Most of the time people talk about spring cleaning. But you know what? The weather's turning cold, the markets are a-movin', and my Motley Fool CAPS portfolio is a little too crowded. That means it's time to show the door to a few stocks.
But which stocks get the boot?
I'll start with one I want to like.
Einstein Noah Restaurant Group (NAS: BAGL)
From a "buy what you know" perspective, I may not quite go out of my way to find an Einstein location the way I sniff out Dunkin' Donuts (NAS: DNKN) , but I get far more excited when I see the familiar Einstein facade than when I drive past a Panera Bread (NAS: PNRA) restaurant. The bagels at Einstein are about as good as I've found being far away from my native New Jersey, and the coffee isn't bad either.
Plus, by far the largest owner -- 64% of outstanding shares -- is David Einhorn's Greenlight Capital. Einhorn is a savvy hedge fund manager known for his skills in short-selling (betting against) stocks. That means he comes at long positions with a skepticism that's often absent for many other investors and has helped make him particularly successful.
But I just don't see what Einhorn sees. I like the company. I dig the fact that the stock pays a 3.3% dividend. But operating statistics have been deteriorating -- specifically margins and asset turnover -- and that has weighed on the returns the company produces. That's the exact opposite of Panera, which sports improving margins and turnover, which, in turn, has driven much higher returns.
And while Einstein isn't as expensive as either Dunkin' or Panera, the valuation at Einstein just isn't low enough for me to find it attractive right now.
Let's turn to a company where I simply don't trust management.
Chesapeake Energy (NYS: CHK)
In early 2008, natural gas prices were soaring, Chesapeake was raking in profits, and its stock looked particularly cheap. CEO Aubrey McClendon was a very handsomely rewarded executive, but he also owned a significant stake in the company -- something that I generally see as a very positive sign.
To be honest, I forgot that Chesapeake was still in my CAPS portfolio, but a lot has transpired since early 2008. In early 2009, the company's overcompensated board revealed who they really work for when they awarded McClendon an indefensible compensation package after he'd gambled away nearly his entire stake in the company. In a truly amazing move, the company also spent $12 million buying a collection of antique maps from McClendon -- a purchase that was recently reversed in the courts.
The company has made noise about changing its ways. It's hired a compensation consultant and has talked about tying McClendon's pay closer to performance. Perhaps I'm a cynic, but I'll believe it when I see it. So for now, I don't want to risk my CAPS score -- let alone my investment funds -- on Chesapeake's stock.
For a natural-gas-tilted energy company, there are other choices, like Southwest Energy, which hasn't shown nearly the loosey-goosey governance that Chesapeake has. Heck, ExxonMobil (NYS: XOM) picked up significant natural gas exposure through its purchase of XTO, and that's a stock I'd much rather own -- even if it doesn't have the growth potential that the smaller foes may have.
And for a finale?
I will bid farewell to a stock that has performed quite well for me.
Taiwan Semiconductor (NYS: TSM)
Back in early 2009 when I added this semiconductor giant to my CAPS portfolio, I viewed the shares as particularly undervalued. It would seem that the market has come to that same conclusion since then -- Taiwan Semi's stock is up more than 90% since my pick versus the 52% gain for the S&P 500.
And now? Today I don't think Taiwan Semi's stock is egregiously overvalued, but it's not nearly the bargain that it was at the time. Meanwhile, I believe I can find a lot of better deals elsewhere in the market -- including fellow semiconductor giant Intel (NAS: INTC) , which I own and have been a fan of for some time.
So I will take my gain on Taiwan Semi and make room for better opportunities.
And these better opportunities you speak of?
There are quite a number of attractive buying opportunities out there, and a lot of them are large, blue chip stocks hiding in plain sight just like Intel. Even better, many of the buyable stocks today are backed by companies that share profits with their shareholders through dividends. In fact, you can find a stack of these companies in The Motley Fool's free special report "Secure Your Future With 11 Rock-Solid Dividend Stocks."
At the time thisarticle was published The Motley Fool owns shares of Panera Bread and Intel. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Intel, Panera Bread, Chesapeake Energy, and Southwestern Energy. Motley Fool newsletter services have recommended creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer owns shares of Intel, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
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