Prediction for FTSE 100 and DOW Industrials 2011

Contrarian Investor UK predicts the FTSE 100 will end 2011 at 6550 and the Dow Jones Industrials will hit 13,000.

But I believe its going to be a very volatile year, suiting a trading style rather than buy and hold. On the plus side, continued ultra low interest rates and quantitative easing will continue to drive the U.S. earnings and hence the market in 2011. It is unlikely that the Federal Reserve will begin to tighten monetary policy by raising interest rates too aggressively during 2011 despite signs of rising inflation notably in commodities. One day the U.S. government may be forced to take action against its ballooning budget deficit and rising national debt, but this isn't on the agenda in 2011 or even 2012 with the next presidential election due in 2012. Although the U.K. government has decided to take action to reduce spending and raise taxes, across the Atlantic this is an alien concept for now given this strategy would be likely to be politically unpopular with mainstream America.

The weak U.S. dollar has helped drive impressive growth in gold, silver, oil, and industrial metals as well as agricultural products e.g. cotton during 2010. It is unlikely that the dollar will reverse its trend in 2011 but continued high demand from Asia (notably China) may begin to wain.

There is likely to be notable sell-offs during 2011 precipitated by several possible scenarios:
1. worries about euro zone debt (particularly Portugal and Spain). The U.S. budget deficit and lack of action to tackle it.
2. Chinese inflation and an increase in interest rates
3. A stagnant or declining property market, plus rising defaults
4. Poor unemployment numbers in the euro zone and U.S.

Therefore I will not be over committing myself too early in 2011. I will keep cash on the sidelines to take advantage of falls in the more speculative stocks on my watch list rather than piling in during January when sentiment is too positive. I would rather buy on a sell-off then when the market is red-hot and universally bullish. These are:

1. Xcite Energy (XEL) - North Sea oil (already hold)
2. Bowleven (BLVN)  - Cameroon oil explorer
2. Nautical Petroleum (NPE) - North Sea oil
3. Coal of Africa (CZA) - South African coal miner
4. Angel Mining (ANGM) - Greenland Gold and Zinc (already hold)
5. Ithaca Energy (IAE) - North Sea oil

In addition to these AIM plays, I am also interested in Aviva, Shell, Reynolds, BAT, Imperial Tobacco as dividend stocks.

Portfolio review of the week July 4th 2010

On Friday the Dow Jones Industrial Average finished down 46 points , or 0.5%, to 9,686 its seventh day of falls, with a weekly drop of 4.5%. The S&P 500 moved down 5 points, or 0.5%, to end at 1,022, making it a 5% drop for the week. The Nasdaq Composite Index fell 10 points, or 0.5%, to 2,091, a drop of 5.9% for the week. The FTSE 100 gained 32 points or 0.7% to 4,838, but fell over 4% on the week.

The last time U.S. markets fell every day during a week was in October 2008 following the collapse of Lehman Brothers. On Friday, U.S. employment data disappointed with nonfarm payrolls falling by 125,000 in June, compared with 430,000 jobs created in May, as the number of temporary census workers dropped by 225,000. The unemployment rate fell to 9.5%, the lowest rate since July last year and down from 9.7% in May. U.S. factory orders declined in May, posting the largest drop in 14 months as transportation related orders declined heavily.Overall economic data for the week was below expectations which helped fuel the sell off. Overall investors are struggling to find reasons to buy stocks and technical investors are closely looking whether the S&P 500 will breach the key 1000 level during July.

Commodity stocks were weak for most of last week as worries about a U.S. and European double dip recession and a potentially slowing Chinese economy hit sentiment. On Friday, this negativity was partially reversed by the the Australian government’s decision to replace the resources ‘Super Tax’ with a less onerous alternative called the Mineral Resource Rent Tax (MRRT) which would apply to iron ore and coal from July 2012. Bank stocks were also moved down by renewed fears about sovereign debt in the euro zone.

The reversal in sentiment during the second quarter of 2010 has been significant with falls of around 10% in most indices wiping out gains made during the first quarter. The FTSE 100 has fallen more than 13% since the start of the year, with BP contributing a fall of 200 points in the index all by itself. Whereas investors thought the economic recovery was assured during the early part of 2010, now it all looks very different. With governments implementing tough austerity budgets to bring their deficits under control and the the effects of the Chinese stimulus package beginning to wane the rest of 2010 looks less rosy.

With all this negative sentiment, the Contrarian Investor UK portfolio has begun to find value again in some sectors. With ITV dropping below 50p, a purchase was made for the portfolio. Though positions were aggressively trimmed during Q1 to take advantage of the gains, holdings in Ithaca Energy (IAE) and Coal of Africa (CZA) have performed particularly poorly during the last 2 weeks. These remain good quality stocks were the energy and commodity sectors have been hit. Overall I am not taking an aggressive position on the long or short side but any further large falls will be seen as a buying opportunity. I would be surprised if the Dow fell below 9,000 since we are not in 2008 territory by any means.

