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011 1 MARKET HAVEN MONTHLY


F E B R U AR Y

Market Haven Monthly


S tocks extended their rally into January with
the S&P posting a +2.3% gain for the month. All
We will reiterate here that it is not a foregone
conclusion that stocks are about to fall off a cliff.
the chatter across the news and blogosphere is In fact, an accommodative Fed is a very
that stocks are a buy. The economy is powerful force not to be underestimated. And
improving. Earnings are coming in strong. the Fed is incredibly accommodative right now.
Technical patterns are pointing to higher market We don’t see that changing anytime soon. We
values. And well-respected investors like David believe the Fed knows that even if its situation is
Tepper, Chris Davis, Jeffrey Saut, and even dire, there are many other weaker currencies out
Richard Russell are there that will feel
bullish on equity prices. the heat before the
Almost literally, U.S. dollar does.
overnight, the market That means the Fed
developed a cheering has cart blanche to
squad. stimulate away. For
the time being that
The fly in the ointment is
means stocks will
valuation. At 1286, the
continue to rise.
S&P is trading at 17x
current trend earnings. A very difficult ceiling to We don’t know when that stops. We can only
cross in times past is 18x earnings. Add to observe the facts. And the facts say that the
higher valuations that we are in a secular (i.e., market is slightly overvalued, but there’s a mad
10-year and 20-year) decline and that current man behind it pushing with all his might. We
earnings exceed trend earnings. Historically, believe it is prudent to have some exposure to
when all of these conditions have been present, stocks, but to definitely keep plenty of cash on
stocks have returned -27% on average over the hand to take advantage of opportunities that will
following year. come in due time.
PAGE 2 MARKET HAVEN MONTHLY

Where’s the Value?

Stocks

Our Static Model is an easy way to hedge out


much of the market risk in an unemotional way.
Through regular rebalancing and a fairly
conservative asset allocation, the portfolio has Healthcare continues to struggle, but we believe
done a good job of dampening volatility risk. the attractive valuations will eventually
Additionally, the beta of our long portfolio has disappear. Rising bond yields have steepened
historically been about 1.3 allowing investors to the yield curve, making the profit environment
get full market exposure while leaving some for financials a more attractive place to be. It
cash on the sidelines. Net long exposure for the has had the opposite effect on utilities which
Static Model is +50%. Our Timing Model, on the continue to be an unattractive space to be. The
other hand, factors in market valuations. Net run up in oil prices have carried energy stocks
long exposure is -30%. with it and left energy shares as a whole less
attractive as investments. We’re seeing more
Strategy Static Timing
Model Model buying opportunities in technology and believe
Long Exposure +80% 0% the increased pace of M&A activity will create
Short Exposure -30% -30% some significant profit opportunities in that
Net Exposure +50% -30% sector.

Market Cap
Sectors
Low quality, small cap outperformance
Relative to the market as a whole, our screens continued through the month of January. The
are showing that the best places to find value are most short opportunities continue to exist at the
in technology, consumer discretionary, lower capitalization ranges. Consequently, more
healthcare, and financials. buying opportunities have appeared in the mega
cap stocks.
PAGE 3 MARKET HAVEN MONTHLY

VIX head lower before the real spikes hit. We


would still recommend maintaining exposure to
volatility if that fits your investment style. We
would suggest 75% of your normal portfolio
weighting to volatility. Nevertheless, we do
Recent Price Strength expect readings to decline before they materially
increase.
For the last 90 days, energy has been the story.
The sector has significantly outperformed all Commodities
other sectors. The higher yielding stocks in the
utilities, telecommunications, and consumer In spite of gold’s continued decent in January,

staples sectors continue to lag in a big way. The the broader basket of commodities continued

disparity is significant. In our universe of stocks, their ascent. In line with what we’ve spelled out

energy shares appreciated +21% on average in this newsletter, investors are feeling better

while staples and utility stocks were up only about stocks and are therefore less interested in

