Sodastream, Facebook and Tesla will power this portfolio in 2013

My investment thesis involves both fundamental and technical analysis. I’ve met many traders and portfolio managers who use one of these approaches, but  usually not both. If you can do both, and well, why not combine the two?  This is my main investment theme.

I have also been a huge follower of George Soros, who talks about inflection points. He sometimes will follow the crowd, but once the inflection point hits, you either need to enter or exit a trade (depending on if you’re long or short).  I don’t believe that all stocks are fairly valued!  The supply and demand can lead to inaccuracies, which I aim to seek out.

There are times where stocks are so cheap and beaten down, that adding to a position can be good. I don’t think of it as doubling down. I’m adding to a position that in my opinion is being unfairly perceived. In other words, it’s the law of supply and demand. Stocks don’t go straight up, or straight down.  They climb stairs up and down.  As a trader, I seek out these inflection points.

An important piece of this logic is that I’m not always correct. I need to know this. You need to know this. It’s about trying to find something that you feel is correct and acting on it. Don’t look for the home run, but sometimes a few singles is all you need. I find it that many investors never sell on up moves. I find it amazing.  They will only sell stock after it has dropped considerably. I look to do the opposite. I will add considerably, when everyone is selling in a panic.

In the case of Sodastream (SODA), my trade worked out well. Sodastream reported earnings in early November, and immediately popped 15% in pre-market trading. Over the next few days it was trading down 10%.

From a fundamental point of view, the stock continued to get cheaper, with improving growth metrics (the company guided up for the third consecutive quarter). As an investor, things didn’t make sense. People were selling (in a panic), shorts were selling to drive the price lower. Discussion boards were saying that 30 was in sight. As a contrarian, I find that when investors begin to discuss bottom prices, a stock may actually be at that bottom.

I continued to monitor sales of Sodastream (on Amazon it’s currently the 17th best appliance in kitchen & Dining) and noticed that it was now selling in the top 25. It’s best position before this point was around 80 last Christmas.

Another similar, but much more difficult trade involved Facebook (FB). I have been a big believer in the future of Facebook and continue to be. It has more information about consumers than any company in history.

In addition to these considerable long trades, I have been seeking out short opportunities to hedge my positions. One such trade is Nutrisystem (NTRI). Nutrisystem is a diet system that many people have probably seen on TV and in print. The stock’s technicals looked terrible.

A horrible position for a stock to be since every single long is probably out of the money and looking to sell if it bounces (Another rule: Never look for bounces to sell, just sell losers and forget them). The company reported terrible earnings and proceeded to dropped instantly with no demand to buy, and millions of shares looking to sell.

For those who are following my Undervalued Opportunities model, it has been a great quarter and I have since lowered my leverage, added a few short positions and locked in some major gains.

I continue to believe in further gains for my top three positions, which remain SODA, FB, and Tesla Motors (TSLA).  I have sold stock in each during November, and will look for better buying opportunities (If they present themselves) over the next few days and months.

The investments discussed are held in client accounts as of November 30. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.

  • James

    Eric – please explain how HTRI “hedges your position” as it’s purely a directional assumption as are SODA etc? If you used options on SODA, FB or TSLA that would constitute a true hedge in my opinion. Adding another directional play just’s increasing risk as all of your positions have a 50/50 chance of success whether short or long. I appreciate your thoughts. Thanks.

    • http://twitter.com/Etrader Eric Steiman

      James, thanks for the comment. You are right that its not a true hedge. My reasoning for adding short positions is to lower my net long exposure. I do this because when the market “corrects,” a good percentage of all stocks will go down with it. I chose NTRI, because of its overall weakness (I believed my odds were much better than 50/50. (This isnt a casino!) In this case, if the market were to drop 10%, I’m at least working my net long exposure downward, while also maintaing a few key long positions. Thanks again for the comment and I hope this helps.

      • James

        Thanks Eric I appreciate your response. Regarding your casino comment not to be argumentative but if one trades an equity via stock then they have exactly a 50/50 chance of it going in the direction they desire regardless of one’s assumptions – certainly not dismissing your opinions / assumptions that lead to your thinking that the odds are in your favor but there is no way of proving anything other than 50/50 – at least that I know of. Happy Year and I wish you well with your 2013 selections.

        • http://twitter.com/Etrader Eric Steiman

          We can debate it forever, but the stock market has gone UP for many decades. GDP growth has always been higher than lower. Investing in stocks has been a good source of wealth creation for the past century and will continue to be into the future. Good Luck!