Sell: GulfMark Offshore (GLF)

Robert Hsu, September 12, 2007

Our Asia Edge portfolio proved that, once again, there has never been a better time to be invested in fast-growing Asian economies. Our stocks held up much better than the S&P 500 last week. To learn which of our stocks are faring well despite recent volatility, subscribe to Asia Edge today!

All together our stocks gained another 2.1% this week as of yesterday's close. The broad markets in both the U.S. and Asia, however, did not fare as well. We'll talk about the Asia markets in just a minute, but here at home, for the week, the NASDAQ slid 1.2%, while the Dow lost 1.8% and the S&P 500 fell 1.4%.

What Caused the U.S. Slide This Week?

In last week's Asia Edge, I wrote about the likelihood for housing- and credit-related economic slowdown in the U.S. On Friday, the Labor Department reported a loss of 4,000 jobs in August, sharply below the consensus forecast of an 110,000-job gain. This was the first job decline in four years, signaling that housing woes may be starting to hurt the broader economy. I believe that the Fed will be pressured to cut rates at its meeting on September 18 and later meetings in order to minimize the impact of the subprime effect.

When ever there's a market decline in the U.S. I'm asked the question, "What about Asia?" Well, Asian stocks also fell last week on concerns about the U.S. subprime problem. The Morgan Stanley Capital International Asia-Pacific Index declined 0.6% to 151.32, its first loss since the five days from August 12 to August 17. The index had climbed 11% in the last two weeks of August. Japan's Nikkei 225 Stock Average declined 2.7% to 16,122.16. Benchmarks fell in South Korea, Hong Kong, India, Thailand and Pakistan, as well.

Action of the Week

Sell your position in GulfMark Offshore (NYSE: GLF). GulfMark has underperformed other oilfield service providers, and its earnings growth will slow significantly in the second half of the year.

From your recent emails, I can tell that many of you are also concerned about a U.S. decline and its impact on our Asia Edge holdings. It's important to know that Asia is developing into an increasingly independent economic bloc. Today, intra-Asia trade is greater than trading between Asian countries and the U.S. If there is a slow down in the U.S., Asian economies will likely continue to grow because their investors aren't selling positions to pay for losses in real estate or fear of losing jobs. This is just another reason why we'll continue to invest in Asian companies that have the ability to outperform the U.S. markets.

In addition to knowing how various markets interact and impact each other, the key to any investment strategy is having a solid sell policy. Though each company is unique, there are still some general rules that all investors should adhere to when deciding when it is time to sell.

When Do I Sell?

I know that the recent market volatility has caused many of you to question your own sell strategies, so I'd like to share a few of my rules with you today and actually put them to practice this afternoon as it is time to exit a position this week.

In Asia Edge, because we recognize the time value and opportunity cost of money, we recommend stocks that have a high likelihood of making money in a short period of time. We're not aiming to hold stocks for the long term and, therefore, momentum is very important to us. Just as we buy stocks that have positive price and/or earnings momentum, we sell stocks that are losing price and/or earnings momentum. We also take into account how much room a stock has to run when deciding when to sell. So, if we think a certain stock is nearing the end of its run we decide if we want to focus our capital on opportunities that offer better returns or stick with the stock for a bit longer.

It's also important to note that we are committed to cutting losses and riding profits. We tend to hold profitable positions much longer than losing positions because we don't want to waste our time or money hoping that positions will turn the corner. If the evidence suggests that a particular position will not turn profitable in a reasonable amount of time, we will sell. In the upcoming teleseminar next Tuesday, if time allows, I plan to cover this issue further.

For now, I hope this has shed further light on our Asia Edge sell strategy and I hope that you can apply this to your entire investment plan.

Now, as promised, here is our latest sell:

Sell GulfMark Offshore

Four months ago in Asia Edge, I predicted that the crude oil prices would jump higher in the summer months. That's why I recommended you to buy GulfMark Offshore (NASDAQ: GLF), a highly specialized company that provides transportation equipment for offshore oil and gas production. We made the recommendation in the beginning of May as a bet on rising oil prices. This time we made the right bet, but used the wrong stock to execute it.

Just as I expected, crude oil prices have increased 30% since then from just $60 a barrel to now over $78 a barrel. However, our own GulfMark underperformed other oilfield service providers, like Schlumberger Limited (NYSE: SLB) and Smith International (NYSE: SII), which advanced 36% and 35% in the past four months, mimicking soaring crude oil prices.

In early August, GulfMark reported a 126% earnings growth for the second-quarter. The stock jumped nearly 14% on the day after delivering strong earnings report. But then it lost steam and still couldn't recover from recent market-led sell-off.

As an offshore oil service provider, most of GulfMark's business involves chartering vessels to its clients. Nevertheless, due to current moderating spot rates and more long-term charters which carry lower rates, its earnings growth will slow significantly in the second-half of the year. Last week I mentioned that the stock seemed too cheap for a company that grew earnings 153%, but now I think that slower earnings growth and sluggish stock performance is on the horizon and it's time for us to move on. Therefore, I want you to SELL GLF today.

To gain more insight into which stocks I'm recommending and when to sell, click here and become a member of Asia Edge today!