+3.5% and +4.3%, respectively. gold. Plus, gold has had a nice run and needed
to pull back temporarily. The key word there is
Bonds temporarily. We firmly believe the underlying
fundamental forces that have been driving gold
After appreciably rising during the month of higher will continue to drive gold higher longer
December, yields leveled off in January. We term. We would use these pullbacks as
think this is temporary and that some investors opportunities to acquire more.
are viewing this as a buying opportunity. We
tend to disagree and believe yields are headed With all of the political unrest in the world (e.g.,

higher. Egypt, Tunisia, Ivory Coast) and the natural


disasters (e.g., Russian droughts, Australian
Volatility floods) dominating the headlines, it’s no wonder
that agricultural prices have run up
The VIX ticked up a little to 19.5 from 17 during dramatically. While we are bullish on
January. That is not a meaningful change in our commodity prices longer term, these short-term
opinion. As long as the complacency in the factors are a bit different than our long-term
market builds, we would still expect to see the reason for investing in commodities.
PAGE 4 MARKET HAVEN MONTHLY

Some Investment Ideas operate primarily in the south where the elder
generation tends to migrate with age. While they
Here are a few names that have shown up are small with a market cap of $500 million,
recently as potential investment ideas on our they have virtually no debt and sport EBITDA
screens. Some of these may appear in the margins in the upper teens. Sales growth has
portfolios. Some may not simply because the slowed markedly over the last couple of years,
names currently in the portfolio haven’t worked giving the stock market reason to be cautious on
their way yet. the shares. Nevertheless, the stock has an
attractive earnings yield of 13% and a price-to-
It’s important to remember that these ideas are
book of 1.9x.
meant to serve as a small part of a portfolio. We
understand and expect that not every Compania Cervecerias Unidas SA
investment idea will work out the way we’d
(CCU) - long
hoped it would. Therefore, a core characteristic
of the portfolios we construct is diversification. CCU is a $3.5 billion beverage company that
We like to have between 30 and 40 names in the operates in Chile, Argentina, the Cayman
long portfolio and more than that in our short Islands, and Liechtenstein. It has licensing
portfolio. We let the ideas that are working agreements with many of the big beverage
continue to run. Conversely, the ideas that are names like Pepsi, Heineken, and Anheuser-
not working become a smaller proportion of the Busch. The dividends distributed over the last
portfolio simply by the diminishing market cap year amount to a yield of about 3.5%. Earnings
they exhibit. This also lends to the comfort we per share grew +19% over the last five years and
have taking chances on stocks that may have are expected to increase +11% over the next
headline or operational risk from time to time. three to five years. We like the international
exposure and the valuation isn’t bad either.
LHC Group (LHCG) - long
EBITDA margins are consistently above 20%
and the stock trades at 14x earnings.
LHCG operates nursing facilities and provides
home-based healthcare services. As 78 million
Netease.com Inc. (NTES) - long
baby boomers age, health care will only increase
in demand. We believe these are the kind of NTES operates an online community in China
demographics that serve LHCG well. They and provides Chinese language content and
PAGE 5 MARKET HAVEN MONTHLY

services via its online games, Internet portal and the seller of the Xbox video game console, many
wireless services businesses. The company, view MSFT as a waning brand with only market
which has a market cap of $5.6 billion, share to lose. However, its new products are
generates revenue from fees charged to users of doing well. Windows 7 is correcting some of the
online games, fees charged for premium mistakes the company made with Vista. The
services, and from online ads. Sales growth has Office 2010 productivity suite’s improvements
averaged +38%, EBITDA yields have been north are being well-received. And the Kinect sensor
of +40%, yet the stock trades at a p/e of 13x. At for Xbox is a huge hit amongst gamers. Don’t
that price, it seems worth the risk. forget that the economic downturn pushed the
technology upgrade cycle off, but we are
Aflac Incorporated (AFL) - long beginning to see technology spending pick up.
Agreed, MSFT will not be a fast grower going
Thanks to the duck there are few people who
forward. May we remind those who’ve lost
don’t know that AFL provides supplemental
interest in the company to remember that
insurance primarily through businesses. In fact,
stockholders make money because the company
they are the world’s largest underwriter of
makes money, not because earnings grow. There
supplemental cancer insurance. What many
is a difference. Given a choice between a 30%
don’t know is that Japan accounts for 75% of
grower that meets its cost of capital and a 5%
sales and that the company estimates in the U.S.
grower that exceeds its cost of capital by 10%,
they’ve only tapped about 10% of the potential
we’re going to pick the slower grower. With an
small business market. AFL has a market cap of
earnings yield of 10%, a dividend yield of 2.3%,
$27 billion and pays a dividend of 2.1%. The
and an average economic margin of +14%,
fundamentals are solid as well as its competitive
MSFT is still a cash cow.
positioning. The shares trades at 9x earnings
and have an expected long-term growth rate of
12%, giving the shares an attractive PEG of 0.7x.