Portfolio review of the week June 27th 2010

The Dow Jones Industrial Average closed down 9 points, or 0.1%, to 10,144 on Friday, with a 2.94% fall for the week after the U.S. government revised 1st quarter economic growth estimates downwards led by weak consumer spending. The Nasdaq Composite climbed 0.27% to 2,233, but closed down 3.7% for the week. A notable faller on the Nasdaq was Research In Motion which dropped 11% to $52.2 after the company reported a 20% rise in first-quarter profit but disappointed on shipments of Blackberry's. The Standard & Poor's 500-stock index rose 0.29% to 1,076 but fell 3.7% on the week. Financial stocks moved up, helping to counter the move down in consumer related stocks, after the new financial regulation package was agreed and U.S. politicians in a form which was felt to be less onerous than previously feared.


The FTSE 100 was down 54 points to 5,046 on Friday, with a 4.7% or 253 point fall on the week. BP (BP.) continued its downward spiral closing at £3.04 on fears that potential storms in the Gulf of Mexico would hinder the efforts to stop the flow of oil from the leaking well. Commodity stocks had a particularly poor week as worries about a double dip resurfaced and metal prices softened. Generally sentiment took a tumble and the bears are firmly in control.


As I mentioned a few weeks ago, positions were trimmed back significantly as I had concerns about the market strength. For this reason, the portfolio is relatively limited at the current time. I am holding Coal of Africa (CZA) which has reversed back to 105p, my original purchase price and Ithaca Energy (IAE) which has had another poor week, finishing at 134p, down 10%. However, I am hopeful of a reversal for this company.

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.

Coal of Africa raises additional funds

South African coal miner, Coal of Africa (CZA), yesterday raised £55 million through a placing at 110p. At only a 0.2% discount to the previous day's closing price this confirms institutional support for the Coal of Africa story.

The company will use the proceeds to provide Makhado mine bulk samples (US$7.5 million), Makhado Definitive Feasibility Study (US$6.5 million), potential acquisitions (US$15 million), U$20 million to repay the existing JPMorgan working capital facility and US$20 million for general working capital.

The shares closed down around 2% at 107p which gave a further opportunity to top up the holding. The company announced on Tuesday that the main market London listing and would be delayed until November to enable the required listing requirements to be met, in particular the 2nd quarter financial results.

Given the drift down in CZA's share price over the last 2-3 months back to the 105p+ level, hopefully the placing will now give a floor and enable a recovery back to £1.50 as production continues to ramp up.

Portfolio review of the week June 5th 2010

After a week of significant volatility, markets fell heavily yesterday, with the Dow Jones Industrial Average falling on disappointing jobs news from the U.S. and fears of a spread in the European debt crisis due to Hungary. The Dow fell 323 points, or 3.2%, to 9,931 and finished the week below the key 10,000 mark and 2% lower for the week. The Nasdaq Composite dropped 84 points or 3.6% on Friday to finish at 2,219 and down 1.7% for the week. The S&P 500 dropped 3.44% or 38 points to 1,065 with a fall of 2.3% for the week. The FTSE 100 fell 85 points or 1.6% to 5,126 on Friday and finished down 1.2% for the week. However, FTSE futures are pointing to another 50 point drop on Monday since the worst of the Wall Street falls were not seen until after the close of the European markets.

Industrial and infrastructure stocks (e.g. Caterpillar CAT down 5.5% at $57.7) were hit particularly hard as a weakening euro means that revenues will be hit as the sales are translated back to dollars on currency conversion, plus any weakening of the European economies will hold back sales volumes. In addition, a weakening of commodity prices such as oil (which dropped over 4% to $71) and banking fears hit financials, energy and commodity stocks - Conoco Philipps (COP) was down 3.7% to $50, Barclays (BARC) was down 4.7% to £2.88, BHP Billioton (BHP) dropped 3.7% to £17.71.

The key reason for the decline was that U.S. non farm payrolls rose by only 431,000 last month, short of expectations for a rise of 515,000 jobs. Most of the rise was due to temporary census staff hiring (which created 411,000 jobs) and only 41,000 private sector jobs were created (against 218,000 in April). There were also downward revisions to payrolls in March and April, both 22,000 lower at 208,000 and 290,000 respectively. The unemployment rate dropped to 9.7% in May from 9.9% the previous month, in line with expectations.

On top of this the euro got a battering with a fall below the $1.20 level against the dollar being the lowest point for four years as fears that Hungary may suffer a Greek style debt crisis emerged. Hungary is in the European union but not part of the euro. However, after the concerns about Spain last week, worries about Hungary have given investors plenty of reasons to be pessimistic about the state of European finances and the health of its banks. A spokesman for Viktor Orban, the Hungarian Prime Minister, suggested that his country had only a slim chance of avoiding a Greek-style debt crisis. Peter Szijjarto, the Prime Minister’s spokesman, said that his Government was “ready to avoid the path that Greece took ... After realising what reality is, we will not hesitate to act.” The potential exposure to any Hungarian default by European markets is a stark reminder that the write-down's of the banks may not be over.

