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Want to Diversify? Start with These 5
12/02/2011 7:30 am EST
The market continues to gyrate daily based on the latest rumors out of Europe or on Capitol Hill. Wall Street was down for eight straight sessions before rebounding this week. Despite record corporate profits, investors are rightly worried that there is no quick fix to the debt crisis facing the West.
While we wait for the ship to right itself, I like the way that we have positioned ourselves in the Hedge Fund Trader, with investments in steady performers like Hershey Company (HSY) and growth stocks like Chesapeake Energy (CHK).
Speaking of Chesapeake Energy, did you see the October 24 Forbes cover story about CEO Aubrey McClendon entitled "America's Most Reckless Billionaire"? The writer states, "Land grabs, aggressive accounting, record profits, McClendon is determined to turn Chesapeake Energy into a juggernaut, or go bust trying."
We're betting on the former. Keep buying.
Cirrus Logic (CRUS), the audio-chip specialist, has moved up sharply in the past two days. The tech company sold off in October after reporting flat revenues and missing earnings, but the earnings miss came largely from the company's energy unit, which is a turnaround situation.
Most of its profits come from supplying its technology for Apple (AAPL) devices-iPhone and iPad, especially-and here the profit potential is tremendous. With profit margins exceeding 46%, and selling at 11 times next year's estimated earnings, Cirrus Logic is deeply undervalued as a tech company.
A month ago, Robert Henry Smith, a director, purchased 132,000 shares (worth more than $2 million) of stock, and another director has joined him. I suspect they anticipate beating the Street's estimates when the company reports earnings a month from now.
We are hedged against another market sell-off with two positions. One is PowerShares US Dollar Index Bullish (UUP), which is within pennies of our original buy price.
The other is ProShares UltraShort MSCI Europe (EPV). We had a sizeable profit in EPV on Friday, but it was wiped out by the rally on Monday. Yet, the European situation is only getting worse, so let's maintain this short position.
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