Stock Portfolio Update: Taking Profits on Airline Stocks & Free Lunch Invite
By: Christopher Mistal
December 11, 2014
Investors tend to get rid of their losers near year-end for tax purposes, often hammering these stocks down to bargain levels. Over the years the Stock Trader’s Almanac has shown that NYSE stocks selling at their lows on December 15 will usually outperform the market by February 15 in the following year. When there are a huge number of new lows, stocks down the most are selected, even though there are usually good reasons why some stocks have been battered. 

Our “Free Lunch” strategy is only a short-term strategy reserved for nimble traders. It has performed better after market corrections and when there are more new lows to choose from. The object is to buy bargain stocks near their 52-week lows and sell any quick, generous gains, as these issues can often be real dogs. Last year’s basket of 18 stocks produced a 25.7% average return from the close on December 20, 2013 through the close on January 21, 2014.

[Free Lunch 2013-2014 Final Results]

This strategy has been profitable in 14 of the last 15 years with an average basket gain of 15.8%. Like nearly every asset class at the time, the “Free Lunch” trade was down 3.2% in 2007-2008, but it still outperformed the NYSE over the same period. This year’s “Free Lunch” stock basket will be emailed before the market opens on December 22. Unlike previous years, we will provide specific buy limits and stop losses for each stock included and the trades will be tracked in the Almanac Investor Stock Portfolios.

Stock Portfolio Updates 

Since last update in mid-November S&P 500 declined 0.7% through yesterday’s close. Russell 2000 slipped 0.2% over the same period while collectively the three Almanac Investor Stock Portfolios gained 1.2%. Our Small- and Mid-Cap portfolios performed best gaining 1.0% and 3.1% respectively. The Large-Cap portfolio slipped 0.8% due primarily to declines by Gildan Activewear (GIL), Icahn Enterprises (IEP) and Sunoco Logistic (SXL).

Falling commodity prices, crude oil in particular, have garnered much attention recently. Crude oil’s epic collapse this year has been a double-edged sword for the portfolios. Companies like Sunoco Logistic (SXL) and IEP have declined in sympathy while airline shares, Hawaiian Holdings (HA), Jetblue Airways (JBLU) and United Continental Holdings (UAL) have all soared. Crude oil could very well trade at $40 per barrel, but it is not likely to remain at that price for long. A price between $60-80 per barrel seems more likely as there is still sufficient incentive for companies to invest in exploration and future production while still being high enough to support the rapid development and deployment of alternative energy. 

Profits have already been taken on HA (sold half the position when it first doubled) and although JBLU and UAL have not yet doubled from their original purchase prices, their recent price surge and increasingly muted response to further declines in crude oil price warrants at least considering taking partial profits now. Sell 1/3 of your position in UAL and JBLU when total position gain equals or exceeds 40%. For tracking purposes, 1/3 of our UAL position will be sold using today’s closing price.

From Tuesday’s Seasonal Sector Trades Alert, new trade idea Global Brass and Copper Holdings (BRSS) appears in the Small-Cap portfolio. This trade was initiated as a way to play seasonal strength in copper that typically begins in mid-December and can last until mid-April. BRSS can still be considered at current prices. Additionally, Southern Copper (SCCO) can be considered near current levels. Due to broad commodity weakness, due in varying amounts to tepid global growth, U.S. dollar strength and general malaise, typical seasonal gains are likely to be less than normal or may not even materialize at all. If purchased, pay close attention to BRSS and SCCO stop losses.

With yearend approaching quickly, all positions except BRSS and SCCO are on Hold. Recent gains have resulted in numerous stop losses being increased. Please see full portfolio table, below, for most recent advice.

[Almanac Investor Stock Portfolios – December 10, 2014 Closes]

Disclosure Note: At press time, officers of the Hirsch Organization, or the accounts they control, held positions in IEP, IIIN, LAD, LDL, PII, STLD, SXI and UNH.