Tuesday, September 4, 2007

Portfolio A1 Slowly Closing Gap on SPX

For the second week in a row, Portfolio A1 has taken a small bite out of the gaping performance hole between the portfolio and the benchmark S&P 500. What was a 17.5% gap two weeks ago is now down to a slightly more manageable 11%.

The two agriculture-based holdings, Mosaic (MOS) and CNH Global (CNH), continue to lead the resurgence, up 16.8% and 9.5% respectively in the two weeks they have been in the portfolio.

Speaking of bright lights, I was more than a little surprised to see the portfolio drop PepsiAmerican (PAS) this week. The Minneapolis-based bottler was added to the portfolio three weeks ago on the strength of very solid fundamental numbers across the board and has been very strong technically, making a new 52 week high on Friday (and again this morning)…but apparently an 8.8% gain in three weeks is not good enough to keep it from yielding its slot in the portfolio to shipping juggernaut DryShips (DRYS), a company that is up almost 500% in the past year and yet still manages to sport a P/E under 13.

From my vantage point, it appears that adding DRYS is an implicit endorsement of continued global economic growth and a move away from a more conservative food and beverage play. Even though the mechanical system behind Portfolio A1 doesn’t use this type of market logic in its decision-making, this does not stop me from putting my interpretive spin on what comes out of the black box.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

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