Published October 19, 2013
In September, as the risk of a possible US attack on Syria gradually faded, stocks rose and oil prices started to come down. Furthermore, the markets had generally expected the US Federal Reserve to start tapering as of September.
In our previous report last month, we stated that although tapering was the market consensus, and economic recovery in the US was on track, the economy was still not strong enough for the Fed to start tapering its stimulus measures.
We also indicated that, as inflation remains below the Fed’s 2% target, there was no immediate urgency to raise interest rates. Stocks and commodities rallied after the Fed surprised markets with its announcement of no-tapering.
We avoided selling the real estate stocks in our portfolio as we thought that the market had been overreacting to the rising bond yields. Clearly, Fed tapering has not gone away completely, but expectations have been pushed back.
However, the housing market has been steadily improving despite showing occasional signs of weakness in recent months with the onset of higher mortgage rates. Sales of new homes in the United States jumped 7.9% in August, marking the biggest monthly gain since January. This data eased the concerns about the housing market which had experienced 14% drop in new home sales in July.
The positive signs in the housing market were reflected in the performance of the housing-related stocks in our portfolio.
Lennar’s (NYSE: LEN) revenue has increased 52% in the first three quarters of 2013, driven by increases in both home deliveries (+36%) and prices (+12%) compared with the same period last year, according to the company’s Q3 earnings announcement. As the US housing market shows encouraging signs of recovery, and US business surveys remain at very high levels, there are also signs of growth stabilization in the global environment.
The Eurozone is emerging from recession and China’s economic indicators support its commitment to high growth. We believe that these developments on the demand side may be sufficient to support commodity prices particularly for oil and gas despite the downward pressure of increasing supply.
In September, the only change we made to our portfolio was to add VeriSign (NASDAQ: VRSN). In my opinion, the company has the potential for strong growth, owing to the expansion in domain names, and the increase of the mobile web. Besides, the company’s already-high net profit margin has been trending upwards.
Among our portfolio stocks, performance of two stocks stood out in September. The first is Facebook (FB), which has performed well since my purchase. I believe that despite its seemingly lofty valuation, FB remains a promising long-term investment. especially when compared to some rivals such as LinkedIn (LNKD).
The other stock we continue to like is Priceline.com (PCLN). The global economic recovery has helped this travel-related stock. Considering that international bookings are the main momentum for the growth for this company (up 44% year-over-year in the second quarter), we believe that the revival in the global economic environment will continue to support the revenue growth of this company.
The investments discussed are held in client accounts as of September 30, 2013. 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. Past performance is no guarantee of future results.
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