On Monday, I sold half of Northlake’s positions in CBS in each account that holds the stock. My reasoning is that the stock has risen 80% since purchasing it just 7 weeks ago. This spectacular rise caused CBS positions to approach 4% of equity portfolios. That is a high threshold for me, especially in a volatile stock.. At a 4% position, the lost performance if the stock took a hard hit would be meaningful. Given that my stretch upside target for the next 6 months is $15, not hugely higher, I wanted to capture some gain and reduce risk. The market has come a long way and an extra 2% cash position seems prudent.
CBS rose so sharply because 70% of its revenue is from advertising and advertising is highly sensitive to the economy. The market rally is partially based on the improving economic outlook so it is no surprise that traders flocked to CBS. Two other factors have helped CBS. Cash for Clunkers and the health care reform debate have led to an unexpected boost in advertising. In addition, CBS converted its ratings strength into a better than expected outcome in the upfront TV ad market.
If the economy is on track for recovery and growth in 2010, CBS can reach $15. I want clients to have some exposure to the possibility of a stronger than expected economic. CBS fits the bill.