Streetwise

Lauren Rudd

Sunday, May 26, 2013

Confirm Thy Soul in Self Control

Memorial Day is upon us once again and for many it will simply be a day off from work and a time to drag out the barbeque grill. Yet, as I point out each year at this time, the day should be a somber reminder of those who sacrificed their lives to ensure our freedom.

Unfortunately, the devastating impact of armed conflict has a way of fading from memory. Few are left who can recount the untold horrors of the Holocaust. A younger but graying generation pushes remembrances of the sickening sweet smell of Napalm and burning flesh ever deeper into the dark recesses of their minds.

Nonetheless, the jarring impact of seeing young soldiers with missing limbs should not only unleash a gushing torrent of emotion, but hopefully will act as a constant reminder of the seemingly never ending violence that takes place across the globe in the name of peace...oh and yes religion.

You are probably wondering how those comments relate to investing on Wall Street. They do not...except to point out that Memorial Day is an excellent time to once again reflect on the phrase, “Not what your country can do for you but what you can do for your country.”

Unfortunately, Wall Street’s supercilious attitude is only upended only by its unvarnished self-indulgence. Moreover, the financial largess that now floats freely within the Temples of Wall Street is unlikely to ever make its way to Main Street.

Which brings us to the more germane topic that I also traditionally address at this time of the year and that is when to sell. Too often the subject is exploited with generalized and often erroneous terms such as, "the market is going up, sell," or "the market is going down, sell."

Yet, inflation remains benign and interest rates are likely to continue to remain low, according to recent Congressional testimony by Fed Chairman Ben Bernanke. Add in an improving economy and it all points to a continuing rise in equity prices. Furthermore, Goldman Sachs wrote in a note to clients on May 20 that it sees the S&P 500 at 1,750 by the end of the year and expects a 12-month rally to 1,825.

Let me put it more succinctly...the cookie tray is going around so grab a handful because you do not when or if it is coming around again. At the same time deciding when and what to sell is generally an investor’s most vexing decision.

Given that it is Memorial Day weekend, may I once again suggest you contemplate the words penned over a century ago by Catherine Lee Bates in "America the Beautiful." She wrote, "Confirm thy soul in self-control."

So, what should you consider selling? Despite its return from the dead and a dramatic increase in its intrinsic value to $129, as compared to a recent share price of $54.48, Deckers Outdoor (DECK) is a sell candidate and would have to show me a lot more love before I would take another run at the stock. Aside from Coach (COH) and Tiffany (TIF), companies dependent on fashion trends require caution.

McDonald’s (MCD) needs better operating and net earnings performance. The same applies to General Electric. Both are sell candidates. To see why, look at the 3-month share price performance of both companies as compared to the S&P 500 index.

Linn Energy (LINE) is certainly a possible sell candidate. In Q1 2013, Linn reported a 69 percent year over year increase in production from 471 MMcfe to 796 MMcfe (One million cubic feet of gas equivalent.) Linn increased EBITDA (earnings before interest, taxes, depreciation and amortization) by 18 percent year over year from $302 million to $356 million. It reduced lease operating expenses 26 percent to $1.24 per Mcfe (one thousand cfe) versus the year earlier figure of $1.67 per Mcfe. This is the mark of a well-run company.