The Contrarian Investor UK portfolio has had limited trading over the last 2 weeks due to holiday. But positions were initiated in Coal of Africa (CZA) at 104p and BP at £4.19. The Coal of Africa position is retained but BP was sold on Thursday at £4.50. Short term trades were all put in play on Barclays (BARC), Man Group (MAN) and Prudential (PRU) which were all closed within a day or two as the market rebounded from the market falls late in May. The falls of last week have put some interesting opportunities on the table and I will take these on any further weakness during the early part of next week especially if the FTSE moves below 5000 again. Any fall in the U.S. S&P 500 below the key technical 1,050 level will be watched with interest.

It was disappointing not to be involved in the huge spike in the Falkland Islands oil shares yesterday after Rockhopper (RKH) issued a very positive technical update on its Sealion oil find in the North Falklands basin. RKH finished up 33% at £3.19, Desire Petroleum (DES) was up 22% at £1.00 and Falklands Oil and Gas (FOGL) was 10.5% at £2.06. Rockhopper upgraded the size of the find to 242 million barrels recoverable with further increases likely. After seeing the price drop to below a £1.00 on Wednesday on false rumours of a poor quality oil discovery (and possibly some sort of manipulation), buyers at this point have seen a 300% plus increase. After having my finger on the trigger to buy at these levels I am frustrated that I didn't proceed. Nice profit missed. It is incredible to think that Rockhopper was trading in the 35p range as little as a few weeks ago before the results of the Sealion appraisal well. So continued holders are nearly at the "ten bagger"stage. You don't see too many of these trading opportunities and I am sure that many have profited nicely. I am also sure that many lost a lot of money during the "flash crash" of Wednesday. It has been positive to see some good profits in these Falkland Islands shares, but what could have been if I'd had the nerve!?

Portfolio review of the week May 16th 2010

The Dow Jones Industrial Average was down up to 200 points on Friday but finished the day down 162 or 1.5% at 10,620. Despite Friday's weakness, on the week, the Dow Industrials rose 2.3% , the S&P 500 rose 2.2% to finish at 1,136 and the Nasdaq composite rose 3.6% to 2,347. The FTSE 100 rose 2.7% on the week, despite Friday's fall of 170 points to close at 5,263.

After the announcement of the 720 billion euro ($1 trillion) European Union/IMF bail out at the beginning of the week and a large relief rally after heavy falls at the end of the week before, the markets remained increasingly under pressure as the days passed.  Real concerns began to surface that the eurozone may not be able to get its debt under control within slowing economic activity to a snail's pace.

The Contrarian Investor UK portfolio took the opportunity to sell positions initiated during the market weakness the week before when the eurozone bail out euphoria hit on Monday. So Coal of Africa (CZA) and Ithaca Energy (IAE) were both sold at a profit. I am now again sitting largely on the sidelines with the majority of my equity holding in GW Pharma.

GW Pharma (GWP) - Despite the volatile week on the markets, GWP's share price continued to make good progress. The shares rose over 10p or 8.7% on the week to finish at 127p as the company is due to make its interim results announcement on Thursday and an update on the regulatory approval status of multiple sclerosis drug, Sativex, is eagerly awaited. I continue to hold this a core position since it is likely that Sativex will be launched by partner Bayer Schering in June barring any regulatory set backs but this seems unlikely given the update given by the company in March.

Eurozone bail out moves FTSE 100 up over 4%

The FTSE 100 is currently up 223 points or 4% to 5,345 and Dow industrials futures are up 335 points to 10, 719 as investors breathed a sigh of relief on news of the eurozone financial stability package. This is despite all the political uncertainty in the U.K. relating to the Hung parliament. 

The IMF and EU agreed to put together a €720bn (£625 billion) stability fund and the ECB (European Central Bank) announced it planned to buy government and other bonds on the open market. The ECB move was a complete reversal of policy from that stated from its President Jean-Claude Trichet last week.The bank will also reintroduce unlimited offers of three- and six-month liquidity to ease the current liquidity situation.

The eurozone will provide loan guarantees up to €440bn and a further €60bn will support weaker member states such as Portugal and Spain. The IMF will provide up to a further €220bn.

Commodity stocks are moving up significantly this morning. Portfolio holding Coal of Africa (CZA) is up 9% to 133p whilst BHP Billiton (BHP) is 5.8% to £19.73 and Kazakhmys is 9.2% at £13.09. Financials also strengthened with Barclays (BARC) up 34p or 12% to 318p and Royal Bank of Scotland (RBS) up 8% to 49.4p. BP (BP.) is one of the few stocks down, currently down 7p at £5.46 as concerns about the Gulf of Mexico spill still weigh.

Rockhopper Exploration (RKH) shot ahead a further 54p at one stage on further news about its oil find in the Falklands Islands and the share price is now trading at 28% or 41p at 187p. This means RKH is up over 500% since a low of 36p last Wednesday. I'm just a tad disappointed selling out at 125p! For those brave enough to have turned off their trading screens since last week they will have been mightily rewarded - high risk, very high return.

