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December 29, 2006
Positions Recap at The Turn of the Year
As 2006 draws to a close and a new year begins, I thought it would be appropriate to provide a brief update on the positions held in almost all Northlake-managed accounts.
Model-Driven ETFs: I'll get a fresh update on the Market Cap and Style models over the New Year's weekend but I expect the signals favoring growth and mid caps to remain in place. The growth signal is strong, while the mid cap signal is weak. Current investments held as a result of these signals include the S&P 500 (SPY), the S&P 400 Mid Cap (MDY), and the Russell 100 Growth (IWF).
Japan: EWJ has underperformed this year but I am sticking with it as my theme is that Japan is emerging from a multi-decade period of underperformance for its economy and stock market. Nothing has occurred this year that challenges my assumption. I look for Japan to move back toward global leadership for stock market returns in 2007.
Apple Computer: Not much more to say here. I am bullish because I think Mac sales will continue to surprise on the upside as Apple reaps the benefits of orienting the company towards delivery and manipulation of digital content. I think upside of over 25% exits.
Central European Media Enterprises: CETV remains my favorite stock. I think it is headed north of $100 in 2007. CETV is the best play on the emerging and booming economies of Central and Eastern Europe. The fact that management has consistently met or beat their goals and delivered on their promises supports my bullishness.
Disney: DIS had a great 2006 with the shares rising more than 40%. I don’t expect a repeat performance but I believe estimates are too low and investor caution toward the 2007 growth rate is unwarranted. As these fears fade, I think the shares can trade to $38-40.
Endeavor Acquisition Corporation: The closing of EDA's acquisition of American Apparel will create a hot new specialty apparel stock that should attract analysts and investors. If American Apparel hits the numbers contained in Endeavor's latest SEC filing the shares are very cheap relative to other teen focused retailers. My target ranges from $10 all the way to $18 depending on how strong financial results turn out.
Regal Entertainment: It took awhile but RGC shares ended the year strongly and produced about a 12% total return after adding in 90 cents in dividends since my initial purchase in March. The worst box office comparisons are over and investors are likely to look ahead to a blowout 2Q when three of the biggest blockbusters of all-time will hit theatres (Pirates 3, Spiderman 3, and Shrek 3). RGC shares should also benefit from the IPO of National Cinemedia which will likely lead to a boost in shareholder value as RGC uses its share of the proceeds. RGC is set to provide another year of double digit total return.
Rogers Communications: RG is poised for another year of greater than 20% growth led by continued to rapid growth in the Canadian wireless market where RG is the market leader. Canada is running several years behind the U.S. in wireless penetration which sets up a repeat performance of recent growth trends. RG also will benefit from the rollout of the triple play in its cable business, the largest in Canada. I think the shares can trade to the low $70s, producing a return of over 20%.
That is a recap of what Northlake owns today on behalf of its clients. As always, these are several potential ideas in the pipeline and my favorable opinion of any stocks currently held could change. There is no way to predict the timing of those things but one thing you can count on is that I will post commentary on any changes right here as they occur.
Happy New Year!
Posted by Steve Birenberg at December 29, 2006 11:49 AM in All Positions
