MasTec, Inc. (MTZ) is a multinational infrastructure engineering and construction company based in C...
Optimistic & Opportunistic
03/11/2013 9:45 am EST
Chris Versace of PowerTrend Profits believes in a recovering economy, but protects his subscribers by locking in profits when the opportunities arise.
Nancy Zambell: My guest today is Chris Versace, the editor of PowerTrend Profits. Thanks for joining me.
Chris Versace: Happy to do so. Thanks for having me.
Nancy Zambell: Chris, we’ve had a great market run in the last few days. Do you think that’s going to continue, and what have you been doing during this run?
Chris Versace: People always ask me all the time what I think about the overall market, and I look at it for context, more so than anything. But the reality is, we’re shifting through the market, finding the best-positioned companies to generate the best possible profits. But having said all that, the market has run pretty hard, and I do think that when we look at the economic data we’ve gotten lately about the housing sector, the automotive sector, and the manufacturing economy, there are reasons to be optimistic about the overall domestic economy.
But gas prices took off significantly in February, and I am a little concerned about the health of the consumer and his or her disposable income. And I think that when we start to get some February figures, not only on retail sales, and restaurant traffic, we might finally start to see some of the froth coming out of the market.
Nancy Zambell: Have you been taking any profits recently since we’ve had such a nice run?
Chris Versace: You know it’s funny you ask that question because over the last couple weeks, we’ve been trimming back our positions. We’ve done so in International Flavors & Fragrances (IFF). We had a nice 30% + profit in that. We also trimmed back Applied Materials (AMAT). Again, better than 30%. We did sell one full name—Inter Parfums (IPAR), but that was phenomenal. We sold the first half in mid-February for about a 24-25% gain. And then we sold the last part this week, and that was up almost 50%. So we’ve been absolutely trimming back, but we’ve also been repositioning ourselves to take advantage of some of the names that haven’t been going gangbusters.
Nancy Zambell: So what are some of those names? Where are you putting your new money?
Chris Versace: Think of it like this. The housing sector continues to be very strong, and when we sift behind all the housing data that we get—existing home sales, new home sales, housing starts—one of the things I have found is that the housing stock for sale is at multi-multi year lows. And this says to me that the homebuilders need to normalize that inventory level. So I do expect them to continue building further—not just the next month or so—but into the balance of 2013 to bring that up.
To me, that says fantastic things for demand for wallboard, so we’ve been recommending shares at USG (USG), probably the largest supplier of wallboard here in the United States. Second, another company that’s tied into housing is ADT (ADT). Most people know them as an alarm company, and they are. But they’re transforming their business to serve a whole number of pain and comfort points for the consumer, when it comes to their house. ATD is fantastic in the sense that roughly 93% of its revenue is recurring. That’s a huge customer base that’s extremely sticky, which means great things for cash flow and valuation. So when they come along and they start layering other services, a modest conversion can be really impactful to their revenue and profits.
Nancy Zambell: That’s interesting that you’re looking at companies that are involved in housing, but not the builders. Are you not keen on the homebuilders today?
Chris Versace: It’s not that we’re not keen on them. My subscribers have very profitable trades in homebuilder M/I Homes (MHO), and I’m just looking for other areas that we can really put money to work that haven’t seen those multiples explode. So if I could find a homebuilder that I thought had at least 25% upside with modest downside, I’d probably take a hard look at it. But right now there’s so much opportunity in these other areas, that that’s really where I’m focused right now.
Nancy Zambell: That makes a lot of sense. What about outside the US? Are you doing anything in the emerging market arena?
Chris Versace: As we talked with The MoneyShow, I really keep my eye on what’s going on in the emerging markets, both in Asia and in Latin America. Their economies having rebounded a little earlier, a little faster than ours, and as a result we’ve seen nice disposable income growth there, which is great for companies like my International Flavors & Fragrances (IFF), McCormick (MKC), and Mondelez International (MDLZ). But in terms of actually investing directly in there, I do have concerns with Asia—some of the accounting rules, and getting financials filed in a timely fashion. So generally speaking, I’ve stuck with names that have growing exposure to the emerging markets, but they’re based here in the US.
Nancy Zambell: In your newsletter, PowerTrend Profits, do you strictly cover stocks, or do you also do ETFs?
Chris Versace: In PowerTrend Profits, it’s strictly stocks. That doesn’t mean I can’t do any ETF. I haven’t done one yet, but I do deal with ETFs out-of-the-money call option in another service, called ETF Power Trader. There, the goal is to double your money, and I have to say that we’ve been doing a very, very good job over the last four months with some call option returns easily that passed 100%.
Nancy Zambell: That’s pretty nice. As far as holding period in PowerTrend Profits, do you have an average holding period?
Chris Versace: We try to be opportunistic, and there have been times where names appreciate very quickly. And because we look at them on a risk-reward basis, we will take our profits if that happens. But generally speaking, really to get the biggest bang for your profits, we will look to hold 12 to 18 months on average. Again, things could be shorter, like in Inter Parfums (IPAR). We bought that last September, and it zoomed from $17 and change to $25, so we wanted to be prudent, and we made sure that we exited to maximize subscriber returns.
Nancy Zambell: And when you purchase a stock, do you set a target price that you’re looking for or a percentage gain?
Chris Versace: Even before I do all my homework and roll up my sleeves, I need to see at least 25% to get comfortable, and that’s net upside, on a risk-reward basis. As I’m sharpening my pencil on a name—I am going to look for a price target, but I’m also going to look not only for a price to set a stop loss at, but I’ll look at a total exit price as well.
Nancy Zambell: That makes sense. That’s a smart way to invest. Thank you, Chris, for your time. I appreciate it, and thank you for the recommendations. Great talking to you.
Chris Versace: Thank you. Happy to do it again.
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