After waiting several weeks for a correction, my decision to start buying last week has been confirmed as correct. With this huge move up today, I wish I had been more aggressive with my buying of stocks especially in the commodity space.

Portfolio review of the week May 8th 2010

The Dow Jones Industrial Average fell 140 points, 1.3%, to close the week at 10,380, despite the Labour Department report showing job growth in April at its fastest pace in four years in the U.S.. The index was was off 5.7% for the week, its worst performance since March 2009, losing 772 points in 4 days. The Nasdaq Composite Index was down 54 points or 2.3% to 2,266. The S&P 500 fell 17 to finish at 1,111 and showing a fall on the week of 6.4%. The FTSE 100 fell 138 points or 2.8% on Friday to close at 5,123. Over the week the FTSE 100 declined 7.8% or 430 points. Over the past month the index is down 11% or 639 points.

What has gone wrong? Investors continue to worry about Europe's debt crisis, particularly Spain and Portugal's situation after the Greek bail out. The Australian resources super tax didn't help as it hit commodity stocks and signs of a slow down in China made Asian investors nervous. Then albeit a sideline issue, the hung parliament situation in the U.K. has not helped sentiment in this country. My worries about the safety of the market when the DOW had moved over 11,000 and the FTSE 100 was trading in the 5,800+ range have been borne out. When stock markets move up week after week (the DOW gained 8 weeks in a row) a correction is inevitable, though the size and speed of the move down has surprised me.

Despite the heavy falls on both side of the Atlantic, the portfolio has done well this week but only because Falkland Island oil explorer, Rockhopper Exploration (RKH) came good. In fact its performance was exceptional. The other holdings have suffered in the sell off, but GW Pharma (GWP) has held on well considering what the indices have done. However, Contract for difference (CFD) bets on the FTSE 100 and DOW industrials were unsuccessful and fell through stop losses and unfortunately ate into the RKH gains.

Rockhopper Exploration (RKH) - After dropping into the mid 30p zone on Wednesday, the announcement on Thursday that the company had found a substantial oil reservoir on its Sea Lion prospect in the North Falklands Islands basin moved the share price to around 92p by close of play. Then the company issued a further update on the quality of the oil in the reservoir on Friday which confirmed the potential quality of the find. The shares shot up a further 51.5p to 145p. It was a week of trading in and out of RKH on Thursday and Friday with some nice profits made. I sold my final tranche at 125p on Friday. No doubt the shares have further to go as news flow on the analysis of the find continues to flow but I will take my profits for now. A drop yesterday to 84p was certainly a classic market maker shake to scare investors into selling and clearly several did. By the afternoon the shares were up 74%.

Not only it is good news for RKH shareholders but clearly good news for UK PLC. There is a talk now of an oil field as large as the North Sea.

GW pharma (GWP) - A good week for GWP as the shares held steady at 116p despite the broader market falls. Awaiting Sativex news which should be due any day now.

Ithaca Energy (IAE) - Despite some good news from the Stella North Sea field in relation to the sidetrack well the shares dropped 25p or 13% this week to finish at 168p. On Friday IAE fell 5% as oil fell to $78 per barrel.

Coal of Africa (CZA) - Coal of Africa shares fell nearly 17% this week to finish at 121p as the global price of coal fell and investors worried about the Australian resources super tax. On Friday CZA confirmed the new Australian tax would have no impact on earnings since they have no sites in Australia. The position initiated at 130p is under water but the prospects look very positive for the medium term especially with the London main market listing due Q2.

Coal of Africa confirms Australian super tax has no effect

Coal of Africa (CZA) issued an RNS this morning confirming that the underlying intention of the Australian resources super tax is the levying of tax on profits arising from the exploitation of non-renewable resources located in Australia. Since the company has no operational projects in Australia, it expects no increased taxation charges resulting from the implementation of the tax. The shares are down 3.5% this morning to 122p. The falls of the last week or so seem overdone given this confirmation and with the Mooiplaats project ramping up production and Vele coming on stream CZA looks a great play for significant earnings growth in 2011.

Market stabilises after sell-off

After further falls this morning, the FTSE 100 is currently up 24 points at 5,361 after being down as much as 80 points and DOW futures are up 22 at 10,893. Unfortunately long positions in the FTSE and DOW were stopped out with the falls this morning and yesterday, illustrating the volatility of these markets and the difficulty in playing these short term movements.

Coal of Africa (CZA) has finally moved into positive territory after falling from around 150p to below 120p in less than a week on the general commodity sell off.  My expectation was that CZA would not fall below 120p given the imminent main market listing.  The shares are currently flat at 124p.

It has been reassuring that GW pharma (GWP) has not moved down despite the large market sell off and it is currently up 1.5p to 120p. I am waiting with baited breath for news of Sativex national approval in the UK and Spain.

