Portfolio Update: 8/31/2006

My portfolio has held up well in a sideways market. As part of my consolidation effort and prudent investing, I realized gains and closed positions in America Movil (AMX), Bema Gold (BGO), (SHORT: China Natural Resources (CHNR)), Gilead (GILD), Motorola (MOT), Nasdaq (NDAQ), New River Pharma (NRPH), Tesoro (TSO), Titanium Metals (TIE), and one option trade. Realized loss: in Walmart (WMT) and two option trades.

2005 Return: 10.5%
2006 YTD Return: 14.7%

Top Holdings 8/31/06
1. Cash 20%
2. Silver Wheaton (SLW) 14%
3. Cerner Corp (CERN) 10%
4. E-Trade (ET) 9%
5. Broadcom (BRCM) 8%
6. Corrections Corp of America (CXW) 8%
7. Chesapeake Energy (CHK) 8%
8. Altria Group (MO) 6%
9. Banco Bradesco (BBD) 6%
10. Citigroup (C) 6%
11. Other 5%

Implications of Goldcorp (GG) Proposed Merger

With Goldcorp's (GG) recent bid for Glamis (GLG) everybody is looking for the next takeover target. Mining has never been much of a growth industry except through price appreciation of the underlying commodity or acquisition. Harmony (HMY), Kinross (KGC), and Meridian (MDG) all look like takeover candidates. Silver Wheaton (SLW) could benefit from the Goldcorp-Glamis deal if they are allowed to sell Glamis' 25 million ounces of annual silver production. Goldcorp own 57% of Silver Wheaton.

Also keep an eye on energy stocks. If you are looking for energy exposure, you should look at Marathon (MRO) at these levels.

Note: I am long SLW

Recession Stocks

The recent action in the beverages, tobacco, pharmas, and consumer goods stocks has been bullish. While industrials like Caterpillar (CAT) and transports like YRC Worldwide (YRCW) have been hammered. Keep an eye on the "safe" stocks.

Stocks At 52-Week Highs
Coca Cola (KO)
Pepsi (PEP)
Altria (MO)
Lockheed Martin (LMT)
Anheuser Busch (BUD)
Forest Labs (FRX)
Baxter (BAX)
Safeway (SWY)
UST (UST)

Note: I am long KO & MO

Store Some Gains

2006 has not been a year for the bulls. Despite cooling real estate prices, REITS (Real Estate Investment Trusts) continue to push higher. I have a position in United Dominion Realty (UDR), which rents out apartments. The storage business in REITS has been hitting new highs and attention should be paid to the group. The leaders of the pack in storage REITS are Public Storage Inc. (PSA) and Shurgard Storage Centers Inc (SHU). The "followers" in the group include U-Store-It Trust (YSI), Sovran Self Storage (SSS), and Extra Space Storage (EXR).

Note: I am long UDR

Smoke Signals

A recent federal ruling against big tobacco seems to have been lost by the US government. The tobacco companies can no longer advertise "light" cigarettes, are forced to pay the government's legal fees, and will have to make "corrective statements" through advertising. But big tobacco will not have to pay any penalties. This will allow Altria (MO) (a stock that I own) to break itself up and spin off its Kraft Foods division. This is good news for shareholders as Altria's shares are up 3% in after hours trading.

Note: I am long Altria (MO)

Correction Corp of America (CXW)

I finally made a purchase today. My last purchase was on May 22nd when I bought more shares of Silver Wheaton (SLW). Today I bought a position in Corrections Corp of America (CXW). They operate 63 correctional facilities that house a total of 71,000 beds. This is more of an immigration play as more beds are needed to detain illegal immigrants that entered through Mexico but are not Mexican citizens.

Defense

I think the recent pull-back in oil makes a good buying opportunity for select energy stocks. The charts have to look decent in order for me to pull the trigger. I would lean toward energy stocks that are oversold.

Now to defense...

I am also bullish on defense stocks, especially since an "attack" seems immanent. Raytheon (RTN) and Lockheed Martin (LMT) have great fundamentals and trade at 15X forward earnings. If you like to bargain pick and don't care about the technicals then I would suggest you look at Armor Holdings (AH) and L-3 Communications (LLL). AH and LLL both have forward P/E ratios under 12. The two big momentum plays are the prison stocks (Corrections Corp of America (CXW) and The Geo Group (GEO)).

Note: Invest at your own risk. This is not a recommendation.

Energy Remains Attractive

I firmly believe that the energy sector looks attractive on a slight pullback. I already own Chesapeake Energy (NYSE: CHK). CHK is the best run natural gas company in the country. 90% of their remaining gas production in 2006 is hedged out at $9.17. 72% of 2007 production is hedged at $9.88.

I like the Canadian Oil Sands as direct play on higher crude prices. The best play is Suncor Energy (NYSE: SU). Although Suncor trades at a higher P/E than its peers; it has more organic growth than the competition. SU expects to increase oil sands production from the current 260,000 bpd to 550,000 by 2010. With Suncor you get oil sands exposure, ethanol, refining, and exploration.

I also like SLB on a pullback.


Note: I am long CHK

Diamonds Trust (Amex: DIA)

Back from a nice vacation. The technicals on the Dow look to be short term overbought. I would buy some DIA puts or sell DIA short.

Note: Invest at your own risk. This is not advice.