Author: Andrew Fletcher, Fletcher Wealth Management
Covestor model: Dollar Hedging
Disclosure: Long CHOP, COV, FTE
Amid questions of how Congress would be able to avoid a U.S. debt default, August 2011 started out with a continuation of the market’s downward slide that began in May. Standard and Poor’s added to the early declines with the announcement that the agency was degrading U.S sovereign debt. As the month progressed, equities began to establish support, but at August’s end, the S&P 500 had lost 5.68% of its value. With only a 3.03% loss in August (according to Covestor’s calculations), the Dollar Hedging model outperformed both its benchmark – the Dow Jones Moderately Aggressive Index – and the S&P 500.
Trades
The price drop in the overall market and a continually weakening dollar left many ADRs and currency ETFs attractively priced. However, with such uncertainty in the air, we were hesitant to make any purchases during the month. If the overall market continues to stabilize, some of these companies may be purchased in the coming months.
No holdings met their target sell prices during August.
Newsworthy updates on holdings
In the first half of 2011, China Gerui Advanced Materials Group Limited (CHOP) continued to add to its cash position, helped in part by a significant increase in the selling price for its steel products. To help regain some of the investor confidence lost due to its being a China-based, U.S. listed company, CHOP’s directors approved the repurchase of up to a $10 million of its ordinary shares. As of July 31, 2011, the Company had repurchased 963,343 ordinary shares at an average price of $4.11.
Covidien (COV) continues to increase shareholder value via buying back shares and increasing its dividend from its free cash flow. Todd Bunton of Zacks reports that through these channels, the company has returned $1 billion in cash to shareholders in the twelve months ending 7/30/2011. After being spun off from Tyco in 2007, COV has twice raised its dividend. The 21% payout ratio (as of 8/26/2011) may indicate another dividend increase in the future.
In response to demand for high-speed broadband services from its multinational enterprise customers, Orange Business Services, a division of France Telecom (FTE), will plans to signficantly increase its Latin American network beginning in October 2011.
Conclusion
We will continue to build positions selling at discount to my assessment of fair value and net asset value in international stocks, precious metal ETFs, and foreign currency ETFs.
As long as my overall portfolio moves with its benchmark, I do not worry when quality stocks drop in price, as that helps move stocks on my watch list onto to the buy list.
Sources
CHOP: Company press release 8/8/11 http://www.prnewswire.com/news-releases/china-gerui-advanced-materials-group-limited-announces-second-quarter-2011-results-127221218.html
COV: “Will Covidien Hike Its Dividend Again?” 8/26/11, Todd Bunton, Zacks, in Forbes.com https://www.forbes.com/sites/zacks/2011/08/26/will-covidien-hike-its-dividend-again
FTE: Company press release, 8/29/11 https://www.businesswire.com/news/home/20110829005093/en/Orange-Business-Services-Increase-Network-Capacity-Latin