Microsoft Corporation (MSFT) - long

Clearly a behemoth with a market cap of $237


billion, MSFT’s stock doesn’t reflect all of its
potential. As the largest maker of software and
PAGE 6 MARKET HAVEN MONTHLY

Portfolio Changes Last Month Alliance Resource Parnters LP (ARLP) – buy

BHP Billiton ADR (BHP) – buy


The turnover for the long portfolio was 16% for
the last 12 months. During the month of
January we made three trades in the long December 2010
portfolio.
Harbin Electric (HRBN) – buy

Trina Solar (TSL) – buy

Best Buy (BBY) – buy

In the short portfolio, turnover was higher at MasterCard (MA) – buy


61% for the last 12 months. We made two trades Cliffs Natural Resources (CLF) – buy
in the short portfolio during the month of
January.
November 2010
Global Payments (GPN) - buy

Research In Motion (RIMM) - buy

Cash America International (CSH) - buy


Previously Mentioned Ideas
Telecom Argentina (TEO) - buy

Below are the investment ideas that we have Cephalon (CEPH) - buy
highlighted in past issues. Additionally, we have
updated the current model recommendation for
each stock. October 2010
Alpha Natural Resources (ANR) - hold

True Religion Apparel (TRLG) - buy


January 2011
St. Jude Medical (STJ) - buy
Global Payments (GPN) – buy
General Dynamics (GD) - buy
Amedisys (AMED) – buy
Kraft Foods (KFT) - buy
Warnaco Group (WRC) – buy
PAGE 7 MARKET HAVEN MONTHLY

