Lightening the load (VRTX, MIDD)
**Update February 23** This is why I don't like to sell! I sell off 30% of my Vertex holdings because I think there's too much optimism priced in, and the VERY NEXT DAY the stock has climbed about 10% from my selling point. Arg. Can't complain about 200%+ returns, but it really is remarkable how bad my timing is sometimes for both entry and exit points.**
I've written before that I don't like to sell stocks, and that I try to be even more patient when selling than I am when buying because most of my larger mistakes have been made in selling too early.
But with two of my positions, the valuations have reached levels that I'm afraid may not be sustainable in the intermediate term and I can easily withdraw my initial investment and leave substantial holdings to ride on the whims of the market.
So I've sold a third of my Vertex holdings today, and about 40% of my Middleby holdings.
Vertex Pharmaceuticals (VRTX -- click to register for free RT streaming quote) I've written about several times in the past, including back in November when my holdings were up ONLY 100%, but they have become a a real darling of the Street in the last few months as extraordinary results continue to come out of their clinical trials and Josh Boger, their CEO and founder, has been pounding the pavement promising revolutionary treatments for two huge-market illnesses. That's great, and I'm very thankful that I held on for a gain of roughly 220% over the past year or so.
But it now appears to me as though the market is assuming that both VX-950 for Hepatitis C and VX-702 for rheumatoid arthritis will not only be approved in relatively short order (2008-2009 or so), but they will both be blockbusters. That's a big weight for early stage II drugs to carry, and a long time for which to carry it.
I actually agree, with my limited knowledge of the science and a pea-brained analysis of their results thus far, that blockbuster status is a very possible outcome for both drugs -- but they're also new treatments and it would not be shocking to find significant safety concerns when they move into broader trials, and it's certainly within the realm of possibility that neither compound will see FDA approval in the next five years ... or ever.
So I'm happy to leave most of my position to ride with Vertex as we await (hopefully spectacular) additional clinical results for their two most impressive drugs in the coming years, but I'm going to take my initial investment off the table because it seems like we've already reached a real stage of exuberance about Vertex and my uneducated guess is that the risk for the next year or two is on the downside. I sold shares in VRTX today at $38.38.
And Middleby (MIDD), another favorite of mine for quite some time, is now valued as a very strong growth stock with a PE (trailing) of 32 (the forward PEs are pretty wild guesses, since MIDD does not provide guidance to speak of). In this case, I'm selling a portion of my holdings (and again, recovering most of my initial investment) because my predictions for the company have played out in shorter order than I expected.
I bought Middleby expecting that it might be able to pull down solid earnings growth of 20-30% a year as it rides the buildout of international restaurant chains, and that it might double for me in three or four years. It had already gone up by well over 100% in the year before I bought it, but it really looked like a company hitting its stride and beginning to dominate it's industry (commercial cooking equipment) and I thought it would have a ways to go.
I never expected Middleby to be a better short-term investment than Google, which I bought at about the same time. And while I think growth will continue for this company and I'm going to leave the majority of my investment in place, I think that the rosy scenario that has played out for Middleby over the past few years is leading the market to expect perfect execution from them over the next several years. That's a lot to expect, so even though (as I wrote in my annual checkup last month) it's hard to take money off the table with the success Selim Bassoul had in the past several years, I feel like that's the right move on balance.
So I sold some of my MIDD holdings today at $94.11.
I've written before that I don't like to sell stocks, and that I try to be even more patient when selling than I am when buying because most of my larger mistakes have been made in selling too early.
But with two of my positions, the valuations have reached levels that I'm afraid may not be sustainable in the intermediate term and I can easily withdraw my initial investment and leave substantial holdings to ride on the whims of the market.
So I've sold a third of my Vertex holdings today, and about 40% of my Middleby holdings.
Vertex Pharmaceuticals (VRTX -- click to register for free RT streaming quote) I've written about several times in the past, including back in November when my holdings were up ONLY 100%, but they have become a a real darling of the Street in the last few months as extraordinary results continue to come out of their clinical trials and Josh Boger, their CEO and founder, has been pounding the pavement promising revolutionary treatments for two huge-market illnesses. That's great, and I'm very thankful that I held on for a gain of roughly 220% over the past year or so.
But it now appears to me as though the market is assuming that both VX-950 for Hepatitis C and VX-702 for rheumatoid arthritis will not only be approved in relatively short order (2008-2009 or so), but they will both be blockbusters. That's a big weight for early stage II drugs to carry, and a long time for which to carry it.
I actually agree, with my limited knowledge of the science and a pea-brained analysis of their results thus far, that blockbuster status is a very possible outcome for both drugs -- but they're also new treatments and it would not be shocking to find significant safety concerns when they move into broader trials, and it's certainly within the realm of possibility that neither compound will see FDA approval in the next five years ... or ever.
So I'm happy to leave most of my position to ride with Vertex as we await (hopefully spectacular) additional clinical results for their two most impressive drugs in the coming years, but I'm going to take my initial investment off the table because it seems like we've already reached a real stage of exuberance about Vertex and my uneducated guess is that the risk for the next year or two is on the downside. I sold shares in VRTX today at $38.38.
And Middleby (MIDD), another favorite of mine for quite some time, is now valued as a very strong growth stock with a PE (trailing) of 32 (the forward PEs are pretty wild guesses, since MIDD does not provide guidance to speak of). In this case, I'm selling a portion of my holdings (and again, recovering most of my initial investment) because my predictions for the company have played out in shorter order than I expected.
I bought Middleby expecting that it might be able to pull down solid earnings growth of 20-30% a year as it rides the buildout of international restaurant chains, and that it might double for me in three or four years. It had already gone up by well over 100% in the year before I bought it, but it really looked like a company hitting its stride and beginning to dominate it's industry (commercial cooking equipment) and I thought it would have a ways to go.
I never expected Middleby to be a better short-term investment than Google, which I bought at about the same time. And while I think growth will continue for this company and I'm going to leave the majority of my investment in place, I think that the rosy scenario that has played out for Middleby over the past few years is leading the market to expect perfect execution from them over the next several years. That's a lot to expect, so even though (as I wrote in my annual checkup last month) it's hard to take money off the table with the success Selim Bassoul had in the past several years, I feel like that's the right move on balance.
So I sold some of my MIDD holdings today at $94.11.
Labels: sell
This article posted by One Guy @ 2/22/2006 03:19:00 PM 4 comments
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