IRA Investing: Mid-Term Still Looks Bullish

Unemotional Sales

Last week I eliminated my position in Bio-Rad Labs(BIO Quote) after the company reported down earnings for the first quarter of 2007. This is a mechanical action for me, in that I automatically sell any holding that either reports down earnings or forecasts future declining earnings.

Whenever I purchase a stock, I automatically know under what conditions I will sell that stock. In addition to declining earnings, I will sell any stock that is no longer attractively valued because of a price increase. I also sell any stock that I have held for seven months and that no longer appears on my screening system as a buy. Having these sell rules is invaluable; I view selling as an important activity that most investors don't handle very well.

Two New Names

Last week I also reduced my position in S&P Depositary Receipts(SPY Quote) in order to raise funds for two new purchases: Consolidated Graphics(CGX Quote) and CF Industries(CF Quote).

Consolidated Graphics is a commercial printing company. This isn't a very exciting business, but CG has been fairly aggressive in making acquisitions to boost growth.

Over the last three years, sales have grown at a 10.2% rate, not far below the median company in the business services industry at 11.9%. Over the last year, CG's sales growth has been equal to that of the median company in the industry. CG has a return on assets of 8.4%, compared with an industry median of 6.7%. I believe it should sell near the industry median enterprise value/EBITDA ratio of 10.7, but it actually sells for a 21% discount at a ratio of 8.4.

It is interesting to note that I sold this stock about two weeks ago after I'd held it for seven months and it failed to appear on my screening system. At that time, CG's relative strength was the problem. Since then, its relative strength has improved, and the stock has reappeared on my screen. Again, the sale was a mechanical, unemotional action that has now been reversed.