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Tuesday, June 1, 2010

Market Thought... butter

My word for the rest of 2010 will be 'butter'.

The markets are churning so much, it is as if the markets are making the stuff. Then, when the fear fades and the markets rally, the markets will be butter. (look up butter on for those who do not get the slang ;)

I am not backing away from the thesis of the recent Market Thought post 'resistance?'. The markets are playing out the very uncertainty highlighted, and its churning. This has to play out until things look better, and if the economic data holds up, it will play out.

I have made no secret that with this market churning, when the SP500 meets the daily 320SMA (which can be around 1040/1050, not the current SMA level), I will go very heavy into this market. I will be adding to my usual suspects (ie IBM, AAPL, GS, NAT, F, KMP, C and maybe GOOG among others).

A few stocks I am really interested in with this market decline include ERII and CHK. Most of my capital I plan on allocating to the names above, but with the oil spill, Shell's recent announcement of a Nat.Gas. acquisition and Nat.Gas prices holding steady CHK is very appealing. If I can get CHK for around 18, I will not pass it up.

ERII, to me, is one of the best pure play water themes (along with NLC). I wish management would execute a better acquisition strategy to flatten out their extremely bumpy earnings. (They have to define to Wall Street what kind of company they have to become. There current product line up, while technologically impressive is not cutting it for investors.) Regardless, it is approaching levels that a deep value player can not ignore. Their product(s) are proven, in demand and the company is legit. Asset Valuation (excluding intangibles and goodwill) its worth in the mid/high 2s. Book Value its worth in the high 1s. And Cash Value alone its worth about 1 dollar a share. If ERII enters the mid/high 2s, I will buy a few thousand shares on shear valuation alone. (But I warn, the chart is not pretty, indicating a strong and consistent liquidation going on right now.)

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