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The Long Road to Stock Gains
07/24/2013 10:00 am EST
Nate Pile of Nate's Notes holds on to his favorite stocks for ten years or longer, and has seen some rise 100-fold or more in value. Here he looks at some of his big gains and new favorites.
Steven Halpern: We're here today with Nate Pile who's been publishing his newsletter for 18 years. How are you doing Nate?
Nate Pile: Fine, thanks.
Steven Halpern: One thing that really sets you apart from any advisors is that you take a truly long-term perspective; in fact you've often quoted Warren Buffet, who said that he focuses on stocks that he wouldn't mind holding even if the market closed for five years. Could you tell us a little about this long-term philosophy?
Nate Pile: Yeah, and just to be clear, Warren Buffet is one of those guys like Mark Twain, he gets a lot of quotes attributed to him that he didn't necessarily say, but I think it's who I first heard quoted.
It's basically this idea that if you find a company you really like, you ought to be willing to buy it and then find out the stock market's closed for five years and feel comfortable holding it through that entire period, knowing it'll probably be worth more at the end of those five years than when it started, so that's sort of the basics of the philosophy.
Then we add on to that, but it's just not the buy and hold strategy though, the newsletter makes trades once a month and each issue we sort of look at all the stocks, and we tend to scale in and out of stocks based on the relative performance of them to each other.
This sort of naturally leads us to having larger positions in the stocks that are acting well over time, and smaller positions in the stocks that aren't acting so well. Again, the caveat on that, once we like the stock we'll never be completely out of it, unless they go to an outright sell.
So we always have, at least a small position, given that trends can change on a dime and sometimes, especially in the industries wherein biotech and high-tech, mostly buyout offers come along and you hate to be out of your position entirely, so we always own a little bit of it, but again, we do tend to scale into the stocks that are acting well and out of the ones that aren't acting so well each month.
Steven Halpern: One great example of your long-term approach is your investment in Apple (AAPL), which rose 100-fold from your original purchase price. Now that it's come back from the $700 level, down to the low $400s, what's your outlook for this stock.
Nate Pile: Yeah, it was our first 100 bagger and it happened last September. After it became the 100 bagger, it spent about three more days heading north and then the great Steve Jobs and bull market finally came to an end, and it proceeded to pretty much head straight down, close to 40% since then.
We started to nibble in the 500s on the way down, but have been doing a lot more buying down in the low 400s.
I'm a little anxious about the fact that we haven't really seen any new products out of the company in a while, but they're sitting on a nice little business franchise, and I think it was David Tepper who said even if they never knock the ball out of the park again, they've still got a nice little business to run.
Interestingly, Tim Cook will probably never be the visionary that Steve Jobs was; you know Steve Jobs is kind of a once-in-a-lifetime sort of genius, but Tim Cook's a great operations guy, and in a lot of ways he came on board just about the right time to take what Steve had built and start to really run it as a truly efficient company at its next stage of existence. So, in a lot of ways, I'm happy with Tim Cook there.
I think the company would really have to mess up to see a huge decline in the stock, but let's call it downside risk of maybe $50 to $100 from here, but if they are able to come out with a cool product again, and I think they probably will, the upside's probably another $400 to $800 from here, and I like that risk:reward ratio quite a bit, so we're buying the stock down here in the low 400s.
Steven Halpern: Biotechnology has been another favorite sector of yours, along with the technology area. One of your holdings, Celgene (CELG), has gone up 150-fold since you bought it. Would you still recommend buying it even at these highs?
Nate Pile: Yep, we still do like Celgene, and that was actually one of the first stocks recommended in the newsletter way back in 1995. It took five or six years I think to become a 50 bagger then another, gosh it took all the way until January of this year to become a 100 bagger for us.
Interestingly-and showing just how frustrating the stock market can be-whereas Apple hit that milestone for us and promptly reversed course and dropped close to 50%; Celgene kept right on truckin' so it was our second 100 bagger in January, and then in July of this year it became our first 150 bagger, so it went on to rise another 50% and we do still like the stock at these prices.
They've got one of the deepest pipelines in the industry, sitting on plenty of cash and a super great management team there, so the stock might be due for a little pullback and cooling off period, but we do still like it and it's one that we plan on owning for quite a while longer, provided they keep running the ship the way they've been running it.
Steven Halpern: Although you keep some 20 stocks in your model portfolio at any given time, every month in your newsletter you highlight a few that you consider your top picks for new money. I notice two of the latest top picks were semiconductor names, Nvidia (NVDA) and Triquint (TQNT). Could you tell us a little about them?
Nate Pile: Yeah, yeah, I watch five indices in the newsletter to help me gauge the health of the overall market, and the semiconductor index has been one of the lagers, it was sort of the last one to turn, flash a bullish signal for us. Not surprisingly, a lot of stocks in that sector are also starting to perform better. Nvdia and Triquint are two of them.
Nvidia, their area of specialty is they make basically graphics processing chips for all the high-end video that you see. There is a huge slowdown going on in the PC market, obviously, but it seems to be more dramatic at the low-end than the high-end, and that's where Nvidia sells into. Triquint also has been in the newsletter forever, I think we put it in maybe '99 or 2000. It went up fivefold for us, came back down, and has traded sideways more or less since then, between five and ten, maybe up to 15. Their area is they're into chips that go into mobile phone units. They do some defense work and networking, but they're a supplier to the cell phone industry.
They got punished because they're also a supplier to Apple, and, as you know, anyone who supplies chips to Apple has been crushed right along with Apple stock lately, but another stock that's looking good to break into new 52 week, if not two or three year highs, and again, that's something that I look for to add to positions in our stock, so that's why it was one of the top picks in the most recent issue.
Steven Halpern: Now next month you're going to be introducing a new newsletter; The Wagmore Advisory Letter. If you'll be kind enough, maybe you'll let us call back and when you have your new newsletter out, you'll give us some of the current recommendations.
Nate Pile: Yeah, I'd be happy to do that. It's going to take a similar approach to what we're doing in Nate's Notes, mainly long-term growth stock investing. After helping a lot of my subscribers make some good money over the last 15 years or so, they're wanting to get a little more conservative and have me help them protect their portfolios and it's hard to do that in the context of Nate's Notes.
So we're launching the second service which will take a similar approach to growth stock investing, but we'll be writing covered calls against our positions on a rolling basis; and it's going to be interesting for me to see how the performance of that compares to Nate's Notes.
Steven Halpern: Well, we look forward to seeing that and thank you for taking the time today.
Nate Pile: Thanks for having me. Good talking to you.
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