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September 01, 2004
August Wrap-Up
The market staged a comback at the end of the month on low volume enabling the S&P 500 to eke out a small gain of about 3/10ths of 1%. Our models and special situations worked well last month with all four special situation stocks up and the August signals from both models working effectively.
Northlake's Market Capitalization Model was sending a large cap signal for August. Consequently, we owned a position in the S&P 500 Spyder (SPY). SPY was up 0.2% for the month vs. no change for the S&P 400 Mid Cap ETF (MDY) and a decline of 1.5% for our small cap ETF proxy, IWM (Russell 2000).
Northlake's Style Model also worked well in August. The model had a value signal, leading us to own a position in the Russell 3000 Value ETF (IWW). During August, IWW gained 1.0% vs. a return of -1.2% for the Russell 3000 Growth ETF (IWZ). August continues a good run for our Style Model. Since Northlake opened in June 2004, the model has had a value signal. During the three month period, our the value ETF, IWW, has gained 1.5% vs. a loss of over 6% for the growth ETF. Tech stocks have really struggled this summer which has favored the value signal.
Our special situations stocks,, which our outlined in the Research Samples link were all up in August. Central European Media Enterprises (CETV) was the big winner, gaining 19%. NTL, Inc. (NTLI) gained 4.2%, MB Financial (MBFI) gained 3.5%, and Motorola (MOT) gained 1.4%.
There was no news on CETV but my contacts suggested that a recent report by a well regarded Wall Street media analyst was gaining some traction. There also appears to be general interest in investment opportunities in Central and Eastern Europe. I concur with that and presently I am reviewing several other US listed stocks whose business is conducted in the region.
NTLI reported earnings at the start of August which were generally in line with expectations. The stock took a hard hit, however, in reponse to disappointing news from key competitor Sky. Competitive fears are the big issue for NTLI shares. NTLI rebounded later in the month as rumors of sale of the company's tower business picked up steam.
MBFI reported solid earnings in August as well. No change to the thesis on this well run, high quality, Chicago bank. Upside from operations and future smaller acquisition exists and MBFI remains a preferred acquisition candidate for a larger bank wishing to expand in the Chicago market.
Little news in MOT during August. I feel the turnaround is in place and investors will reward the shares as new mobile phone designs are shipped on time over the balance of 2004.
Overall, a good month for Northlake's key investments.
Posted by Steve Birenberg at September 1, 2004 09:19 AM in Models
With regard to Sarbanes-Oxley - there is alot of attention being focused on software companies (and rightly so). But, we might be overlooking the impact this legislation will have on the Integrated Oil’s and E&P's. We are hearing from a couple different reservoir engineers that these companies might be forced to restate their reserves in Q105. Shareholders of RD back on Jan 9, ’04 should be able to explain what effect that can have on a stock’s price.
Posted by: spencer at September 1, 2004 03:36 PMGood point, Spencer. When I read 10-Q', I now review Sarbanes Oxley commentary. Accuracy has been an issue for newspaper publishers as well. Chicago Tribune, Belo, and others have had to restate their subscription levels. This led to refunds to advertisers, who buy ads based on promised subscribers, and fears that industry pricing of ads will weaken as advertisers become skeptical of the eyeballs being delivered.
Posted by: Steve at September 1, 2004 03:43 PM