Threats from Argentina take shine off Falkland Islands Oil stocks

Fears of a possible blockade of Desire Petroleum's (DES) Ocean Guardian Rig on its route down to the Falkland Islands by Argentinian Civilian vessels sent Falkland Island oil explorers down this morning. The British Ambassador was summoned by the Argentinian Government yesterday so they could convey their opposition to drilling and which the British Government has strongly refuted and reaffirmed the U.K.'s rights over the Islands. Despite the political posturing it is unlikely that military action will be taken. However, the news yet again confirms that the Falkland Island drilling is not for widows or orphans, but that's what makes these stocks so interesting! As they say "you've got to be in it to win it!".

Doubts about Recentin and ex dividend hits Astra Zeneca

Astra Zeneca (AZN) was down over 3% this morning to £28.32 as concerns about whether its bowel cancer drug, Recentin (cediranib) in a head to head phase III clinical against Roche's Avastin would be positive when results are released in the first half of 2010 (Horizon III trial). The stock also went ex-dividend today. Recentin failed a final stage clinical in lung cancer in 2008 and focus is now on colo-rectal cancer.

Contrarian Investor believes a good entry point for AZN would be around the £25 mark.

Coal of Africa comes good with 23% one day gain due to Vele mine approval

Coal of africa (CZA) rose 23% today, with a 28p rise to 147p as confirmation came through that the key Vele mining project has been granted an unconditional mining order (NOMR).CZA currently holds an 80% interest and has an agreement in place to acquire the remaining 20%.


The company has also been granted a conditional NOMR for the Holfontein coal project near the middle of Sasol's Secunda coal production area.The Holfontein NOMR is conditional on delivery of certain documents to the DMR.


This  news fully endorses the decision to invest back in November and Contrarian Investor still sees upside in the price to around £1.80-2.00 in the short term. Holding postions for now. Great news and a significant upside to the portfolio.

Portfolio Update - 30th January 2010. Market weakness makes swimming against tide tough!

Falkland Oil and Gas (FOGL), Desire Petroleum (DES), Borders and Southern (BOR) – All Falkland Oil shares have fallen this week on oil price weakness and investor fight from riskier assets. (As an aside, my contrarian short play on Emerging makets would have eventually played out, after 3 weeks of heavy falls. Frustrating to have closed the shorts just before the drops). Having trimmed by positions as euphoria in the Falklands Oil story hit fever pitch two weeks ago, I have topped up this week on FOGL. Continuing to hold as Desire’s Ocean Guardian rig is due to arrive in the Falklands shortly and drilling will start by mid-February.



Nighthawk (HAWK) – Despite an update on the Jolly Ranch project (which said that the real news was due in February on the status of the drilling campaign), the share price remains stubbornly subdued at 32p. News on the water flooding at the Revere project is also anticipated. Holding at 31.5p.


Coal of Africa (CZA) – News that the acquisition of South Africa coal producer, NuCoal , was completed was not enough to give any positive momentum to the share price which finished the week at 118p. NuCoal should produce 4.2 million tonnes of coal per year. The lack of clarity on the approval process for the Vele project is still unnerving investors despite the fact that the company said it is accelerating capex on the project using some of the proceeds from the placing in October 2009. CZA confirmed that it would commence production of export quality coal in this quarter from it's Mooiplaats mine. Holding


GW Pharma (GWP) – The share price slipped a little this week as the markets generally took a tumble. Position increased on this weakness. Holding for approval news on the cannabis spray for MS, Sativex.


ITV (ITV) – News that ex Royal Mail boss Adam Crozier was appointed as Chief Executive did not cause much excitement in ITV’s stock price. Continuing to hold on expected recovery in TV revenues, hoped deregulation in TV market pricing and product placement.


Amgen (AMGN) – Despite heavy falls in the U.S. markets last week, Amgen had a good week, rising above $58. Some profits taken at $58.5 but continuing to hold core position on anticipation of Prolia (osteoporosis drug) approval in EU in this half of 2010.


INTEL (INTC) – After selling most of the position prior to the results at over $21, weakness in the semiconductor sector this week gave a buying opportunity at below $19 and therefore have reinitiated several positions.


