The V20 Portfolio Week #10: Almost There
Summary The search for a hedge continues. Dex Media’s new deadline is Monday, but it could be extended again. With all major events now behind us, it should be smooth sailing ahead. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! The bears are back just before we wrap up the year. The V20 Portfolio claimed another victory over the S&P 500 this week, staying virtually flat (-0.4%) versus the index’s decline of 4% this week. With oil hitting historic lows recently, having broken the $40/bbl mark and now testing $35/bbl, there seems to be no end to this commodity slump. Update On Hedging Those of you that follow my weekly updates probably remembered that I was looking for an energy stock to offset the position in Spirit Airlines (NASDAQ: SAVE ). I still have not found any energy stock that would be worthwhile to include in the V20 portfolio, and it looks that I got lucky with this delay. I want to stress the word “luck” because I had every intention to find a good energy company, it’s just that I have been successful thus far. Had I taken a position then, it sure wouldn’t have been pretty. Given the current outlook for oil, has my objective changed? The answer is no. I remain committed to find an offsetting position for Spirit Airlines. Keep in mind that this is not limited to a long on energy stocks, it could also be a short on a less impressive airline, or even futures for a more direct hedge for fuel prices. The reason why I am more inclined to find a long position is simply the result of better risk/reward of a long position on an undervalued energy company. Ideally, the company would earn money during the current downturn, and will hence perform even better when oil rises. So in other words, I don’t want the value of this hedging position to completely offset any gains or losses that I make on Spirit Airlines. Outlook With Conn’s (NASDAQ: CONN ) earnings now behind us, we’ve officially wrapped up Q3 earnings. Going forward, Conn’s will continue to report monthly sales data. Through Q3 earnings, we already know that November sales were up 8% on a same store basis, so growth continues to be strong. Previously there were worries that tightening credit policies would impact sales, this is clear evidence that points to the contrary. There is also the curious case of Dex Media (NASDAQ: DXM ). As always, the stock fluctuated wildly during the week, and I expect this trend to continue going forward. However, because the stock is such a minute portion of the V20 Portfolio, any downside volatility will not significantly impact overall results at all. Even if equity holders lose everything post-restructuring, the V20 Portfolio will only decline by 0.7%. On the contrary, if the restructuring outcome is favorable to equity holders, then its value will skyrocket. As of right now, all stakeholders are still negotiating. Having extended the forbearance period once already, I wouldn’t be surprised if it is extended once again after the deadline passes on Monday. With major events now behind us, the V20 Portfolio is looking to have a strong finish in 2015. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.