Mosaic (MOS) Continues to Lead Portfolio A1

The title is probably a considerable understatement, but what else can you say about a stock that is up 91% in only ten weeks in the portfolio?

The amazing run of The Mosaic Company (MOS) has helped to push Portfolio A1’s performance to a cumulative return of 14.15% since the portfolio inception on February 16, 2007. This is 8.67% better than the 5.48% returned by the benchmark S&P 500 index during the period.

Mosaic’s performance has triggered a number of thoughts about portfolio design, backtesting, and the likelihood of catching lightning in a bottle. Simply stated, in the 8 ½ months that Portfolio A1 has been up and running, it has purchased 27 stocks. Almost half of these stocks are up 50% during this period and 30% (MOS, DRYS, BRP, PCU, PBR, RIO, CNH, and SNDA) are up an astonishing 100% or more. The bottom line is that I believe it is possible identify stocks that have a high likelihood of doubling or tripling in one year (with attendant risk, of course) and build portfolio rules to maximize the probability of capturing those gains during the time they are held in one’s portfolio. I will expand upon this going forward, but Portfolio A1 should provide some evidence to support that contention.

There is one change to the portfolio: Navistar International (NAVZ) has been dropped and is being replaced by returnee PepsiAmerican (PAS), the beverage bottler. There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Continues Upswing Behind Red Hot Mosaic (MOS)

Thanks to the Fed rate cut, three of Portfolio A1’s five holdings logged gains of 10% or more last week, led by a 12.2% gain in The Mosaic Company (MOS), which now sports an impressive 39.7% return in the five weeks it has been in the portfolio. Also part of last week’s winning trio were DryShips (DRYS) and Navistar (NAVZ). By the time the abacus was put to bed, the gap between the benchmark S&P 500 index and the portfolio had closed to 7.9%, the lowest margin since the mid-August plunge. With a total return of -3.08 since the February 16, 2007 inception, it is beginning to look like the portfolio may soon be back in green.

In the never ending quest for better performance (while keeping a deaf ear to any concerns about high turnover) this week the stock ranking system has jettisoned Sanderson Farms (SFM) in favor of Terex (TEX), an infrastructure play with significant exposure to China. A returnee, Terex was a very strong contributor to the portfolio earlier in the year.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Continues to Close the Gap on SPX

From the department of small victories comes the news that for the third 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. That performance gap, which peaked at 17.5% three weeks ago, has now been sliced to 9.9%.

The Mosaic Company (MOS), a fertilizer producer, has been leading the charge back to respectability, with a 19.3% gain in three weeks. New addition DryShips (DRYS) was up 7.8% in its first week in the portfolio.

Two companies have been dropped from the list of holdings: CNH Global (CNH), despite a 10% return during its holding period; and Western Refining (WNR), which departs with a 7.3% aggregate loss. These companies are replaced by two higher ranking stocks: Sanderson Farms (SFM), a poultry producer; and Navistar International (NAVZ), a returnee to the portfolio after a one month hiatus. Navistar has been in the news lately for its diesel-hybrid technology as well as its armored vehicles.

There are no other changes to the portfolio this week.

A snapshot of the portfolio is as follows:

Portfolio A1 Losing Altitude Quickly

First, an apology. Last week I was on vacation and made a best efforts attempt to keep the information for Portfolio A1 current. As you can see from the transaction log below, I posted an ‘update’ of the portfolio too soon and missed the signal to sell Amkor Technology (AMKR) and replace it with AST Test Limited (ASTSF), the Taiwanese semiconductor testing company.

As it turns out, ASTSF lasted only one week in the portfolio and is being dropped along with Navistar International (NAVZ) in an effort to find a way to stop the bleeding.

The task of propping up the portfolio falls to Western Refining (WNR) and PepsiAmerican (PAS) – two relatively conservative plays that appear to be ideally suited to minimizing further downside risk rather than maximizing any gains from a bounce.

In the meantime, the equity curve tells the story of the damage. The total return is now -13.7% and the peak to trough drawdown currently sits at -22.6%. This will be a very difficult hole to dig out of, but I still like the long-term performance characteristics of this portfolio and have no intention of cutting the portfolio off without at least a year’s worth of performance statistics from which to learn some lessons.

A snapshot of the portfolio is as follows:

Portfolio A1 Last Seen in Woodshed

While the SPX, DJIA and NASDAQ Composite all feel somewhere in the 4.0 - 4.7% range during the past week, Portfolio A1 plummeted 9.2%, dragging the portfolio’s aggregate performance down below that of the benchmark S&P 500 index for the first time in four months.

Southern Copper (PCU) was the only holding to fare better than the indices, losing 3.3% on the week. The next ‘best’ performers, Mobile TeleSystems OJSC (MBT) and Terex (TEX), fell 7.7% and 8.6 respectively. Two other holdings logged double digit losses on the week, with Amkor (AMKR) off 11.9% and Pinnacle Airlines (PNCL) plummeting 13.6% by Friday’s closing bell. Pinnacle’s performance is largely responsible for it being dropped from the portfolio and replaced by Navistar International (NAVZ), a stock I owned some 23 years ago when it was International Harvester. While the company has had some extremely difficult challenges in the intervening years, a recent $623 million contract award to the military vehicles division suggests considerable upside potential. Navistar lost only 1.0% last week and has the potential for a significant upside surprise in more favorable market conditions.

There are no other changes to the portfolio for the coming week.

A snapshot of the portfolio is as follows: