Seeking Alpha by Adding Beta

Obama gave an exceptional acceptance speech which would make even skeptics vote for him. Democratic party made an excellent choice as their presidential candidate and I fully support Obama for President. America needs change and who is better than Obama ? Now coming to main topic - I have been calling market bottom for some weeks. With today's GDP report, I can confidently say that market have reached bottom few weeks back and it is on its way towards 12500 by end of year. Most promising part of today's market move was that financials have come back in a big way. I was glad that my call on mortgage insurers was so on the mark with 4 of my recommendations up by 20-50% in last few days. Since these stocks are still down by 80% from their peaks, I would recommend staying invested in these stocks or making positions when they come down little-bit (check out my recommended entry points in previous post). I see scenario playing out exactly like 1992. Even though I was not in USA, fr...

Since I have been writing about mortgage and financial insurers, here is another interesting post which I came across on seeking alpha which provides even more detail analysis on ABK , MBI and RDN . Risk/Reward Analysis Makes Financial Insurers a Buy Looks like more folks have started noticing recent run-up in these companies. Even today when Dow was down nearly 250 points, ABK and RDN made a nice upward move. While I am cautiously optimistic on these companies, one may want to wait for some time to take positions in these companies. My recommended price to take positions in these companies is ABK less than 6, MBI less than 10-11, RDN at 3 and PMI at 3. At these entry points, these companies have potential to give returns of 50-100% in next 18-24 months Good luck and good night ! / Shyam

What a see-saw in crude price last week. With Goldman predicting oil to reach at $149 by year-end, I am taking opposite stance and predicting that oil would touch $100 before it touches $149. It would be interesting to watch how it plays out. And I am betting on my prediction with by taking some positions in airline companies like US Airways ( LCC ) and United ( UAUA ). If oil touches $100, these stocks would be up by about 50% from Aug 21 lows. If it goes above $140, these stocks would be down by 50% (and provide another buying opportunity). Recently my investing has been on macro-level - would a company survive or go BK. If my analysis shows that despite all dark clouds, company would survive and eventually prosper, I would recommend (and possibly invest if I have cash). This thesis proved to be quite correct In July-Aug while I was on vacation. Two sectors which provide ample examples to try out my thesis are - financials (including insurance sector) and airlines. Here is this week...

Summer is almost over. I just came from my long vacation to India and London (that's the reason there were no posts on blog even though lot of events were happening in market). Had fun in India and London (would publish some photos in later posts). With Freddie and Fannie down by about 40% in 4 days, what an exciting week to start writing again. So what's the future for these GSEs ? If I have to make a prediction, they would be recapitalized by government some form leaving small value for existing shareholders about same as current stock prices of these companies. So what's best way to play this sector ? Now that all bad stuff of monoline and mortgage insurance companies is published (hopefully), it may be good time to make small bets on ABK, MBI, RDN and PMI. These stocks are up by more than 100% already in last 3-4 weeks but since they have been down from double digits to below 5, there may be still 50-100% upside in these stocks (disclaimer: I may have position in some ...

Finally six worst months in recent market history are over.With various cross-winds, markets and pundits are not sure where markets are headed in next 3 and 6 months and whether this year would end in positive or negative column. So let me throw in what I Think: Markets are facing following headwinds: Oil price near $150 and possibly going as high as $170. In general commodities reaching all time highs Housing markets still in slump Credit crisis far from over with some more large write-downs coming and potential repeat of Bear Sterns type collapse Inflation reaching well beyond comfort level of common man as well as central bankers Geo-political uncertainties as well as elections on key countries like USA, India While these headwinds are pretty strong, there are some important factors which may play in favor of markets (tailwinds:-) Markets are already down by close to 20% and there are trillions of $$ on sidelines waiting. Very soon value investors would jump in and provide markets a...

Finally all three indexes are almost in bear market territory - means they are down by 20% from their recent peaks reached in Oct 07. So that begs the questions - which direction markets are headed ? I have been quite optimistic predicting markets to touch 13000 during by Aug 08. But looks like I was wrong (though almost 2 months of summer is remaining - so you never know:-) During recent bear markets in 1991 and 2001, markets have been down by about 21% to 36% from their peaks. So if we assume that we are seeing a typical bear market this time around, we will see markets go down by around 5-6 % taking Dow to near 10500 range. Good news is that within 12 months of touching bottom, markets have rebounded returning 23% to 33%. So while we cannot predict the bottom, this down-trend provides an excellent buying opportunity to reap the long-term benefits. I would recommend index funds like S&P or International indexes. Note that markets in China and India are down by 50% to 30% so once ...

Just saw a program on CNBC hosted by Erin Burnett titled "India Rising: The New Empire". I must say it was well balanced program covering all aspects of India from snake charmers to India's booming IT industry, Dharavi slums to Ambani's $1B house in Mumbai , Disney/ McDonald's going to India and India's booming bollywood industry. With 300 million kids (equal to the size of US population), demographics is definitely in India's favor only if India can invest in educating all of its future generation. With Indian stock market down by nearly 25-30% from its peak, is it good time to invest in India? With elections looming (could be at same time as US elections in Nov 08), I would expect BSE index may come down below 13000 from 14500 - it could even go to 12000 with additional loss of about 15%. However once elections are over, market can start its long-term upward trend going above 20000 by 2010 (similar to Brazil where markets went up after elections we...

