BUY – 6.03.10 – AP – 43 Shares – $23.00 – Commission – $5.00

BUY – 6.03.10 – ISH – 42 Shares – $24 – Commission – $5.00

DIVIDEND – 7.01.10 – MCY – $13.57

DIVIDEND – 8.02.10 – AP – $7.74

SELL – 8.03.10 – MCY – 23 Shares – $41.64 – Commission – $5.00

BUY – 8.06.10 – NE – 28 Shares – $33.96 – Commission – $5.00

BUY – 8.31.10 – APT – 700 Shares – $1.57 – Commission – $7.95

BUY – 8.31.10 – EXM – 200 Shares – $5.11 – Commission – $5.00

BUY – 8.31.10 – VSEC – 36 Shares – $28 – Commission – $5.00

DIVIDEND – 9.02.10 – ISH – $15.75

BUY – 9.07.10 – +1 NE 100 Jan 30 Call @ $7.89 – Commission – $1.50

BUY – 9.07 – +3 NE 100 Jan 40 Call @ 3.63 – Commission – $4.50

SELL – 11.15.10 – APT – 700 Shares – $1.59

BUY – 11.18.10 – CHBU – 1000 Shares – $1.08 – Commission -

SELL – 12.01.10 – CHBU – 500 Shares – $1.90 - Commission – $6.25

DIVIDEND – 12.02.10 – ISH – $15.75

SELL – 12.06.10 – AP – 43 Shares – $27.40 - Commission – $5.00

SELL – 12.06.10 – CHBU – 500 Shares – $1.90 – Commission – $6.25

BUY – 12.09.10 – CNOA – 3000 Shares – $0.38 – Commission – $7.95

BUY – 12.10.10 – CADC – 240 Shares – $4.19 – Commission – $5.00

BUY – 12.10.10 – LTUS – 850 Shares – $1.14 – Commission – $7.95

This month my portfolio went up by 14.4%.

Portfolio Stats

My Holdings

Description:

VSE performs engineering services, primarily for agencies of the U.S. government. The company’s services include program planning, prototype development, electronic-warfare software support, logistics management, and configuration-management support and maintenance. These services are used for such projects as modernizing military vehicles, analyzing the conditions of machinery, and developing training aids for air-launched missile systems.

Market Cap: 149.7 Mil

Industry: General Contractors

Quality

• Growth
  Revenue %
  3-Year Average = 40.77%
  5-Year Average = 36.26%
  10-Year Average = 20.48%
  EPS %
  3-Year Average = 42.76%
  5-Year Average = 44.36%
  10-Year Average = 29.03%

  5-Year Growth Estimate = 10%

• Profitability
  Profit Margin = 2.55%
  Operating Margin = 4.1%
  Return on Assets = 11.29%
  Return on Equity = 24.51%

  5-Year Return on Assets Avg. = 9.2%
  5-Year Return on Equity Avg. = 27.0%

• Management
  Insider Ownership = 20.11%
• Financial Health
  Current Ratio = 1.57
  Debt/Equity = 92%

Valuation

Dividend Yield = 0.7%
Earnings Yield = 16.5%
Forward P/E = 5.0

Description:

Alpha Pro Tech develops and manufactures disposable protective apparel and consumer products. The company’s disposable protective apparel includes shoe covers, head covers, gowns, coveralls, and laboratory coats. It also makes sleeve protectors, aprons, and face shields for the food industry and infection-control products such as facemasks and face shields. Alpha Pro Tech’s extended-care products include wheelchair covers, geriatric chair surfaces, and operating-room tables

Market Cap: 35.9 M

Industry: Medical Appliances & Equipment

Quality

• Growth
  Revenue %
  3-Year Average = 16.93%
  5-Year Average = 19.17%
  10-Year Average = 11.44%
  EPS %
  3-Year Average = 37.51%
  5-Year Average = 37.28%
  10-Year Average = 22.80%

  5-Year Growth Estimate =  15.00%

• Profitability
  Profit Margin = 12.64%
  Operating Margin = 18.7%
  Return on Assets = 21.46%
  Return on Equity = 23.74%

  5-Year Return on Assets Average = 14.00%
  5-Year Return on Equity Average = 16.00%

• Management
  Insider Ownership = NA
• Financial Health
  Current Ratio = 25.89
  Debt/Equity = 5%

Valuation

Dividend Yield = NA
Earnings Yield = 20.2%
Forward P/E = 7.14

Summary

Alpha Pro Tech is a very small company with a market cap of only 35.9 Million Dollars.  They manufacture disposable protective apparel for the medical field.  The stock has dropped almost 70% since the end of the swine flu break out over the last year.  They are in good financial shape with a very high current ratio and very low debt.  The company’s growth mainly came from the fear of the H1N1 Virus, but I think the company was oversold and will rebound over the next year.