Newsletter Portfolio Performance


MARKET HAVEN MONTHLY

Long Portfolio
Portion Of Current
Symbol Name Price Fund Shares Held Value Rating
CTSH COGNIZANT TECH SOLUTIONS'A' $72.95 7.2% 980.00 $71,491.00 Hold
NOV National Oilwell Varco Inc $73.90 6.0% 800.00 $59,120.00 Hold
WDC WESTERN DIGITAL $34.02 4.8% 1,400.00 $47,628.00 Hold
DECK DECKERS OUTDOOR $73.39 4.0% 540.00 $39,630.60 Hold
JOYG Joy Global Inc $87.18 4.0% 450.00 $39,231.00 Hold
COH COACH INC $54.09 3.8% 690.00 $37,322.10 Hold
NTRI NUTRI/SYSTEM INC $18.96 3.5% 1,820.00 $34,507.20 Hold
FCX FREEPT-MCMO COPPER & GOLD CL B $108.75 3.4% 310.00 $33,712.50 Buy
INT WORLD FUEL SERVICES $37.54 3.3% 880.00 $33,035.20 Hold
ESV Ensco PLC $54.34 3.1% 560.00 $30,430.40 Hold
HLF Herbalife, Limited $65.33 2.6% 390.00 $25,478.70 Buy
MIDD MIDDLEBY CORP $81.81 2.5% 300.00 $24,543.00 Hold
MUR MURPHY OIL $66.30 2.4% 360.00 $23,868.00 Hold
PCP PRECISION CASTPARTS $142.99 2.4% 170.00 $24,308.30 Hold
MA Mastercard Inc $236.51 2.4% 100.00 $23,651.00 Buy
GD GENERAL DYNAMICS $75.40 2.3% 300.00 $22,620.00 Buy
ARLP ALLIANCE RESOURCE PARTNERS LP $70.25 2.3% 320.00 $22,480.00 Buy
HRS HARRIS CORP $46.54 2.2% 470.00 $21,873.80 Buy
BYI Bally Technologies Inc $40.93 2.2% 540.00 $22,102.20 Hold
GPN Global Payments Inc $47.24 2.2% 460.00 $21,730.40 Buy
BHP BHP Billiton Ltd $89.03 2.2% 240.00 $21,367.20 Buy
HUM HUMANA INC $57.97 2.1% 360.00 $20,869.20 Hold
ANR Alpha Natural Resources Inc $53.73 2.0% 370.00 $19,880.10 Hold
FRX FOREST LABORATORIES INC $32.26 1.9% 580.00 $18,710.80 Buy
TPC Tutor Perini Corp $22.71 1.9% 830.00 $18,849.30 Buy
KCI Kinetic Concepts,Inc. $46.13 1.8% 380.00 $17,529.40 Hold
JCOM J2 GLOBAL COMMUNICATIONS NEW $27.60 1.8% 650.00 $17,940.00 Hold
ACN Accenture Plc $51.47 1.7% 320.00 $16,470.40 Hold
ATW ATWOOD OCEANICS $40.42 1.7% 410.00 $16,572.20 Hold
WMT WAL-MART STORES $56.07 1.6% 280.00 $15,699.60 Hold
GRMN GARMIN LTD $30.83 1.6% 520.00 $16,031.60 Hold
CEPH CEPHALON INC $59.08 1.6% 270.00 $15,951.60 Buy
NE Noble Corp $38.25 1.5% 380.00 $14,535.00 Hold
ENDP ENDO PHARMACEUTICALS HLDS INC $33.22 1.5% 460.00 $15,281.20 Buy
AMED AMEDISYS INC $34.09 1.4% 420.00 $14,317.80 Buy
ALGT Allegiant Travel Company $46.54 1.3% 280.00 $13,031.20 Hold
LHCG LHC Group, LLC $26.60 1.2% 460.00 $12,236.00 Buy
MDT MEDTRONIC INC $38.32 1.1% 290.00 $11,112.80 Hold
BBY BEST BUY CO INC $34.00 1.0% 290.00 $9,860.00 Buy
ESLT ELBIT SYSTEMS $50.82 1.0% 200.00 $10,164.00 Buy
MARKET HAVEN MONTHLY

