Portable Alpha Daily: Model Stock Portfolio Activity

Our Model Stock Portfolio initiated sell recommendations after yesterday’s close on three holdings and subsequent buy recommendations for five new securities. The sell recommendations were triggered by a profit protection rule designed to protect 80% of a position’s profits when that position has increased by greater than 25% of its average cost. The following were sold:

As I mentioned, the model selected five new securities for purchase, bringing the allocation percentages to 57% long and 43% cash. This is indeed a conservative allocation, but remember that this model portfolio is designed as the alpha component of an overall portable alpha portfolio. We remain bearish over the short-term and will likely wait until the long-term market model reverts to a bullish posture before increasing the long allocation percentages. There are alternatives to cash allocations, notably hedging the long positions with shorts. But our model portfolio does not initiate short coverage because we feel the risks outweigh the potential benefits for most investors. Inverse correlated funds, in our opinion, offer similar rewards with substantially less inherent risk.

Three selections came from the Mid Cap universe, which is one of our leading styles of late in terms of alpha generation. Precision Castparts Corp. (PCP 9/20/06) and MEMC Electronic Materials, Inc (WFR 1/8/07) came from the Mid-Cap All-Market category while Energizer Holdings Inc. (ENR 1/26/07) is from the Mid-Cap Growth category. The remaining two picks are Navistar International Corp. (NAV 9/12/06), which is from the Large-Cap Value universe and Rock-Tenn Co. (RKT 4/27/06) which is a Small-Cap Value holding.You’ll notice that all of the selected issues come from the Top Buy Recommended Stocks list that I publish daily.