost any price it will continue to gain value. I am going to keep purchasing it on bad days for some time.
• PWV is Powershares Dynamic Large Cap Value Portfolio and Lipper just loves it. It has a five star rating over the past three year in four categories and a four star rating for the expense category. It is built up of value minded large cap companies, so it should be tough enough to weather and grow in this economy. Oh, and it has been cheap recently, shares a fairly good dividend at 2.44%, and in a growing economy should take off. If it follows its past three years of data it will beat the S&P's growth by 5% to 10%. It is safer than a mutual fund and has a much better potential upside. I am buying as long as it is below $21 a share.
• PBD for the same reasons listed above.

We will see: MLHR, FTO

• MLHR is a great stock, has a bunch of cash on hand, caters to upscale customers, P/E of 10, 1.5% yield, and is consistently showing increasing profits in quarterly reports. Herman Miller furniture is high quality and a good product, but everyone seems to be staying away from it. I have amassed a lot of this stock as I think it is still a great company in bad times. It is one Kramer or SmartMoney recommendation away from taking off I think, but for now I am holding my breath.
• FTO is another great stock that I don't understand. It's stock performance is closely tie to the overall refinery market, but Frontier keeps recording record profit, P/E of 6.5, lots of cash on hand, and well seems cheap. I may buy a little bit more because I think this is ready to explode soon.

What I do well at in my opinion is doing research and finding value minded stocks and ETF's and my current Roth portfolio reflects this. I suck at selling at times when my stocks are still profitable. I need to start adhering by some rules of when to get out, but need some ideas. When I figure out my plan, I will share it some more here, but I tell you what it feels great to be back in black, especially in this economy.

Last thought: Buy PXE on off days. Oil is king for some time.

Current Life

Step one: Get ready for work, think about work I haven't done yet. Worry a lot about it.
Step two: Go to work, continue thinking about work I haven't done. Worry slowly turns to a plan.
Step three: Arrive at work, immediately unpack and hook up laptop. Curse boss for lousy laptop (sometime email boss about lousy laptop). Check email and schedule, decide screw that and walk the plant.
Step four: Wave, salute, and speak with any and all employees, try to see what's wrong and give updates to the people. It's like running for office except I don't lie, well mostly.
Step five: Go to meetings...
Step six: Immediately become hungry, the only satisfaction is random donut/cookie/candy preferably stolen from another employee's office.
Step seven: Steal above.
Step eight: Get caught stealing food but change subject to something he/she owes you.
Step nine: Do real work.
Step ten: Begin worrying about all the crap I am thinking about that is needed to do at newly purchased home.
Step eleven: Worry a lot about when the home will be ready to move in. Cease constructive work.
Step twelve: Worry slowly becomes a plan.
Step thirteen: Get ready to leave.
Step fourteen: Worry plan on house isn't good enough while driving home. Worry becomes new plan.
Step sixteen: Work on house, thinking of work.
Step seventeen: Work on house, thinking of work.
Step eighteen: Work on house, worrying of work.
Step nineteen: Work on house, worrying of work.
Step twenty: Arrive at apartment late, exhausted, wanting nothing more than bed.
Step twenty-one: Wash, rinse, repeat.

New Years Resolutions Check #2

1. Buy a house for the misses and me.
2. Setup a truly easier lifestyle at said home.
3. Max out Roth IRA for 2007 (til April).
4. Begin a true side business.
5. Go on an extended vacation.

Above is the list I made at the beginning of the year. My GF and I did indeed purchase a home and are currently getting it all ready to live in, which is taking longer than I like. But I am also happy to report that the Roth IRA is maxed out for 2007 and I have put measures in place to have 2008 maxed out a couple of months early, instead of two days before tax day.

Yeah me...

Question: How to save the American Factory? Answer: Allow the continued devaluation of the dollar.

Well I have officially seen everything. A couple of weeks back I was reading in the local newspaper and found that the Canadian company Bombardier Aerospace was looking to build a new US assembly plant. The reasoning, the weakened dollar and skilled labor in US will allow for competitive building and selling of its newly updated C series plane to the rest of the world. While I do welcome any new factories in the US and in Kansas City, I think it is interesting how the fate of America as a power has turned. Obviously that isn't to say that we are in dire straits here in the US, but that our role in this world is shifting.

More on it here:
http://www.kansascity.com/382/story/598969.html

My prediction: Headlines in newspapers (or online) in 2012 across Europe, Brazil, Japan, and/or China reading, “Business Outcry for Government Sanctions Against Cheap US Products.”

