Portfolio A1 Dragged Down By Perini (PCR)

With a little over a month to go in the trading year, Portfolio A1’s 1.5% gain provides only a slim margin over the 1.0% loss in the benchmark S&P 500 index. That margin shrank substantially last week, on the heels of continued weakness in Perini (PCR).

When stories start circulating with headlines like Stop the Blank Checks to Iraq Contractors, it is no surprise to see the stocks Perini and other top contractors in Iraq and Afghanistan suffer in the wake of a swirl of bad publicity. After losing 11.5% in two weeks, Perini (PCR) is now down 32% from its July high and is being dropped from the portfolio as a result.

Replacing Perini in the portfolio is the first stock to be bought on three separate instances: DryShips (DRYS). Portfolio A1 rode DryShips up earlier in the year and had less success with an early October buy. If the global commodity boom continues, this may look in retrospect to be an excellent buy on weakness; on the other hand, if the anxieties and slowing economic growth in the US start to be felt around the globe, then it may be a long time before DryShips’ stock approaches the October highs once again.

With the addition of DryShips, the portfolio looks to be positioned aggressively for the final five weeks of the year. If it turns out that we are in a bear market, that 2.5% cushion over the SPX will likely be long gone by the end of December.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

MOS and PCR Slow Down Portfolio A1

The run in Mosaic (MOS) certainly was not going to continue indefinitely, but last week’s correction was rather dramatic, as the MOS chart shows. Compounding an already difficult week, Perini (PCR), whose addition to the portfolio caused me to raise an eyebrow at last week, did nothing to assuage my concerns, losing 7.5% in the first week.

The result is that Portfolio A1 now sits with a gain of 5.7% since the February 16, 2007 inception, still comfortably ahead of the 0.2% gain in the benchmark S&P 500 index. As is evident from the bottom two graphics, this enhanced performance has come with considerably more risk than the SPX in the form of a much higher variability of returns. The next iteration of this portfolio (to be launched at the beginning of 2008), will aim to minimize risk somewhat more than the current portfolio, while continuing to seek out stocks like Mosaic that can supercharge returns. The ride will no doubt be just as interesting – and hopefully more profitable and instructive.

There are no changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Increases Lead Over SPX as Markets Drop

After the disastrous mid-August performance, it was heartening to see Portfolio A1 outperform the benchmark S&P 500 index during last week’s market turbulence. While the margin of outperformance was small, this now means that the portfolio is up 9.6% since the February 16, 2007 inception – a period in which the SPX is down 0.1%.

Some of the portfolio’s individual holdings did not fare particularly well during the week, with the result that the stock ranking system has elected to drop DryShips (DRYS) and StatoilHydro (STO). These stocks are being replaced by China Petroleum & Chemical Corp., more commonly known as Sinopec (SNP), as well as Perini (PCR), the large Boston-based construction company. In spite of the very strong year it has had, I am not sure I would be chasing Perini at this point, but, this being a mechanical portfolio, all I can do is raise an eyebrow and be prepared to eat some crow.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows: