Global Opportunities

Initiate CHK

Our portfolio has recently been focused on technology and healthcare and underweight energy.  There is room to add a value energy stock and we think natural gas has more room to run.  Rig counts are down.  We are seeing steady price increases in the physical.  Natural gas is a clean fuel and we have a clean fuel administration.  CHK does have some liquidity risk, a $3.5bln funding gap this year that is expected to paid with the continued sale of production and mid-stream assets.  During their earnings call, Chesapeake indicated a likely increase in production performance with no concurrent increase in capital expenditures.  We feel the valuations are already compelling at 11x forward earnings expectations.  If pricing power continues to return, the stock could do very well.

Add to ESRX

Express Scripts reported earnings in line with expectations, unspectacular. Additionally, there is evidence that margins are being squeezed in the industry.  We believe, though, that there are earnings beats in the future.  As Express Scripts continues to integrate the Medco merger, they will find additional cost savings and margins can expand despite the industry challenges.  Valuation is not too expensive at 11.8x forward P/E.  We also feel that this subsidized industry provides a more stable top line should the economy run into challenges.

Add GNW

A small allocation to Genworth was added this week as well.  Current Fed monetary policy benefits financial asset prices, which in turn benefits the balance sheet of financial companies like Genworth.  Book value must be looked at with a grain of salt for leveraged companies, but at .3x P/B and 7x forward P/E, this company is potentially a bargain.  With recent market strength, we felt GNW would announce a good quarter.   Should revenue growth pick up as well, Genworth will be a very good performer.

Sell MBI:

MBIA has been involved in an ongoing lawsuit against Bank of America over toxic mortgage-backed securities issued by Countrywide.  The result of this suit will set a precedent for future fraud cases against BofA which could cost them a lot of money.  Therefore, BofA is fiercely contesting the fraud accusations.  BofA is using tactics to extend the litigation and make it very expensive for MBIA.  They hope that MBIA runs out of money fighting the case and must settle for pennies on the dollar or risk bankruptcy.

A very positive scenario for MBIA would have the court find Bank of America guilty of fraud and require that they re-purchasing these toxic securities.  Unfortunately, a ruling last week did not go in MBIA’s favor, further delaying the case.   Subsequent to the ruling it was rumored that state insurance regulators were getting involved, an indication that MBIA was running low on cash.  A weakened position, possible receivership and a call to the bankruptcy lawyers indicates that the risk has become too high relative to the potential reward.  This triggered our exit.

“Wealth preservation and accumulation through thoughtful investing.”

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For information on Alhambra Investment Partners’ money management services and global portfolio approach, Douglas R. Terry, CFA is reachable at: dterry@4kb.d43.myftpupload.com

Disclaimer: The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Alhambra Investment Partners LLC, do not constitute investment advice offered by Alhambra,  are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and are not warranted to be correct, complete or accurate. Except as otherwise required by law, Alhambra shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use.