Rules of the Machine Shop

Rules that you should carry through life, also known as the official rules of the machine shop:

1. We don't fuck around.
2. If one is to build one must over build.
3. If one is to load one must over load.
4. A good machinist never screws up. A great machinist can fix/repair/hide anything he/she has ever screwed up.
5. Everytime you build something idiot proof, they build a better idiot.
6. Sweet talking machines is an acceptable and encouraged action when having troubles.
7. Hydraulics don't have any feelings.
8. Sucking is in fact better than blowing.
9. You got time to sleep, you got time to sweep.
10. Don't complain about tools you don't own.

Sorry for the cuss word, but I didn't make the rules.

Stock Analysis BEZ and ROK

I look for stocks in several different manners, I do screens, I read the news to understand so called expert opinions, and I look for trends. I am definitely a value investor but also have been known to make purchases based on dividend investing (largely influenced by my friend Grant). A past simple example of a trending purchase included Microsoft before it released Vista and Office 2007. The stock was cheap and new programs were coming out that would significantly affect there bottom line. In my mine easy money.

Well a current trend that my own job is closely tied to is the modernization of manufacturing. Over the past 10 years the costs for modernizing a production facility has significantly decreased due the wider availability of new efficient electronic controls. Two companies that should do well going well into the future are Rockwell Automation (ROK) and Baldor (BEZ). These two are interrelated somewhat due to recent sale of Reliance motors and Dodge gearboxes and bearings from Rockwell to Baldor. More on that later.

Rockwell Automation owns a key product that will provide profitable business for years to come, namely Allen-Bradley. Allen-Bradley is the Cadillac of the PLC Factory controls world. They are the most expensive, most well made, most utilized PLC setup for most factories in the US. Their programming is straight forward, their controls are extremely durable, and system is modular by design and easier allows for constant updating of a manufacturing process. So what you say, well based on that ease of use companies are willing to shell out more money for a safe, reliable product. Let's put it this way, you own a factory making 1,000,000 widgets a day. Well every minute that line is under repair you are losing a roughly 700 widgets that could possibly be made. So every minute counts, and when every minute counts an engineer or a maintenance department can justify Allen-Bradley equipment really quickly due to its proven reliability, its wide availability and modular integration (aka less downtime).

Analysis of the stock shows that they failed to meet analysts predicted profit this last quarter and the price of the stock has fallen significantly. Personally, I am sitting back and waiting for the stock to even out. Over the long term this should be a good stock with good ROE 12.5%, nice divided yield 2.10%, and strong international earnings potential. As stated before they sold their Reliance and Dodge brands to Baldor this last year and now should see some benefits from concentrating on the programing and controls part of the business. Also, it previously (before the latest quarter) had shown up on my two favorite screens, earnings momentum and the Magic Formula.

Funny enough, through the analysis of ROK is when I found Baldor. Baldor makes motors, lots of them, in all sorts of useful sizes and types, and most importantly, at high electrical efficiencies. Baldor happened to be the last three motor purchases for my factory due to their competitive pricing, excellent customer and technical service, and a robust, reliable product that is made in the USA. Their acquisition of Reliance and Dodge was an excellent move. They essentially bouught their biggest competitor and doubled their business. Baldor typically made small to medium size motors, Reliance made medium to large size motors, it was a real good fit for both parties with only a little bit of overlap. Additionally, Reliance was known for all of the same things as Baldor (reliability, pricing, service, made in USA). The Dodge gearbox and bearing acquisition was brilliant as well, due to most of these Baldor and Reliance motors being directly fitted up internally with these bearings and to gearbox at the end user's factory.

Why do I think Baldor is great purchase for a long time? Easy, factory conversions from DC Motors to AC Motors. What's that you say? Forget the literal electrical stuff and I will explain it in simple terms. Lots and lots of processes run on variable speed electric motors. Examples of variable speed applications could be belt speeds on a conveyor belt, turning speed of a farm's irrigation system, or rpm speed of a milling machine. A lot of the equipment that is still utilized today were originally designed and built in the 80's and 90's with DC Motors. It was the only option available at the time that allowed for adjustable speed. Consequently DC Motors over time get really dirty and eventually fail. They can be rebuilt several times over, but that can be quite costly, or they can be replaced with new DC Motors which can be quite costly, or they can be replaced with new AC drives and motors which is quite costly. The “drive” is the electrical control that commands the motor, if you switch from DC to AC then a new drive has to be purchased as well. Why a switch from DC to AC? AC setups are 20-40% more efficient electrically and have minimal maintenance costs, usually no more than a bearing change every few years.