Portfolio review of the week 3rd April 2010

Falkland Island Oil Explorers  -Another bullish week on the markets was tempered by the collapse in the Falkland Island oil drillers on Monday as Desire Petroleum (DES) was forced to issue a premature news release on the progress of the Liz well following a report in the Sunday Times that reservoir quality was poor. Another update from Desire on Thursday afternoon indicated that drilling was continuing to greater depths after hydrocarbon shows with  final report due late next week. It seems that there is a significant amount of gas (yet to be confirmed) but oil seems to be elusive to date and given the geographical location and the current world gas price this is clearly not an advantageous position. Desire's share collapsed 50% on Monday to around 50p and have held steady for the rest of the week. Fortunately a holding in Desire was sold the previous week. Position's in Falklands Oil and Gas (FOGL) and Rockhopper (RKH) fell through stop losses on Monday as sentiment turned against the explorers. However, having stabilised later in the day I bought back both as the geological structures are unrelated to Desire's prospect and Rockhopper' s well is due to be drilled next by the Ocean Guardian rig with spudding in early April.

GW Pharma (GWP) - GW Pharma continues to drift downwards following the positive news on Sativex a couple of weeks ago. Things are expected to be quiet until May onwards when an update on national approval from the UK and Spanish regulatory authorities would be expected. The interims are also in May and news on other regional licensing deals outside North America and Europe would be expected as well as the U.S. FDA cancer pain application wit Otsuka Corp.. I sold around 2/3 of my holding on the news and bought back some at 115p. I am monitoring this share closely for a further buying opportunities on a slide back below 110p because May and June news should drive this to well over 130p.

Norseman Gold (NGL) - A position was started in this Australian gold company on Monday. See the previous article, http://contrarianinvestoruk.blogspot.com/2010/03/norseman-gold-looks-solid-australian.html.

Coal of Africa (CZA) - The Coal of Africa position was increased this week as Morgan Stanley increased their share target to 200p  (current 145p) and a full UK market listing is due.

BHP Billiton (BLT) - A contrarian short on BHP Billiton was placed on Thursday morning following a week of strong rises as the rise in commodity stocks seems overcooked.

Genzyme (GENZ) - The position was closed on the rebound to $53.

Micron (MU) - Short term trades at just over $10.2 were made and closed before the quarterly earnings at $10.8

Coal of Africa target price increased

Morgan Stanley increased the target price of Coal of Africa (CZA) this morning from 171p to 200p.

Portfolio review of the week March 27th 2010

The bulls seem unstoppable at the moment with solid gains around the world's stock markets for another week. The Dow Jones Industrial Average, ended up 9 points at 10,850 after being as high as 68 points higher. The index was up 1% for the week.  The Dow Industrials, S&P 500 and Nasdaq Composite all ended with a fourth week of  gains, the longest positive run for all three indexes since the summer of 2009. The FTSE 100 finished down 24 points at 5,703. The index was up 53 points, or nearly 1% for the week.

The market responded positively to the  news that the Euro zone countries had agreed a plan to bail out Greece together with the International Monetary Fund, driving the euro to a 10 month high against the dollar. On Friday afternoon, debt rating agency, Standard & Poor, confirmed it's rating on Greece.

Gw Pharma (GWP -  After last week's strong gains in GW Pharma on a positive regulatory update on Saticex and good trials results for the future U.S. application in cancer pain, the share price has dropped strongly from it's highs close to 130p to finish the week at 113p. This fall came despite Prudential increasing their holding from 10% to 12%. After selling down 3/4 of my holding close to the highs,  Contrarian Investor UK bought back at lower levels. News on the completion of the national phase of the UK and Spanish applications should be available around the time of the May interims so it's a case of sitting tight for now and waiting for further news flow.  Licensing deals in territories outside North America and Europe should also be announced in Q2.

Falkland Island Oil Explorers (Desire Petroleum, Falklands Oil and Gas, Borders and Southern Petroleum, Rockhopper Exploration) - As discussed on a previous post, I have sold my Desire Petroleum (DES) holding and moved into RockHopper Exploration (RKH) and increased my holding in Falkland Oil and Gas (FOGL) in order to be able to use IG Markets CFD guaranteed stops in case things don't go quite to plan next week. Protected trades, limiting any loss to 12.5%, were not possible on Desire for some time. News from the South Atlantic should be due Wednesday onwards on drilling of Desire's Liz field (but perhaps earlier but all conjecture). But it now seems plausible that Desire are testing the well because as a reminder the addendum to the Environmental Impact Statement (EIS) issued in December 2009 stated (http://www.desireplc.co.uk/pdfs/DesireFalklands_EIS_Adndm.pdf), "It is anticipated that the Ocean Guardian semi-submersible rig will be on location for between 18 and 30 days for each we and an additional 7-10 days if the well is tested. The earliest spud date for the first well is 1 February 2010. It is currently proposed to test the wells if hydrocarbons are found. During the well test up to up to 8,000stb/d of oil or 25MMscf/d of gas will be flared dependent on the reservoir fluids encountered and if the reservoir is found to be capable of delivering these rates...". Given it will be 35 days since the Liz prospect "spudded" on Monday (spud was 22nd February 2010), it is possible that Desire are testing the well and they would not be testing if there was nothing substantial in terms of an oil/gas find. On the other hand, drilling to target depth might have been delayed by unforeseen events, which of course is always possible in offshore drilling campaigns. Should be an exciting week either way - keeping my fingers crossed it's not a "duster". 