Micron Technology (MU) – The worst performer of the week, having hit close to $11 3 weeks ago, the stock continues to slide close to $8.7 and with an average buy position of just below $10 this is showing a loss. The recent legal settmement between Samsung and Rambus did not help sentiment but concerns that Samsung may ramp up DRAM production or that inventories will rise have not helped the direction of the stock in recent days. Continuing to hold but on review.


Google (GOOG) – Position close at $555 after Q4 results disappointed markets with a fall from over $580. Stock now at $529 and looking at re-entry point.


JP Morgan (JPM) – Position initiated at $39. JPM is one of the better plays in the U.S. financial sector and has fallen heavily in the last 2 weeks from $43-44 range.

Another bad week for the markets. Maybe time to top up on volatility?

It’s been a painful start to 2010 for many investors for those that piled in in the early part of January having seen 3 weeks of declines. The Dow Jones flew past 10,700 early in the New Year, but now stands at 10,067 haven fallen every day last week bar one. The DOW, S&P 500 both fell 3% in January and the Nasdaq dropped over 5%.

Friday will be a key day for economic data as the U.S. nonfarm-payrolls data will give important information on the unemployment rate. Key U.S. earnings next week include Pfizer (PFE), Cisco (CSCO), Exxon (XOM) and in the U.K. oil and energy stocks will be in focus with BP (BP.), BG Group (BG.) and Shell (RDSA) reporting

So far 78% of the 220 companies in the S&P 500 reported earnings above analysts' expectations, (Thomson Reuters). In a typical quarter (since 1994), 61% of companies beat Wall Street targets. For the 217 companies that published revenue estimates, 67% topped the consensus expectation.

At around 10,000 on the Dow and with the FTSE hovering just above 5,000, it is still my view that the market offers relatively good value at these levels especially if the UK Bank of England and Federal Reserve continue to signal a continued period of low interest rates.

Amazon and Microsoft boost sentiment a little in tech sector

The DOW Jones industrial average declined yet another 115 points to finish where it was in November at 10,120. The UK FTSE 100 finished down 71 at 5,145. Sentiment was not helped by poor results in the session from mobile phone chip maker Qualcomm (QCOM) which fell 15% as it cut its 2010 outlook and a muted response to Apple’s (AAPL) new tablet computer the Ipad, which after weeks of hype clearly didn’t live up to overheated expectations.

However, after the close last night Amazon and Microsoft both posted better than expected results. Online retailer Amazon.com (AMZN) shares rose 2.7% to $128.69, after an initial 8% decline as results came through. The company said its fourth-quarter earnings rose 70% to $384 million (85 cents a share) against expectations of $0.70 a a share, helped by strong holiday sales of electronics. Sales rose 42% to $9.52 billion against analyst forecasts of $9.04 billion.

The company also said its board has approved a plan to buy back up to $2 billion in shares which may signal that either the company is envisaging that future earnings growth may be harder to come by or they cannot find a better way to spend their cash reserves e.g. buying companies.

Shares of Microsoft (MSFT) fell 2% to close at $29.16 in after hours trade. Second quarter net income rose to $6.66 billion, or 74 cents a share, from $4.17 billion, or 47 cents a share, in the year-earlier period. Revenue rose 14% to $19.02 billion. The results included $1.7 billion in revenue deferred from prior quarters, related to pre-sales and a marketing program for Windows 7. Analysts expected earnings of 59 cents a share on $17.9 billion in revenue. 

At current levels of both the FTSE and DOW are starting to look attractive after being overbought in January. Technical traders of the S&P 500 are looking at 1050 as a support (it is currently 1085). After 6 months where it was easy to make money on the stock markets of the world, it is going to get a little tougher in the remainder of 2010. Choosing undervalued stocks is key rather than betting on broad sector plays such as emerging markets or commodities. For Contrarian Investor this is a much more interesting market to play with the volatility.

Astra Zeneca news today supports negative view on the company

AstraZeneca (AZN.L) disappointed the markets today with downbeat forecast for 2010 and failed to hit fourth quarter earnings estimates. EPS (earnings per share for 2010) would be in a range of $5.75 to $6.15, down from $6.32 in 2009. Astra's core pretax profit rose 10 percent to 2.88 billion in the fourth quarter, giving earnings per share of $1.42 on sales up 9.0 percent at $8.95 billion. Analyst estimates for earnings, which exclude certain restructuring costs and charges, to come in at $1.57 per share and sales at $8.85 billion. Sales of cholesterol-lowering drug Crestor rose 20 percent to $1.26 billion, while gastrointestonal product Nexium fell 7 percent to $1.28 billion.

 Astra said that "The next five years will be challenging for the industry and for the company, as its revenue base transitions through a period of exclusivity losses and new product launches," Revenue for 2010 will be hit by the expected loss of U.S patent protection for breast cancer drug. Arimidex and asthma drug, Pulmicort.


Astra said it expected a fall in sales of up to the "mid-single-digit" in 2010 as benefits from H1N1 swine flu vaccines and unexpected revenue from heart drug Toprol XL, thanks to market withdrawal of generic competitors, wash out.


In order to mitigate the impact of patent expiries and previous failures in the R&D pipeline on future earnings, Astra said it would buy back up to to $1 billion in shares in 2010 and would cut an additional 8,000 jobs as it seeks to cut costs.


As I wrote a couple of weeks ago, Astra’s relatively low P/E (2011 forward P/E of 8) versus its industry peer group is enticing but the news today’s supports the hypothesis that there is much risk in the company’s future earnings stream. The shares are down 3% today to £29.60.

Nighthawk Energy Update fails to ignite share price

Nighthawk Energy (HAWK) today updated investors on their key Jolly Ranch project in Colorodo. Unfortunately the market seems to have been signficantly underwhelmed, with an initial rise being followed by a 2.6% fall to 33.25p.

Todays RNS stated that the results to date "reinforcing confidence in the financial viability of the Jolly Ranch asset". David Bramhill (Managing Director) said that "We continue to be encouraged by the appraisal drilling results. Strong progress has been made and our understanding of the project has evolved."

On the face of it, the results seem to be pointing in the right direction. The 15 wells drilled to date on Jolly Ranch have encountered over 150 oil bearing horizons in conventional and non-conventional zones. The Craig 4-33 well has been tested at an average rate of 130 barrels of oil per day (bopd) over a sustained two-week period and is now set to be placed on full production. Three further wells, Craig 10-28, Craig 12-28 and Craig 12-33 are currently undergoing completion and are expected to be placed on production in early February. An additional well, Craig 15-32H will undergo mechanical remediation after three of its four zones were sand fracced with oil.

Patience seems to be required with the real action due to start in February. The RNS today, promised share holder updates on a regular basis. As well as Jolly Ranch the Revere Water Flooding project results are still awaited. Things seem to be proceeding to plan, and I will continue to hold HAWK shares for further drilling updates which may validate the oil in place predictions released in July 2009 of some 1.5 billion barrels of oil in place.

Coal of Africa Completes NuCoal acquisition

South African coal miner, Coal of Africa (CZA) announced today thay the company had completed the acqusiiton of fellow coal miner, Nucoal for 467 South African Rand ($61 million) and this is fully funded by the share placing which took place in October 2009. The remaining proceeds of the placing will be used to accelerate capital expenditure at the Vele Coking Coal project. However news on the Government approval of the Vele Mine does not seem to be addressed.

AMGEN EARNINGS NOT OUTSTANDING, PROLIA APPROVAL KEY

The world's largest biotech, Amgen (AMGN), posted a disappointing Q4 performance after the close yesterday due to slowing sales of Aranesp, Neupogen and Enbrel. The stock price rose 0.8% after hours to finish at $56.20.

The company reported net income of $931 million, or 92 cents a share for Q4, compared with $925 million, or 87 cents a share, for the same period in 2008.Revenue for the quarter increased 2% to $3.81 billion and it reported adjusted earnings per share of $1.05 vs. $1.06 in 2008. Analysts expected Amgen to report earnings of $1.14, on revenue of $3.84 billion.