Short Portfolio
Portion Of Current
Symbol Name Price Fund Shares Held Value Rating
WY WEYERHAEUSER CO $23.18 3.8% -3,541.00 ($82,080.38) Short
ARMH ARM HOLDINGS ADS $25.04 2.8% -2,410.00 ($60,346.40) Short
N NetSuite Inc $26.93 2.2% -1,760.00 ($47,396.80) Hold
EBS Emergent BioSolutions, Incorporated $21.24 1.9% -1,920.00 ($40,780.61) Hold
HUSA Houston American Energy Corporation $15.63 1.8% -2,490.00 ($38,918.70) Short
VRX Valeant Pharmaceuticals Intern $36.53 1.7% -1,033.00 ($37,735.49) Short
FXEN FX ENERGY INC $9.10 1.7% -4,010.00 ($36,491.00) Short
PEGA PEGASYSTEMS INC $34.18 1.6% -1,030.00 ($35,205.40) Hold
CRR CARBO CERAMICS INC $115.16 1.5% -290.00 ($33,396.40) Short
PXD PIONEER NATURAL RES $95.16 1.5% -350.00 ($33,306.00) Short
OREX Orexigen Therapeutics, Incorporated $9.09 1.5% -3,620.00 ($32,905.80) Hold
SFE SAFEGUARD SCIENTIFICS $16.45 1.4% -1,900.00 ($31,255.00) Short
BAGL Einstein Noah Restaurant Group $15.54 1.4% -1,990.00 ($30,924.60) Short
HOT STARWOOD HOTELS&RESWORLDWIDE $58.97 1.4% -520.00 ($30,664.40) Short
ACXM ACXIOM CORP $17.23 1.3% -1,710.00 ($29,463.30) Hold
MAKO MAKO Surgical Corporation $15.52 1.3% -1,890.00 ($29,332.80) Short
MCHP MICROCHIP TECHNOLOGY $36.47 1.3% -790.00 ($28,811.30) Hold
AH Accretive Health Inc $18.14 1.3% -1,560.00 ($28,298.40) Short
HNR Harvest Natural Resources Inc $11.12 1.3% -2,510.00 ($27,910.95) Short
SWK Stanley Black & Decker Inc $72.68 1.3% -383.00 ($27,836.44) Hold
CMO CAPSTEAD MORTGAGE(NEW) $12.71 1.3% -2,190.00 ($27,834.90) Hold
DUF Duff & Phelps Corporation $16.96 1.3% -1,640.00 ($27,814.40) Hold
TLM TALISMAN ENERGY $22.92 1.3% -1,210.00 ($27,733.20) Short
FL Foot Locker Inc $17.86 1.3% -1,530.00 ($27,325.80) Hold
BG Bunge Ltd $68.07 1.2% -380.00 ($25,866.56) Short
MCCC MEDIACOM COMMUNIC'A' $8.77 1.2% -2,950.00 ($25,856.75) Short
BCO Brink's Co/The $27.00 1.2% -950.00 ($25,650.00) Short
IGTE iGate Corporation $15.40 1.2% -1,660.00 ($25,564.00) Hold
NOVL NOVELL INC $6.02 1.2% -4,220.00 ($25,403.98) Short
FO FORTUNE BRANDS $61.68 1.2% -410.00 ($25,288.80) Short
VVUS VIVUS INC $8.95 1.2% -2,820.00 ($25,239.00) Hold
PTIE PAIN THERAPEUTICS $6.18 1.1% -4,020.00 ($24,863.30) Hold
NOG Northern Oil & Gas, Incorporated $27.57 1.1% -900.00 ($24,813.00) Short
COG CABOT OIL & GAS 'A' $41.63 1.1% -590.00 ($24,561.70) Hold
MAN MANPOWER INC $64.57 1.1% -380.00 ($24,536.56) Short
MF MF Global Holdings Ltd $8.28 1.1% -2,960.00 ($24,508.80) Short
MSCC MICROSEMI CORP $22.49 1.1% -1,080.00 ($24,289.09) Short
ALX ALEXANDER'S, INC $404.69 1.1% -60.00 ($24,281.40) Short
EXP Eagle Materials Inc $29.00 1.1% -830.00 ($24,070.00) Short
GEO Geo Group Inc/The $23.77 1.1% -1,010.00 ($24,007.70) Hold
LGF LIONS GATE ENTERTAINMENT $6.20 1.1% -3,860.00 ($23,932.00) Short
TIF TIFFANY & CO $58.13 1.1% -410.00 ($23,833.30) Hold
STMP STAMPS.COM INC $12.72 1.1% -1,870.00 ($23,786.40) Short
LUX LUXOTTICA GROUP ADS $30.37 1.1% -780.00 ($23,688.60) Hold
MNTA Momenta Pharmaceuticals Inc $12.79 1.1% -1,850.00 ($23,661.32) Hold
FDX FEDEX CORP $90.32 1.1% -260.00 ($23,483.17) Hold
CRTX Cornerstone Therapeutics Inc $5.82 1.1% -4,030.00 ($23,454.60) Short
BMS BEMIS CO $32.55 1.1% -720.00 ($23,436.00) Hold
BMRN BIOMARIN PHARMACEUTICAL INC $25.42 1.1% -920.00 ($23,386.40) Short
EQT EQT Corp $48.19 1.1% -480.00 ($23,131.20) Hold
FICO Fair Isaac Inc $25.38 1.1% -910.00 ($23,095.80) Short
BTX BIOTIME INC $7.83 1.1% -2,940.00 ($23,020.20) Short
KW Kennedy-Wilson Holdings Inc $10.55 1.1% -2,180.00 ($22,999.00) Hold
NATI NATL INSTRUMENTS $42.31 1.0% -540.00 ($22,847.40) Short
LTD Limited Brands $29.24 1.0% -770.00 ($22,514.80) Hold
GKSR G & K SERVICES CL'A' $31.33 1.0% -710.00 ($22,244.30) Short
PFS Provident Financial $14.65 1.0% -1,510.00 ($22,121.50) Hold
PC Panasonic Corp $13.73 1.0% -1,590.00 ($21,830.70) Hold
WTR Aqua America Inc $23.12 1.0% -930.00 ($21,501.60) Hold
ALE Allete Inc $36.91 1.0% -580.00 ($21,407.74) Hold
CFR CULLEN/FROST BANKERS $57.78 1.0% -360.00 ($20,800.80) Hold
MARKET HAVEN MONTHLY