As world watches what's coming out of meeting between oil producers and oil consumers in Jedah , I am thinking - do we have oil bubble of 2008 similar to tech bubble in 2000 ? Just from back of the envelop calculation (w/ completely hypothetical numbers) , if there is about $10 B invested in oil indexes, ETF (like USO), futures and swaps, this would create demand of 80 million barrels of crude (at $125). If every month additional $1B is getting invested in these oil related futures, it would create additional demand of 8 million barrels per month. No wonder we are seeing oil prices north of $130. I fully support Obama's call on band on oil speculators (and possibly commodity speculators) or at least force them to not allow them to trade on margin Obama suggested ban on oil speculators During last 16 years, there were always problems during US election year. In 1992, US economy was coming out of recession from a deep housing/employment crisis, in 2000, we had tech bubble burs...

With oil prices not budging below $130, alternative energy - especially Solar stocks are hot again. I recommended these stocks in my previous blog entry "Solar Stocks Hot Again?" After that blog, most of the solar companies reported results and all of them have shown tremendous growth in latest quarter. There were some headwinds like German tax credit changes, polysilicon supply and price issues and US senate not able to pass alternative energy tax credits. However the momentum to these stocks is such that these are marching upwards despite these headwinds. For example, CSIQ (which is part of model portfolio 2008 and recommended in Jan 08) , ENER, SOLF are all up significantly. I am still bullish on Evergreen Solar (ESLR) which announced another $600 M contract bringing its order backlog to $1.7B to be completed by 2012 and hence up by more than 10% in AH trading Many of these stocks still have 50% upside from their current prices. Look for some pullback before making an ent...

I am halfway through Barack Obama's book titled "The Audacity of Hope". He can write as well as he can speak. His thoughts are clear, well explained. It's good read. Being just a first time senator for 2 years (book was published in 2006), he has great understanding of politics, values, opportunities. If he becomes president (and I strongly believe he would be in Nov elections), his rise would be one of the fastest rise in American politics. With so many things going wrong around us (Iraq war, oil at $135, subprime mess, economy stuck, unemployment at 5.5%, inflation rising across the world and rampant speculation in commodities trading), we need a fresh start and I am hopeful that Obama can provide that fresh start. I was just watching US open and Tiger Woods is 1 behind the leader with 5 more holes to go. I bet he is going to win his 3rd US open title today Now coming to markets - where are they headed next week ? Here are my predictions: Oil coming down below...

Warren Buffet has put real money ($320K)to prove his long-held belief that experts cannot beat S&P over long run. I agree with WB . Check out details at: WB bet about S&P and Hedge Funds returns While running after long-tail, returns (after hefty fees) of majority of hedge funds (except top 10%) is normally below market returns and I am strong believer of efficient market theory over long run (though in short duration, markets could be inefficient and provide great opportunities) However I think S&P could be wrong benchmark going forward. By 2018 when this bet concludes, US would be only about 30% of overall market capitalization across the world with BRIC countries having major growth. If I have to put a bet, I would bet on international equivalent of S&P 500 - I don't know if there is an index which tracks top 500 world companies Now coming back to oil - I am glad that it is back to $131 and looks like it is going to $120 in next few weeks - hopefully it would...

Again very interesting week in stock markets - oil going to $122 and bouncing back to $138 within a week - how can this happen purely based on supply and demand. Neither supply has changed dramatically or demand has changed. IMO last $30-40 of oil price increase is purely due to speculation and index/ ETF trading. Unfortunately that impacts common man across all countries. I am surprised that US government has not acted quickly enough to ban futures trading or at least put a halt on trading using margin for these accounts. I see another bubble in making and surest sign of this is when most of the investment bank analysts start predicting price targets which are completely out of whack - remember Amazon target price of $400 during hay-days of dot-com boom. Finally Amazon did reach this target price just recently (adjusted for split) but it took 7 more years. I hope I am right about "oil bubble" and if US Gov and Fed are smart, they would take immediate corrective actions to ...

Check out graduation photo of my MBA at Haas School of Business, UC Berkeley

I recommended Evergreen Solar ( ESLR ) on May 18 in my post with target price of $14 - that was pretty timely call since 3 days later ESLR announced contracts worth of $1B and stock jumped by 20%. Hope some of you made some money on my call:-) So should one take profits from this 20% jump or hold and wait for another run. Let's do some analysis. Evergreen Solar has an enterprise value of $1.3 B with forecast revenue of $120 M in 2008 and $400 M in 2009. With new contracts of about $1B on top of already existing backlog of $850M, it has confirmed orders up to 2013. In comparison, First Solar ( FSLR ), Suntech Power ( STP ) have EV/Sales of about 10 or more. If we apply same EV/Sales for 2009, ESLR would be worth about $3B giving it target price about $20 or more. So if you want to get additional 80-100% return on ESLR , hold onto your position and do not sell just because you got 20% in less than 4 days. Most of the other solar stocks like CSIQ , SOLF , SPWR returned 80-100% i...

