Wifts Investment Group

I guess we are not the only ones who like heath care sector. This marketplace story says that on a poll of 150 fund managers, 15% “cited healthcare as their favorite sectors looking into 2010, slightly topping the 12% who listed technology.” As I have mentioned before, healthcare is our largest holding with about 26% of our asset. Our exposure to heathcare includes traditional pharmaceuticals such as FRX and JNJ, biotech companies (OSIP, CTIC) and a healthcare service provider (KND).

http://www.marketwatch.com/story/poll-fund-managers-favor-health-care-investments-2009-11-05?siteid=rss&rss=1

In October, our portfolio returned -5.71% compared to -1.98% of S&P500. This means our portfolio underperformed S&P500 by 3.73%. Even with around 25% in cash for the most of the month, it managed to go down that much. This is a good reminder to everyone that we are in a risky business.

Since the portfolio was down, let’s start with the biggest loser. CTIC was down 22.76% in October for no particular reason. Nothing has changed since we first bought CTIC, so we were able to average down our purchase price to $1.23. Seems like October was not a good month for healthcare sector overall, probably because of the on going healthcare debate. FRX was down 9.4% and OSIP was down 8.72%. Another biggest decliner was OME, which dropped 14.22%, also for no particular reason. Small cap stocks are really volatile and they don’t always follow the overall market. Nothing to panic here.

Among the significant gainers were LMIA, up 7.37% and ADM which was up 3.08%. During the month of October, oil prices kept going up and so did our holding of BHI and XES. With oil above $80 per barrel, we decided to sell BHI at $47.25 for a gain of 58.8% without counting any dividends. We don’t think oil will go any higher than this any time soon. But just in case it does, we still have about 5% exposure to oil and energy sector with XES.

In other transactions, we have added two more positions to our holdings, AMN and ACET.  If you read the previous post, we had sold AMN at $85, but since then it has been falling down. We picked up quite a bit at $62 and it is now our largest holding at about 11.2% of total. We still have the price target for AMN at around $85. Aceto Corp (ACET) supplies chemicals for pharmaceutical and agricultural industry. We thought it was undervalued at $5.44, our purchase price.  Our price target for ACET is $8.50. ACET makes 5.25% of our portfolio.

We have used up some cash this month on those transactions. We now have 13.15% cash.

NAV of our partnership for the month ending October is $9.43.

We have decided that from now on we”ll post a monthly update of our portfolio at the end of the month. To add credibility to the updates, we have signed up for covestor.com account, which links directly to the brokerage account and pulls out the holdings and trades that we have made. Unfortunately, covestor does not provide any performance information before the date we signed up with them, so everything that is calculated is since that date, which is September 3rd, 2009.

In September, our portfolio was up 10.49%, compared to S&P500’s 6.27%. Big mover was Ameron International (AMN), which went all the way up to $89 and we sold all of our holding at $85 for total gain of 51.8%. It has now dropped back in the range of $70.

AAR Corp (AIR) has been doing well after it released a strong quarterly report. It went up more than 30% in September. On the other hand, Cell Therapeutics (CTIC) is down 20% for us.

We decided to sell 75% of our holding in Kindred healthcare (KND) at $16.4 for a gain of 39.2%. The S&P500 was at the highest level for the year in mid-September and we wanted to build some cash. Now our portfolio is 25.08% in cash. Healthcare is still our biggest exposure with 24% of our portfolio invested in it.

Also new this month is the NAV of our partnership. We have decided to switch to NAV system so that it is easier to track individual’s contribution. September’s NAV is set at $10.00 per partnership unit. We will also include the monthly NAV in our update.

The stock market closed Friday at the highest level for the year. According to CNN, the S&P 500 now has gained 52% since hitting 12 year low on March 9th. The recent highs warranted a revision of our holdings and after carefully examining our overall portfolio, we have decided to make some changes.

We decided to sell Caterpillar Inc (CAT) and Texas Instruments (TXN). We thought CAT was getting ahead of the economy at $47.50 and we did not see much upside of keeping TXN when it hit $24. With the proceeds from selling those two, we added two other small companies which we thought were undervalued. We bought LMI Aerospace Inc (LMIA) at $8.55  and Friedman Industries Inc (FRD) at $5.90.

Since I am in biotech field myself, I constantly read about the current research and clinical trails. Last week, I came across Cell Therapeutics Inc (CTIC) since it was on the news due to its heavy trading volume. It turns out CTIC has submitted New Drug Application (NDA) to FDA for Pixantrone, which would treat relapsed aggresive non-Hodgkin’s lymphoma. If approved, Pixantrone would be the Chemotherapy agent for non-Hodgkin’s lymphoma because Pixantrone supposedly has less toxic side effects than the current one. CTIC has asked FDA for a “priority review”, which if granted would expedite the review process and a decision would be made by the end of the year. The decision for whether or not FDA would do a “priority review” is expected on Monday (Aug. 24th).

After carefully reading about Pixantrone, we decided to buy CTIC at $1.67. Even if the FDA does not expedite the review process, we thought we would be comfortable holding CTIC and wait for the decision. CTIC also has another drug on Phase II trial and more on the pipeline according to their website. At $1.67, the upside potential far out weighs the risk. Well, that is just my opinion.

The latest quaterly 13-F form filed by Berkshire Hathaway with the SEC showed that the company added more shares of Johnson & Johnson. In the second quarter it added almost 4.4 millions shares of JNJ. If my math is correct, Berkshire now holds almost 37 million shares of JNJ.

As you may remember from my recent post, we have started our position on JNJ with an average price of  $54.90. Currently, JNJ makes up about 7% of our portfolio. Now, we may only have a milionth of what Buffett has on JNJ, but it is good to be on the same side as the “Oracle of Omaha”.