China & Steel

[ericoleman]

I thought I would share a few notes I compiled this morning. Some time ago, Mike Scott mentioned a friend of his that had very impressive gains by being long the housing sector out of the bottom and well in to 2012. This was after a long bear market for housing stocks. The same thing happened eventually happened with solar. These notes take a look at China and Steel. These are not recommendations, but avenues for further consideration. Footnotes are provided at the end.

21038

[Mike]

I thought I would share a few notes I compiled this morning. Some time ago, Mike Scott mentioned a friend of his that had very impressive gains by being long the housing sector out of the bottom and well in to 2012. This was after a long bear market for housing stocks. The same thing happened eventually happened with solar. These notes take a look at China and Steel. These are not recommendations, but avenues for further consideration. Footnotes are provided at the end.

21038

Eric, this is a good post. Thank you for taking the time to share.

[ericoleman]

Thanks Mike.

I am not too sure how CANSLIM handles stocks like AKS. I went back to their October 2003 earnings release when they reported a loss of $2.56/share and the stock was trading around $2 a share. They returned to profitability the following April after numerous price increases. Between April 2004 and February 2005 the stock went from about 5 to 18 before a serious correction that retraced all the gains. Everyone knows AKS was a serious leader after that correction, finally topping out at $73 in 2008.

It really seems like some of the cyclical stocks are best bought early in their earnings improvement, or even when things are still somewhat bleak. When you described the story of the portfolio manager that went deep into housing in 2011/12, I thought that seemed more like deep value investing. Or possibly just a big bet on sector rotation. It really intrigued me.

Thanks again, Eric.

[1bullseye]

Eric,

Who is MA Delaney.




Thanks Mike.

I am not too sure how CANSLIM handles stocks like AKS. I went back to their October 2003 earnings release when they reported a loss of $2.56/share and the stock was trading around $2 a share. They returned to profitability the following April after numerous price increases. Between April 2004 and February 2005 the stock went from about 5 to 18 before a serious correction that retraced all the gains. Everyone knows AKS was a serious leader after that correction, finally topping out at $73 in 2008.

It really seems like some of the cyclical stocks are best bought early in their earnings improvement, or even when things are still somewhat bleak. When you described the story of the portfolio manager that went deep into housing in 2011/12, I thought that seemed more like deep value investing. Or possibly just a big bet on sector rotation. It really intrigued me.

Thanks again, Eric.

[Mike]

Thanks Mike.

I am not too sure how CANSLIM handles stocks like AKS. I went back to their October 2003 earnings release when they reported a loss of $2.56/share and the stock was trading around $2 a share. They returned to profitability the following April after numerous price increases. Between April 2004 and February 2005 the stock went from about 5 to 18 before a serious correction that retraced all the gains. Everyone knows AKS was a serious leader after that correction, finally topping out at $73 in 2008.

It really seems like some of the cyclical stocks are best bought early in their earnings improvement, or even when things are still somewhat bleak. When you described the story of the portfolio manager that went deep into housing in 2011/12, I thought that seemed more like deep value investing. Or possibly just a big bet on sector rotation. It really intrigued me.

Thanks again, Eric.

Eric, CANSLIM does not handle stocks like AKS well. This does not make these stocks bad investments, one just needs a different method to find and enter them. The 2009 junk off the bottom rally is the only one of its kind that I have run into. Usually in a new cyclical move there are enough CANSLIM candidates that behave and perform well. 2009 was different. The individual who returned 300% in his private portfolio in 2012 is actually one of Bill O'Neil's portfolio managers. Junk off the bottom and this housing move is probably deep value investing.

As far as finding a method of finding these type off opportunities I can suggest a book "Super Stocks" written by Jese Stine. He fits his methods along side CANSLIM but makes several assertions that are not in Bill's books. Jese will buy beaten down stocks at low prices where Bill likes to stay above $15-$20. Jese will take large drawdowns at times by doing this where Bill likes to operate amongst the relative safety of major institutional involvement. Still, Jese goes through step by step what he looks for in stocks well before they begin showing up in IBD.

[ericoleman]

Thanks Mike.

I've read Jesse's book. I enjoyed it quite a bit. I think he found a sweet spot that marries the best of a couple great strategies and laid out his process well. I appreciate the feedback.

Eric