CBSH COMMERCE BANCSHARES $41.13 0.9% -497.00 ($20,441.61) Hold


NVEC NVE Corporation $58.08 0.9% -350.00 ($20,328.00) Hold
STEI STEWART ENTERPRISES INC CL A $6.38 0.9% -3,080.00 ($19,650.40) Short
CADX Cadence Pharmaceuticals, Incorporated $7.77 0.9% -2,510.00 ($19,490.15) Short
HTLD HEARTLAND EXPRESS $16.03 0.9% -1,200.00 ($19,230.00) Hold
TXI TEXAS INDUS $39.73 0.9% -480.00 ($19,070.35) Hold
RIGL RIGEL PHARMACEUTICALS $6.73 0.9% -2,800.00 ($18,830.00) Hold
CYN CITY NATIONAL $57.79 0.8% -320.00 ($18,492.80) Short
OMX OfficeMax Inc $16.07 0.8% -1,150.00 ($18,480.50) Hold
MYGN MYRIAD GENETICS $19.96 0.8% -920.00 ($18,363.20) Hold
CMA COMERICA INC $38.20 0.8% -470.00 ($17,954.00) Hold
AA ALCOA INC $16.57 0.8% -1,060.00 ($17,564.20) Hold
XXIA IXIA $15.73 0.8% -1,090.00 ($17,145.70) Short
XNPT XenoPort, Incorporated $7.88 0.8% -2,110.00 ($16,626.80) Hold
CVC CABLEVISION SYS'A' $33.85 0.7% -480.00 ($16,248.00) Hold
OMER Omeros Corp $6.26 0.7% -2,580.00 ($16,150.80) Hold
NSM.H NATL SEMICONDUCTOR $14.81 0.7% -1,030.00 ($15,254.30) Hold
LM LEGG MASON INC $33.13 0.7% -460.00 ($15,239.80) Hold
CWT CALIF WATER SVC GRP DELAWARE $36.50 0.6% -350.00 ($12,775.00) Hold
CGA China Green Agriculture Inc $8.13 0.6% -1,510.00 ($12,276.30) Short
ONB OLD NATL BANCORP(IND) $10.73 0.6% -1,130.00 ($12,124.90) Hold
MLM MARTIN MARIETTA MATERIALS $83.50 0.5% -140.00 ($11,690.00) Short
IDRA Idera Pharmaceuticals Inc $2.82 0.5% -4,000.00 ($11,280.00) Short
CNW Con-way Inc $34.02 0.5% -330.00 ($11,226.60) Hold
BXS BANCORPSOUTH $15.64 0.5% -640.00 ($10,009.60) Hold
HQS HQ Sustainable Maritime Indust $4.33 0.5% -2,290.00 ($9,915.70) Hold
JNY The Jones Group Inc $12.69 0.4% -770.00 ($9,771.30) Hold
FTR Frontier Communications Corp $9.17 0.4% -1,040.00 ($9,536.80) Hold
BKS BARNES & NOBLE $15.75 0.4% -600.00 ($9,450.00) Hold
PBCT PEOPLE'S BANK $12.91 0.4% -660.00 ($8,520.60) Hold