ITV (ITV) - After a near 10% move upwards this week from 55p to 60p, I took the opportunity to sell off the position. There has been a significant shift upwards from the 50p level in february as Crozier/Norman have taken charge and the advertising market continues to improve.

Coal of Africa (CZA) - A steady move up in CZA to finish the week at 146p as main market listing in the UK is due in the next few weeks. After a wobble, where the share price dropped as much as 7p on rumours that the Vele mine project approval might be compromised by enviromental protestors, the stock recovered to finish broadly flat. Contrarian Investor UK is expecting a move up closer to 200p during Q2. 

ARM (ARM) - Chip designer ARM holdings continued to move up to a 52 week high as tech stocks stay in demand which has squeezed the short. However, the 5% stop loss on the sell has not yet been triggered and on anticipation of a market correction this position may come back in my favour. Holding for now.

SSL International (SSL) - After a positive trading update yesterday (see previous post), SSL moved over the £8 level and triggered a stop loss on the short. This illustrates the problem with shorting shares in this short of market where momentum investors are piling in. With this sort of market, fundamental analysis of a company's value can be for nothing. 

Genzyme (GENZ) -  Pharmaceutical company Genzyme  dropped over 14% in 2 days on concerns over an FDA sanction of a key plans. An initial position was stopped out but I bought back on Thursday night as the stock hit $51. This buy was rewarded with a bounce back on Friday as brokers started saying the FDA related fall had been overdone. Shareholder activist, Carl Icahn remains key to a rejuvenation of this company.

Position in Coal of Africa initiated

Position reinitiated yesterday afternoon in Coal of Africa (CZA) on anticipation of UK full market listing in Q2 and a fall back in the share price from the previous sell level of 142p.  Revenue is expected to rise dramatically as production ramps up to 15 million tonnes of coal. Prices remain firm for coking and thermal coal on rising Asian demand.

Portfolio Update - February 21st 2010

The market’s had a good week, with most of the major indices up 3% or so. Sentiment seems to have turned positive over the last 2 weeks after the negativity early in February. One of Contrarian Investor UK’s principles to maintain adequate diversification is being broken this week as my portfolio is too heavily weighted towards GW Pharma and the Falkland Islands Oil companies.  But the “binary bet” on the success of GW’s Sativex cannabis spray for Multiple Sclerosis is far too tempting a target. The previous application for the drug was rejected because of inadequate clinical trial data. This was addressed with an additional phase III clinical and the new application made for a European licence in the summer of 2009 looks very strong.  I have used Contract’s For Difference (CFDs) to limit the downside risk to 20% or so, but approval should move GW Pharma up at least 50-60%. As for the Falklands Oil drillers, all the hype and TV/press coverage is just too tempting to exploit and again the upward move on these shares will be so significant that a guaranteed stop loss using a CFD seems a sensible trade, albeit a gamble. “Fortune favours the brave”.

Coal of Africa (CZA) – Significant upward move in this share price this week on no news from 130p range to a high of 153p. Positions closed despite long term conviction in this stock, especially as Vele mine approval was finally given this month.  This strategy appeared to have paid off on Friday with CZA falling as much as 5% at one point. I will watch for a potential re-entry point if the positive market sentiment turns for the worse.

GW Pharma (GWP) – Still no news on the Sativex European approval but given the timings of the Decentralised approval process (DCP) for drugs in Europe it would be expected that news is not far off.  Have increased position once again at 87p.

Falklands Islands Oil (Falkland Oil and Gas –FOGL, Desire Petroleum – DES, Borders and Southern Petroleum BOR) – Its been an exciting week for the Falklands Oil stocks as Argentina issued a decree that any vessel passing through its waters would need a permit to visit the Falklands which made investors somewhat nervous. On Friday, the Ocean Guardian Rig, contracted by Desire Petroleum arrived on the Liz field in the North Falklands basin and is due to spud this afternoon. I took the opportunity to top up my holding in Desire Petroleum despite some reservations about my significant exposure to the Falklands Oil sector. The risks are significant but the geology of the Falklands basin and oil finds in the previous drilling campaign by Shell/Lasmo gives more than hope that oil will be found in economic quantities. If the Ocean Guardian Rig does strike it rich then I would expectd Desire’s share price to be closer to £20 than 1 so the risk/reward ratio still looks enticing despite the strong run up in the Falkland Island Oil shares. Falkland Oil and Gas and Borders and Southern Petroleum have been relatively benign for a couple of weeks now, so a rise in these Southern Basin stocks would be expected on any news from the Northern Basin drilling campaign.
Nighthawk Energy (HAWK) - Nice move back up from 27p to just over 30p as the company announced the appointment of a new non-exec. director. News on Jolly Ranch should be imminent and therefore I am hopeful of a solid move towards 40p in the next week.