Today I bought shares in 3 more companies: Excel Maritime Carriers LTD. (EXM), Alpha Pro Tech LTD. (APT), and VSE Corporation (VSEC).

Excel Maritime Carriers Ltd. – I bought 200 shares of EXM @ $5.11/share plus $5.00 commission for a total of $1,029.96.  Cost/share including Commission = $5.15.

Alpha Pro Tech Ltd. – I bought 700 shares of APT @ $1.57/share plus $7.95 commission for a total of $1,106.98.  Cost/share including Commission = $1.58.

VSE Corporation – I bought 36 shares of VSEC @ $27.98/share plus $5.00 commission for a total of $1,013.00.  Cost/share including Commission = $28.14.

___________________________________________________________________________________

August 2010 Portfolio Review

This month my shares dropped by 10.14%, this beat my small cap value benchmark, but trailed the S&P 500 by over 5 percentage points.  So far my portfolio return since May 27 is -7.74%.

Portfolio Stats

My portfolio has lower P/E, P/B and higher RoA and RoE than the market average.

My Holdings

I have decided to track my net worth along with my investment performance.  My Short-Term goal is to have a Net Worth of $20,000 by the time I turn 18 on February 9, 2011, which is in five and a half months.  My Long-Term goal is to have a Net Worth of $1 Million by the time I turn 30 on February 9, 2023.

To be a Millionaire before I turn 30 I would need increase my Net Worth by a rate of 43% every year.  I expect to meet this rate very easily for the first couple of years because of the low amount of money at first. For example, increasing $10,000 by 43% will only increase it by $4,300, but increasing $500,000 by 43% will increase it by $215,000 to $715,000.  This is how someone with a lot of money can increase their Net Worth by very large sums.  For example, there are two people, one has $100,000 and the other has $10,000,000 and they both increase their money by 10%, the person with $100 Thousand will only increase their Net Worth by $10 Thousand while the person with $10 Million will increase their net worth by $1 Million Dollars.  If I grew my Net Worth by only 5 percentage points per year I would have over half a million more by the time I turned 30.

Here is a chart of how much money I will have if I grew my Net Worth by 43% every year.  Starting when I turned 17 I had $10,000.  The number on the left is how much I will have at the end of the year.  Age 30 is blank because I want a $Million before I turn 30.

I will use this chart as my Benchmark.

Here is my Net Worth as of July 15, 2010

One of the advantages that I have is that I am still young and my money will have more time to compound and grow.  I will post an update on my Net Worth every month.

Quality
Growth
EPS% This is the average growth of their Earnings Per Share. I use the averages for the last 3,5, and 10 years.
To calculate the Earnings per Share, or EPS, you divide the company’s net income by the number of shares outstanding during the same period.

REVENUE% This is the same thing as ESP% except that we are using the growth of the Revenue instead of Earnings.  Revenue is the total amount of money brought for the company. I also use the averages for the last 3,5, and 10 years.

Profitability
Profit Margin, or PM, also called net margin, or net profit margin, is calculated as net profits divided by the revenue, or sales. This measures how much of their revenue they get to keep.  A high profit margin means that the company is efficient and is able to control their costs.  I look for profit margins that are higher than their competitors in the same industry. I also look to see if the company is increasing their profit margin throughout the years.  If they are it means that the company is improving and lowering the cost of their operations which could mean that they are building a competitive advantage that their competitors could not match.

Operating Margin, or OM, is the proportion of revenues remaining after paying the costs of operating the business, such as labor costs (wages), raw materials, overhead, depreciation and amortization, selling, general, and administrative expenses, advertising, etc. It is similar to the profit margin except it does not include all costs, so it will be higher than the profit margin. Operating margin can be calculated by dividing Operating Profit by Net Sales.

