My first post was Bottom in Construction, Coming Up! After seeing data released earlier this week, I feel confident to call right here and now that February 2010 was the bottom in Total Construction Spending (TCS). After adjustments, TCS was up .21% in March from February. My logic derived from the realization that for some time, Building Permits have been steadily rising. Building Permits are a leading indicator and are also intertwined with Residential Construction Spending (RCS). For the month of March 2010, RCS made up just less than 31% of TCS and going back slightly over 10 years, on average, accounted for roughly 45% of TCS. Knowing that Building Permits and RCS bottomed in April 2009 and June 2009, respectively, with just these two data points, assuming TCS has bottomed in February 2010 or was going to bottom within the next few months was not an irrational prediction.
I thought that I could play the bottom in TCS with U.S. Concrete. I was well aware that the company was distressed and planning to restructure and just a few days ago, U.S. Concreted filed for Chapter 11 bankruptcy protection to undergo the restructuring. I talked about the situation, warrants, and new equity here and here. Although I ended up cashing out a few days ago because I realized the stock began trading lower on lighter volume and for reasons regarding my own financial situation, I still feel that over a long-term time horizon (about a decade), the warrants existing shareholders are entitled to will be extremely valuable because I do still believe the new equity will be appealing to investors, especially now that TCS has bottomed. I believe U.S. Concrete wants to get the restructuring out of their way (evident with them expediting the process) simply so an enormous debt burden is not hanging over them when they start turning a profit.
From an investment perspective, I firmly believe that it is essential to be bullish and bearish on different companies (or sectors) simultaneously basically to mitigate risk and reduce a market correlation. I talked about the rating agencies here and stated why it would be appropriate to buy the January 2011 $22.50 and $17.50 put options for McGraw-Hill and Moody’s – on April 19, 2010, the premiums were $.45/contract and $.84/contract, respectively. As the market closed on May 5, the McGraw-Hill and Moody’s put options rose by approximately 100% and 65%, respectively.
When I wrote my first post about Apple on April 20, the stock closed at $244.59/share. I followed up to that post after the company reported its financial results on April 21, where it then closed at $259.22/share. On May 5, Apple closed at $255.99, 6% below its intraday and all time high of $272.46 set just over a week ago. Many analysts have a $300.00 price target. However, I feel that competition and what it can do to Apple is not really thought of - and that can be bad news. Consider the following chart:
This chart shows that Apple did not hold its gains from its blow-out earnings report about two weeks ago. If Apple breaks $230.00 or so, I feel that Apple shareholders should be at least slightly concerned, should they not? I will not go off on a tangent here – I continue to stand with my outlook on Apple.
Lastly, YRC Worldwide came out with their financial results on May 4. Unfortunately, investors did not like the quarter and the stock sold off, and did so with strong volume. However, the company reported a loss per share of $.33 when not considering a $.20 charge for union employee equity awards which was expected. With the charge, the loss was really $.53/share. The expectations were at worst a $1.32 loss, on average, a $.48 loss, and at best, a $.07 loss. I was hoping for a number greater than the negative $.07.
Regardless, a loss of $.53/share is significantly better than the worst case scenario of a $1.32 loss which tells me that the company has been operating much better than few had thought. Also, President and CEO, Bill Zollars continues to state how the company from its operating momentum is still expecting positive EBITDA in the second quarter. Zollars also claimed during the report that YRC is poised for growth. I still believe in this story for the long-run.
Full disclosure: Long YRCW calls at time of writing.