ITV (ITV) – A move up from below 50p to 53p as news on potential government approval of Product Placement on UK TV came through. Position still in deficit but given TV market revenue rebound in both January and February, outlook looks positive.

Amgen (AMGN) – News was received this week that an opinion on the FDA application for Prolia (denosumab) would be received by end July. I have trimmed by position a little this week because of a shift in the portfolio to GWP and the Falkland’s shares but will look to top up in the next few weeks.

Intel (INTC) - Position closed at $21.7, following a good rise in the semiconductor stocks this week. I like Intel long term but it trades within a range of $19-$22 so a move to the upper end triggered a sale.

Micron (MU) – The worst performing stock in the portfolio but Micron continues to rebound from its lows close to $8 to finish Friday at $8.9. Holding

2/3 of S&P 500 companies have beaten on top line

This morning I was listening to the the excellent and highly recommended S&A Investor Radio Podcast by Frank Curzio (available for free from the Itunes store). Frank interviewed head of research for TheStreet.com's Action Alerts portfolio (Jim Cramer's Charitable portolion), Stephanie Link, and she cited the statistic that 2/3 of companies that had reported so far in the S&P 500 had beaten on revenues. This is an interesting statistic since it indicates that perhaps economic recovery in the U.S. is better than expected as the hypothesis has been that aggressive cost cutting has grown bottom line profits but the sales revenues were still weak due to low economic activity.The U.S. economy looks to be set for good growth in the next 6 months, helped by the continued stimulus package.The continued deficit issues make the back end of 2010 and 2011 much more hazy.

Although I have been selling down portfolio positions over the last week to bank some profits in stocks such as Coal of Africa (CZA), Intel (INTC) and Amgen (AMGN), any significant weakess in the markets is very much seen as a buying opportunity for favoured names. Certainly a trading market, not a buy and hold by any means!

Coal of Africa positioned offloaded on share price strength

The holding in South African miner Coal of Africa was sold yesterday as the price surged to £1.53. The price is off nearly 5% today to £1.46 as commodity prices have been under pressure as the U.S. dollar has risen on the news that the Fed has tightened the discount window for emergency funds. CZA rose from around £1.30 earlier in the week and moved to a year high (marginally higher than the Vele mine approval news day). Although it is considered a great long term play, a 15% rise on no news is seen as a selling opportunity particularly given the U.S. and UK markets have shown a strong rally since early February. Overall Contrarian Investor has been trimming holdings on the market strength.

Portfolio Update - February 13th 2010

Falklands Oil stocks (Desire Petroleum DES, Falklands Oil and Gas FOGL, Borders and Southern BOR) - Plenty of controversy in the Falkland Islands this week, with The Thor Leader,a ship carrying pipes made by the Techint group in Argentina being stopped in the southern port of Campana because of allegations by the Argentinian government that it was "illegally" supplying drilling equipment to the Falklands.Techint, the world's biggest producer of seamless steel tubing for the oil industry, denied that the equipment was even bound for the Falklands and said it was going to clients in the Mediterranean. The share prices of DES, FOGL and BOR slid on the news but not alarmingly and were more hurt by the strengthening dollar's impact on the price of oil. The Ocean Guardian rig should arrive in the Falklands next week all being well. Continuing to hold all these stocks and anticipating significant volatility as drilling starts for Desire Petroleum.

Coal of Africa (CZA) - Again broadly flat this week at 130p. No news but an interesting interview with Arcellor Mital in Mining weekly which own a stake in CZA and have been touted as being in the game to take over the company - CEO Nonkululeko Nyembezi-Heita said on Wednesday that the group was redoubling its efforts to secure control of additional iron-ore. The decision was aligned to a group strategy of lowering costs through resource ownership rather than to any security of supply concerns, as there was sufficient domestic capacity available for purchase. "We are not concerned about accessing iron-ore, we are concerned about having control over than iron-ore," she explained, adding that the same was true for coal, which underpinned its decision to invest in Coal of Africa.The company requires 10-million tons of iron-ore yearly to meet its annual nameplate steelmaking capacity of 8-million tons. It is currently able to source more than 9-million of that need on favourable terms, paying market-related prices for the balance. However, if it were to grow its capacity, the company would aim to do so in a way that it matched any steelmaking expansion, with an expansion of its upstream resources. "We are now redoubling efforts to be self-sufficient in iron-ore and coal," Nyembezi-Heita explained, adding that the group's loss of participation rights in Sishen South meant that a new approach would have to be pursued. She indicated that the company was ready to partner with BEE explorers in pursuing new iron-ore opportunities in South Africa. Similarly, it would be keen to participate in projects able to produce hard coking coal. At full capacity, the group would consume about 1,8-million of coal yearly.

Nighthawk Energy (HAWK) - Having broken through the 30p mark last week, HAWK is oscillating between 27p and 30p as further news from the Jolly Ranch project is eagerly awaited by investors. The announcement that Lloyds sold a tranche of their holding is the reason for the downward pressure in recent weeks, and hopefully this overhang of stock is now cleared. Positive news from the company's shale oil project is now needed.