Enter Baldor's product line. First they are one of the few remaining companies that produce new DC Motors, and as such, they charge a premium. Second, Baldor and Reliance make high efficiency AC motors and drives that are among the best in the business. These motors and drives are well priced as well (not the lowest and not the highest). Third, the leaders in the drive market is still considered to be Allen-Bradley owned by Rockwell Automation. Well because Rockwell Automation is no longer in the motor business but recently sold the Reliance motors to Baldor, they still sell their AC motor and drive package with Reliance Motors and they charge a premium price. Which should means that Baldor may lose a sale on a drive but should still retain the same profitability of the motor.

To sum up, if you need a DC Motor, Baldor has a strong chance at a sell, if you want to switch to an AC motor and drive, Baldor has high likely hood of at least a new motor sale, and heck if you want to repair your DC motor, Baldor may even be your supplier of spare parts. This is the kind of market that even a Buffet fan would love. This DC to AC motor conundrum will probably continue to occur for the next 3-10 years until the majority of the equipment is AC driven. High usage DC Motors need overhauls every 3-5 years, so every overhaul is a good possibility of money in Baldor's pocket. That will provide a constant stable income for Baldor during these difficult economic situations in just repair sales. When you add that to strong OEM sales, an excellent quarterly reporting last week (23% increase net income), and decent dividend of 2.01%, it looks great for a long term prospect, especially when the economy turns up again. The one bad thing is Baldor's stock has increased ~10% since the quarterly report and may be a little high right now. I purchased shares $27.50 last week and already the stock is at $33.88, but I still think there is room to grow.

Good luck and in this market, happy hunting.

Hiatus Over, Good Stocks Found...

Sorry for the delay, I have had trouble finding stocks to recommend or time to finish entries. I think that I have roughly 10 started. Regardless, big update later today. Hope you all enjoy it.

Coming in the next two weeks:

How to save the American factory and Rules from the Machine Shop (not Fight Club).

Regards,
Management

An Interesting Sports Economy

I witnessed an entire economy this past weekend that I didn't ever expect to see. The lifestyle of the ticket scalper lauded by some and hated by many, but what I came to find out was that the true profiteers to any sports event is actually a familiar face in the sports world. A hint, it's not the NCAA.

I have been going to the Big 12 (and previous Big 8) tournaments since I was 8 years old and this year was no exception. It has always been an annual pilgrimage for my dad and me, but occasionally we get graced with the presence of my brother, uncle, girlfriend, extended family, college friends or dad's college friends. For this year, my brother, my girlfriend, my dad, and I all experienced some of the best basketball that we have ever seen this past weekend.

Typically in years past, we would get scalped tickets and see the tourney each day on the cheap, but this year due to the tourney being held in the new Sprint Center and advent of StubHub and the like we played it safe and purchased tickets for the entire tourney from my uncle (a season ticket holder for Colorado, thus gets first dibs on tourney tickets). For the first two days on our walk to the building we observed the various ticket scalpers loaded with tickets. Curious, I asked for prices which varied from session to session but ranged from $80-150 per ticket. These people were hustling and running all over the place, clearly we were in their office.

Just like any good job, there seems to be a required uniform. While bankers wear suits and ties and mechanics have their blue collar shirts with their names on them, scalpers wardrobe consist of large coats, Timberland boots, and various clothes by Fubu, South Pole, or Roca Wear. Some may actually be wearing collegiate clothing, but unfortunately Morehead State, Miami U, and UCLA are not members of the Big 12. They all wore the same type of clothes no matter if they were tall, small, big boned, skinny, white, black, purple, blue, or yellow. Hint to the scalpers though, no one thinks you actually 'need tickets' when your sign is laminated and your counting your wad of cash on the side of the street.

Personally I could give a crap how scalpers make money. As a matter of fact, in years past I have been able to pay for my own tickets through just buying and selling tickets for the tourney, so I really don't deserve the right to complain. This year though I saw more scalpers with more tickets with more money on hand then I have ever seen before. With more money, I thought man these scalpers are really making some serious cash. One thing I noticed was that each day the eyes of the scalpers became more red and blood shot, and each seemed more and more exhausted. This must be from all of their hard work.

Reality set in on Saturday when my girlfriend's sister wanted to go out that night and revealed the 'bank' so to speak for all that scalped money. That location was the casino. That's right the casino where people go to bet on games, bet on players, bet on anything. Nearly all of the scalpers that I saw that day were in the casino losing there hard earned cash on craps, blackjack, and roulette. No wonder they were getting more and more tired each day that I saw them, they had to work harder and harder to get that money they originally made back and then some more. Sucks when the house wins most of the time. Next year my suggestion for these guys will be for them to invest the money more wisely. Perhaps property like chrome wheels, gold chains, and pimp cups would at least hold their value a little longer.