Author: Andy Schornack

Covestor model: Market Maven

Disclosure: Long MS, BAC, NYB, SVU, BBY

The Market Maven Value model did not perform well in November in comparison to both its benchmarks. The month’s returns were driven by the leverage employed by the portfolio and the decline in Morgan Stanley (MS), Bank of America (BAC) and New York Community Bancorp, Inc. (NYB).

During the month of November, Covestor instituted changes in its margin requirements for model managers. As such, during the month of November and into December, I have repositioned the portfolio to meet the new requirements.

Since the portfolio’s inception, there has been more trading that I would traditionally like to see in the model portfolio, but fortunately the trading has been largely positive for the account. During the month of November, positions in Google (GOOG), Best Buy (BBY), and Supervalu (SVU) were liquidated at a positive gain.

In December, I reduced the portfolio’s heavy concentration in MS at a positive gain to employ into purchasing back positions into BBY and SVU after significant drops in those positions from the recent sales in November.

The underlying thesis behind BBY is believing in the business’s strong balance sheet and its ability to sustain cash flow and improve sales metrics. BBY recently reported results that disappointed analysts and missed by 4 cents (adjusted EPS 0.47 vs $0.51 expectation).  The firm has marginal debt of $1.1 billion, good cash balances, and a positive current ratio. It sports an indicated dividend of $0.16/share and is currently purchasing shares on the open market. In the 3^rd Quarter, BBY repurchased shares totaling $320 million (12.6 million shares) and has repurchased $1.2 billion (41.8 million shares) fiscal year-to-date. With weighted average shares of 359.7 million and diluted 368.8 million shares outstanding during Q3, the company has repurchased over 10% of its shares outstanding this year. In June 2011, the Board authorized a new $5 billion dollar repurchase authority, so there is plenty of room for the company to continue reducing share count; after all, the market capitalization as of mid-December is roughly $8.4 billion.

The second position that was sold and then again added back to the portfolio is SVU. The thesis, as I mentioned in October, continues to hold true. The stock has been range bound lately, but this is a nice core holding with good upside assuming projected debt repayment and stable multiple valuations on the business.

Over the next several months, I will continue to review the portfolios positions for both the long-term value and any special situation investment opportunities.