Return on Assets, or RoA, measures how profitable a company is relative to the total assets of the company.  RoA tells how efficient management is at using its assets to generate earnings. If it is high it is high then the management is doing a good job at allocating its resources. The assets of a company include both debt and equity, so if a company has no debt their Return on Assets and Return on Equity would be the same.

Return on Equity, or RoE, is similar to RoA except for instead of comparing assets we are comparing the earnings to the Shareholder Equity, which is the Total Assets minus the Total Liabilities. Shareholder Equity is also called the Book Value. RoE shows how efficient management is at turning the shareholder equity into earnings. Return on equity is calculated by taking a year’s worth of earnings and dividing them by the average shareholder equity for that year. I look for companies that have a RoE of at least 10% and that of higher than the competition.

Management
Insider Ownership is how much of the stock is owned by the management of the company. I look for stocks with a high percent of insider ownership, under the theory that when management are shareholders, they will act in its own self interest, and create shareholder value in the long-term.

Financial Health
Current Ratio measures how liquid the company is and shows if they have the resources to pay of their liabilities over the next 12 months.

Current Ratio = Current Assets/Current Liabilities

Current Assets are a category of Assets on the balance sheet that include cash and assets that are expected to be turned into cash within 1 year.

Current Liabilities are a category of liabilities on the balance sheet that include financial obligations that need to be payed for within 1 year.

I look for companies that have a current ratio of at least 1, preferably 2.

Debt/Equity, or D/E, Debt-to-Equity, shows how much debt the company has compared to its equity.  A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. I look for companies that don’t have too much debt that is less than 1.  If they do have a lot of debt I look to see how efficient the company is at turning that debt into earnings with ratios such as the Return on Assets.

Valuation

Price/Earnings, or P/E, is the price of the stock divided by its EPS of the last twelve months. This is probably the most popular metric to valuing a stock. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. I look for companies of with a P/E of less than 15 and below the industry averages.

Price/Book , or P/B, A low P/B could mean that the company is undervalued. This ratio also gives some idea of whether you’re paying too much for what would be left if the company went bankrupt immediately. I look for a P/B of less than 1.5 and below industry averages.

Price/Sales, or P/S, is calculated by dividing a stock’s current price by its revenue per share for the trailing 12 months. This shows how much you are paying for one year’s worth of revenue.

Price/Cash Flow, or P/CF, is the same as P/E and P/S except we are using the Cash Flow. Cash Flow is the movement of  cash into or out of the company.  I use the 3-year average for cash flow.

Dividend Yield shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. When looking at the dividend I also look at the dividend history to see if the company is increasing its dividend and at the cash the company has to see if they can support the dividend.

Earnings Yield is the inverse of the P/E ratio and is calculated as Earnings/Price. I compare the companies EY to the Earnings Yield of the interest rates.  The stock’s Earnings Yield should be much higher.

Forward P/E The Forward P/E of a company is often used to compare current earnings to estimated future earnings. If earnings are expected to grow in the future, the Forward P/E will be lower than the current P/E.

There are many other Ratios to use when researching a stock to buy, but these are the main ones that I use.  You should always do your homework when buying a stock and never buy a stock based on a hot tip you got from a friend without doing your own research on it first.  Many people like to look at charts when deciding to buy stocks, but when I look at the fundamentals when I am buying partial ownership of a company.

To Download this post as a PDF file click here

The Shipping Industry has dropped to very low levels because of oversupply of ships and the fall of shipping rates.  The shipping rates is tracked by the Baltic Dry index.

Investopedia explains Baltic Dry Index – BDI
Changes in the Baltic Dry Index can give investors insight into global supply and demand trends. This change is often considered a leading indicator of future economic growth (if the index is rising) or contraction (index is falling) because the goods shipped are raw, pre-production material, which is typically an area with very low levels of speculation.

Because the supply of large carriers tends to remain very tight, with long lead times and high production costs, the index can experience high levels of volatility if global demand increases or drops off suddenly. The Baltic Exchange also operates as a maker of markets in freight derivatives, a type of forward contract known as FFAs (forward freight agreements) that are traded over-the-counter.