ITV (ITV) - ITV closed down around 50p this week as BSkyB finally placed a 10% holding in the market. The position is now down around 10% from the but price. However, the clearance of the uncertainty about the Sky scale now opens the door for a potential take over of this company sometime in the next 12 months as revenues recover.

GW Pharma (GWP) - Little movement this week as news on the Decentralised Procedures for the EU registration of Sativex is still awaited. This is Contrarian Investor's largest holding given the odds of a successful approval seem signficantly higher than a rejection given the strong clinical trial results in multiple sclerosis patients.

Amgen (AMGN) - Despite another positive clinical trial for osteoporosis drug, Prolia, Amgen slipped this week to close around $56 as the pharma sector as a whole was unloved by investors. Holding for news on EU Prolia approval.

Micron Technology (MU) - Micron stock remained at around the $8.5 level as it announced an acquisition of Numonyx for $1.2 billion in stock (see previous article from earlier in the week). Holding

Intel (INTC) - A rise in Intel to around $20.5 on Friday gave an opportunity to sell some of the position bought at $19.

Portfolio Review of the week - February 6th 2010

A tough week for the Contrarian Investor UK portfolio this week as global markets fell heavily on sovereign debt concerns in countries such as Greece. The DOW Jones Industrials briefly fell as low as 9850 yesterday before staging a strong recovery in the last hour of trading to finish higher and back over the 10,000 level. Unfortunately, some long bets on the DOW were closed out at the lows , which was frustrating given the rebound. As I talk about shortly, the investment thesis for the holdings in the portfolio are robust and news flow is expected for most of the holdings in the coming weeks which should be a catalyst for share price appreciation. A sell off in the market that we have seen in the last 2 weeks is a positive development given we are now back in the “good value” zone after the rises in January looked unsustainable and stretched the prices of many stocks. The portfolio is now positioned for any change to a more positive sentiment.



Coal of Africa (CZA) – Finally the news that has been awaited for the last 4 months came through with the South African Government granting the new mining order for the Vele coking coal project. Although the share price initially responded well with a 23% one day rise to 148p, the large falls in global stock markets throughout the latter part of the week and rumours that fellow Coal stock, GCM, were selling down their holding meant that CZA finished the week at 133p, barely unchanged. Based on fundamentals CZA looks very solid – rising prices for metallurgical and thermal coal, increasing production coming on stream from Mooiplaats and now Vele, the acquisition of NuCoal brings on stream further capacity, good off take agreements with the likes of Arcellor Mittal (who own a stake in Coal of Africa). Continuing to hold.


GW Pharma (GWP) - Remarkably robust given the overall market picture, with a small fall to 87p. Sativex Cannabis spray regulatory approval in Europe in final stages. News expected in Q1 2010.


Falkland Islands Oil Shares (Falklands Oil and Gas (FOGL), Desire Petroleum (DES), Borders and Southern Petroleum (BOR) ) - A strengthening in the U.S. dollar this week due to fears about debt default in Portgual, Spain, Italy and Greece sent commodities into free fall this week with WTI Crude Oil dipping below $70 on Friday (after being above $80 in January). In addition, posturing by the Argentininian government about the ownership of the Falklands added to the general uncertainty. The Ocean Guardian Rig hired by Desire Petroleum is due to arrive in the Falklands in the next week or so with drilling due to start mid-February. News from Falklands Oil and Gas (which has a farm in deal with BHP Billiton) on a potential sharing of Ocean Guardian is expected in the next couple of weeks with further news on a deep water rig needed to drill in the deeper waters of the South Falklands basin also on the horizon. Despite heavy falls in the Falklands Islands shares this week, with the rush out of oil stocks and riskier assets, imminent news from the drilling campaign should drive prices higher.


ITV (ITV) – TV company, ITV dropped to 53p this week on the general market weakness. The outlook for TV revenues is solid in 2010 and the management team of Crozier and Norman is looking to streamline the business and review the ongoing strategy of the business. Holding.


Nighthawk Energy (HAWK) – HAWK broke through the long term resistance of 30p this week on the weakness in the oil price and now stands at lows last seen during the March 2009 lows at 27p. Despite reasonably positive news from the Jolly Ranch project last week, and confirmation that substantial news on the field would be released this week, the shares continue to take a tumble. The fundamental investment thesis for HAWK, namely the Jolly Ranch and Revere prospects is unchanged. Though Contrarian Investor UK is disappointed in the short term performance, I will continue to hold as news flow does not support this continued erosion in the share price.


Amgen (AMGN) - The stock price fell from close to $60 earlier in the week to finish at $57.5 as sentiment on pharma stocks was not helped by disappointing results from Pfizer (PFE) and Astra Zeneca (AZN). News on osteoporosis drug, Prolia, is expected in Q1 or early Q2. Holding.


Intel (INTC) and Micron (MU) – Semi conductor stocks took a hammering early in the week with Micron falling close to $8 and Intel dipping below $19. Despite the short term weakness, long term fundamentals look positive for chips consumption in both the consumer and business enterprise segments.