Portfolio review of the week June 19th 2010

The Dow Jones Industrial Average rose 16 points, or 0.16%, to 10,450 on Friday. The index climbed 2.4% on the week. Sentiment was helped by a report from Caterpillar (CAT) that it had achieved a 38% year-over-year increase in machinery sales in Asia for May giving signals that demand in the region was still robust despite concerns about the strength of the recovery. The Nasdaq Composite rose 3, or 0.1%, to 2,309 on Friday, making seven straight days of gains for the index. For the week the index was up 3%. The Standard & Poor's 500 index gained 1.5, or 0.13%, to 1,117 and climbed 2.37% this week. The FTSE 100 failed to achieve eight straight days of gains with a fall of 3 points to 5,251 on Friday, giving a rise of 1.6% for the week. The index was boosted by a partial recovery in BP (BP.) during the week after the company agreed to ring fence $20 billion in an escrow account to cover potential liabilities from the Gulf of Mexico spill and said that it would suspend its dividend giving reassurance that the company could cover the rising costs.

Overall sentiment improved considerably last week, with fears about the health of the European debt situation and continued Asian growth forgotten for now. However, I am sceptical about the strength of this rebound as these concerns have not disappeared by any means and the continued rise in the gold price to $1,258 an ounce gives an indication that investors continue to be concerned about the strength of the key currencies, notably the dollar and euro, with the impact that debt will have on future inflation prospects. Whereas investors were happy to park cash in dollars in the past, gold now seems to be the preferred safe haven. Whether the gold price continues to rise unabated is another matter, given its 35% increase in the last year.  With reservations about the stock markets at this time, I am continuing to take profits on these upward moves and buy on the dips. I await the next major panic selling event when I am bulk up my holdings. The timings of any lurch downwards is always the uncertainty in trading but I do not feel inclined to put all my cash to work right now. The U.S. second quarter earnings season in July will a good opportunity to increase my trading exposure.

The Contrarian Investor UK portfolio is a little light this week after some positions were sold. I wait for now for the right buy points.

GW Pharma (GWP) - After 9 years  of waiting, GW Pharma share holders were finally rewarded on Friday with the news that Sativex had been approved by the U.K. regulatory agency the MHRA. A press conference will be held next week jointly by Bayer and GW to formally announce the launch of the product. The shares rose 9.3% to 141p after a 5% increase on Thursday, making it a 19p or 15% rise for the week. Although I believe that Sativex should be a commercially successful product for the company, I do not foresee that there are significant short term catalysts to boost the share price much further than the 140-150p range. For example, final approval in Spain is expected to take several months more and European roll out will not occur until early 2011. Furthermore, there is a good possibility of profit taking moving the price down . For this reason, I decided to sell my final holding in GWP on Friday. Trading in and out of this stock has proved to be an excellent investment over the last few months, illustrating that for these smaller companies, short term trading can produce better results than buy and hold. 

Coal of Africa (CZA) - Following the £55 million fund raising earlier in the week at 110p, the shares finished the week at 113p, a rise of 8% on the week. I continue to hold for a rebound in this stock after topping up at 105p.

Ithaca Energy (IAE) - IAE finished broadly flat for the week at 148p despite a relatively upbeat AGM where it was confirmed that the company had $50 million of cash with no debt as well as a rising production outlook. Continuing to hold.

ITV (ITV) - After a nice move up to over 58p this week as sentiment recovered and revenues get a boost from the World cup I have taken profits in this stock. A move back to 51-52p would signal a buy back opportunity.

RockHopper (RKH) and Falkland Oil and Gas (FOGL) - After assessing the opportunity for the Toroa prospect which is currently beng drilled by FOGL, I have decided to divest my holding. After the good fortune on Rockhopper earlier in the year I have decided not to push my luck. The geological structure on the Toroa well is not linked to the Sea lion Rockhopper find. I continue to hold RKH.