Ranking

1. Excel Maritime Carriers Ltd. (EXM)
   Excel Maritime Carriers has very high growth and profitability rates and it is very cheap, but the thing that is holding them down is their amount of debt.  Their current ratio is very low at 0.67 and their debt to equity is at 0.77.
   According to their website:
   Our business strategy is to expand our fleet and to make our dry bulk carrier business more cost effective and more attractive to our customers. In accordance with this strategy we intend to acquire additional vessels in the open market, as market conditions warrant.
2. Genco Shipping and Trading Ltd. (GNK)
   Genco has limited history because it was founded in just 2004.  Genco has good growth and profitability rates and a high current ratio, but like most shipping companies they have a lot of debt.  They are also trading at very low multiples.The shipping stocks have been beaten down due to concerns of an oversupply in the next few years. However, as China, India, Brazil, etc. continue to grow, so will demand for shipping.
3. Paragon Shipping Ltd. (PRGN)
4. International Shipholding Corporation (ISH)
   International Shipholding has good growth and profitability rates.  ISH uses a lot of debt to buy and finance their ships.  They are very cheap compared to their industry and the market as a whole.
5. Diana Shipping Inc. (DSX)
   Diana Shipping has one of the strongest balance sheets in the shipping industry with a very high current ratio of 10.01.  Diana Shipping is sometimes considered very conservative because of  its clean balance sheet and very low levels of debt.  Analysts estimate Diana Shipping’s 5-Year Growth Forecast to be a very low 1.9% compared to the industry average of 8%.  Their valuation has mixed results with a low P/E and a high P/S.
6. Navios Maritime Holdings Inc. (NM)
7. Eagle Bulk Shipping Inc. (EGLE)
   

Within the next few weeks I will probably add positions in both EXM and GNK because I think they are so undervalued.

Description:

Based in Athens, Greece, Diana Shipping owns and operates more than 20 large and medium-size dry-bulk vessels and has rapidly expanded its fleet during the past five years. By renting these ships on multiyear charters, Diana aims to lock in its future revenue. The company also owns Diana Shipping Services, its in-house vessel-operating subsidiary. Founded in 1999, the company went public in 2005.

Market Cap: 1.0 Bil

Industry: Shipping

Quality

• Growth
  Revenue %
  3-Year Average = 27.25%
  5-Year Average = 30.25%
  10-Year Average = NA
  EPS %
  3-Year Average = 23.64%
  5-Year Average = -6.51%
  10-Year Average = NA
• Profitability
  Profit Margin = 48.00%
  Operating Margin = 49.4%
  Return on Assets = 8.80%
  Return on Equity = 11.65%
• Management
  Insider Ownership = 17.92%
• Financial Health
  Current Ratio = 10.01
  Debt/Equity = 29%

Valuation

Dividend Yield = NA
Earnings Yield = 11.7
Forward P/E = 8.2

Summary

Diana Shipping has one of the strongest balance sheets in the shipping industry with a very high current ratio of 10.01.  Diana Shipping is sometimes considered very conservative because of  its clean balance sheet and very low levels of debt.  Analysts estimate Diana Shipping’s 5-Year Growth Forecast to be a very low 1.9% compared to the industry average of 8%.  Their valuation has mixed results with a low P/E and a high P/S.

Description:

Based in New York but incorporated in the Marshall Islands, Genco Shipping & Trading rents out dry-bulk vessels to major ocean shippers to carry goods such as iron ore, steel, and coal. After its creation in 2004, the company purchased all of its ships secondhand. Genco now owns more than 30 ships with total cargo capacity of more than 2 million deadweight tons, and it ships along routes around the world.

Market Cap: 564.5 Mil

Industry: Shipping

Quality

• Growth
  Revenue %
  3-Year Average = 41.76%
  5-Year Average =  188.87%
  10-Year Average =  NA
  EPS %
  3-Year Average =  23.52%
  5-Year Average =  132.25%
  10-Year Average = NA
• Profitability
  Profit Margin = 35.96%
  Operating Margin = 52.8%
  Return on Assets = 6.00%
  Return on Equity = 15.63%
• Management
  Insider Ownership = 17.88%
• Financial Health
  Current Ratio = 2.92
  Debt/Equity = 130%

Valuation

Dividend Yield = NA
Earnings Yield = 29.4
Forward P/E = 4.9

Summary

Genco has limited history because it was founded in just 2004.  Genco has good growth and profitability rates and a high current ratio, but like most shipping companies they have a lot of debt.  They are also trading at very low multiples.The shipping stocks have been beaten down due to concerns of an oversupply in the next few years. However, as China, India, Brazil, etc. continue to grow, so will demand for shipping.