Interest in Internet /web companies is back with so much activity in Internet stocks. Here are some highlights: - Yahoo and Microsoft talking again bringing Yahoo stock to almost same level as before the previous talks failed. Not bad for someone like Carl Icahn who already made over $120 M in just two week - Amazon being added to Goldman Sachs focus list. I am strong believer in Amazon model and loyal customer. No wonder it is on my Model Portfolio 2008 - Google jumping by 20% in one day ($90) - biggest ever gain since it went public after Q1CY08 results - CBS buying CNET for $1.8 B - Chinese Internet companies ( BIDU , SINA , SOHU ) all near their highs Looks like Internet stocks are back in favor. So is all the upside already priced in or are there any more gains to be made. My prediction is that there are still about 20% gains to be made in AMZN , BIDU and even Google. However since this market is so volatile and fortunes for these companies change so fast (remember Ebay , Yah...

With oil prices hovering above $125 and energy demand not slowing down as expected, solar stocks are hot again. There are quite a few macro reasons for this: Oil prices above $125 since new supplies not coming to market. Expected gap in supply and demand could be 1 to 2 million barrels per day. With Saudi Arabia thumbing their nose on President Bush's request and Goldman Sachs predicting oil to go above $141 very soon, looks like oil prices are going to remain frothy Solar companies reporting growth of over 50% in revenues and profits Government credits in Germany and other European countries US congress considering extending solar tax credits Overall pro-environment awareness Economies of scale reducing cost of solar power Prices of solar stocks picked in Nov 07 only to fall hard in Jan/Feb 08. Some of them came down more than 50-70%. However last few weeks they have been on tear. Check out following: CSIQ up by 100% (this is part of my model portfolio 2008) SOLF up by 100% fro...

Since I published model portfolio 2008 in my Jan post Model Portfolio 2008 for last couple of months it has been in negative territory. Today is the first day after long time that this model portfolio has turned positive. Here are the details and highlights: Highest return: CSIQ at 57.5% Lowest return: Radian at -41.0% (no surprise here) Surprising fact that despite all the talk, real estate mutual funds are doing pretty good with Vanguard real estate return at 17.2% (and we are not even half-way in the year) The portfolio is beating S&P by about 1% (compared to S&P on Jan 14). Overall not bad record considering the volatility in the market. Investment Name 1/14/2008 5/12/2008 Amount Amount %Gain CSCO Cisco Sytems $5,000 $4,909 -1.8% AMZN Amazon $5,000 $4,471 -10.6% RDN Radian $5,000 $2,952 -41.0% PAY Verifone $5,000 $3,980 -...

I am in my final class of Haas MBA at UC Berkeley. We just finished our presentation about a business plan in Entrepreneurship class. Almost all teams have come up with very interesting ideas. Without disclosing to much about the ideas (to honor the privacy of my class-mates), here are the names/ideas: vLearn (this is our idea) DreamAgent Everest Academy IntelliSocial i2want2learn.com KnowMe OmniPod Bizcounts MyLifeFuel UnfinishedGame .com HealthyMom The business plans are targeting variety of target markets. Here are some highlights - please take with a pinch of salt since this is MBA class work (may not survive real VC scrutiny) 8 targeting individuals, 1 B2B and 1 big companies Revenues from $9 M to $ 500 M Net profit ranges from 20% to 65% Funding requirements: $1 Million to $ 10 Million (we are asking for highest money) Not sure how many of these would result in real companies - at this moment we are not planning to pursue it If I am investing as VC , I would invest in about ...

Normally I have limited myself to blog on markets and stocks. However this week's events could be historic in terms of next presidential elections. With North Carolina and Indiana's primary results in favor of Obama and super-delegates finally declaring their support to Obama , looks like he is all but set to seal this nomination. With May 20 primaries, Obama would become democratic party nomination and potentially make an history since winning elections in Nov should be relatively easy (considering that majority of country has been fed up with Iraq war and associated policies) At home front, myself and my son Yash are supporting "Yes, we can" Obama while my wife and daughter Isha are supporting "Yes, we will" Hillary. I like both candidates but Hillary sounds too much like same type of politician while Obama sounds inspirational and we need leader like him to pull country out of current mess. I don't know what people felt during Kennedy campaign b...

Since I recommended Sprint in my blog, the stock is up by nearly 15% (from 8 to 9.20) and would be up by about 5% tomorrow based on news about new pact with Clearwire and other companies on WiMax. Is Sprint back on track ? Looking at market reaction in last couple of days, it looks like. Here are some of the catalyst which would keep Sprint stock in limelight and would keep its upward trajectory reaching to my target price of $12 Announcement about WiMax venture which would be majority owned by Sprint with $3B investments by Comcast, Google, Intel and others Possible spin-off of Nexttel Possible buy-out of Sprint by Deutsch Telecom Results better than expected (since expectations are so low now) So now it is well over $9.50, is it still a good buy. I think even at $9.50, Sprint provides an excellent opportunity to get 25% returns in next 12-18 months. So my recommendation is still BUY /Shyam