Amgen said it now sees 2010 revenue coming in between $15.1 billion and $15.5 billion. Adjusted earnings per share are seen between $5.05 and $5.25. Giving a forward P/E of 10.6 assuming earnings at the upper end of the forecast.This was bang in line of EPS of $5.11, on sales of $15.27 billion.

Sales of Amgen's flagship anemia product Epogen rose 9% to $703 million as prices rose, while sales of its newer anemia therapy Aranesp fell 8% to $648 million due to a fall in demand for cancer care related use.

The company announced hat it has submitted additional information to support U.S. approval of its osteoporosis drug Prolia (denosumab), The U.S. FDA said recently it would not consider approving the product until Amgen provided more supporting information. The European advisory body on drug safety recommended the drug for European approval at the end of 2009 and launch is expected during the second half of 2010 on this side of the Atlantic.

Given the low valuation on future earnings and prospects for Prolia, Amgen remains a strong buy for Contrarian Investor. For a biotech stock, Amgen offers good value.

Amgen posts Q4 2009 Earnings on Monday

Core biotech holding Amgen (AMGN) posts Q4 2009 and full year 2009 earnings after the market close on Monday.

25% of the companies in the U.S. S&P 500 report next week including Caterpillar (CAT), Conoco Phillips (COP),  Chevron (CVX), Boeing (BA), AT&T (ATT) and Verizon (VZ).

Planned stock sales by Google founders may further depress price

After Friday's closing bell, Google (GOOG) said co-founders Larry Page and Sergey Brin will each sell about 5 million shares under pre-arranged stock trading plans putting my holding in the frame once more.

Although the sale of the stock is likely to be spread over an extended period of time to minimize market impact. it may further knock sentiment on Monday after the disappointing reaction to Q4 earnings on Thursday. The co-founders hold about 57.7 million of Class B common shares, which represents around 18% of Google's capital stock.

Buy or sell of position to be reviewed Monday.

Strong results from disk drive makers look to strong PC market in 2010

Impressive Q4 results and a positive 2010 outlook from Seagate (STX) and Western Digital (WDC) last week support the prediction that this year will be strong for PC sales. It looks like the fundamentals for companies involved either in consumer or enterprise computer sales should do well this year. The Microsoft (MSFT) results due this week should be encouraging.

However, my holding in Micron Technology (MU) was hit hard last week finishing close to $9 despite this positive outlook on the markets in which it operates (DRAM chips). On Thursday,  Rambus Inc. (RMBS), the chip-design company, announced a major legal settlement with South Korea's Samsung Electronics. In the deal, Samsung (SSNHY) will pay Rambus $700 million over five years, and purchase $200 million of Rambus stock. Samsung, Micron and Hynix Semiconductor Inc that had been engaged in five and a half year litigation with Rambus over price fixing allegations. This leaves Micron potentially more exposed to a pay out after the Samsung settlement out of court. 

Portfolio Update January 23rd 2010

Falkland Oil and Gas (FOGL) – A volatile week for the Falkland Islands oil exploration companies. For example, FOGL peaked the week at 182p (where profits were taken) and finished Friday at 166p. Following an initial sale, the position was increased at 162p. The Ocean Guardian Rig is now off the coast of Brazil and is expected to arrive in the Falklands in the next 2 weeks. Drilling for Desire Petroleum (DES) will commence by mid-February. Announcements of rig sharing with Rockhopper (RKH) and potentially BHP/FOGL are expected any time soon. With rig arrival, it is expected that publicity for these oil stocks will drive prices higher and investors scramble on board. With these type of shares, its “buy on the rumour, sell on the fact”.

Borders and Southern Petroleum (BOR) and Desire petroleum (DES) – Position continue to be held in these Falkland plays for the reasons above.

GW Pharma (GWP) – Position increased this week as news on Sativex approval continues to be sought.
Coal of Africa (CZA) - Operational update expected any day. News on Vele mine approval anticipated. Position trimmed but still holding.

ITV (ITV) – With the General Election in the U.K. and World Cup expected to boost TV revenues from the very low levels of 2009, this continues to  be a hold. The negotiations for the Contract Rights Renewal are ongoing with the Competition Commission and OFCOM, the formula that dictates ITV’s ad rates. It is widely expected that the rules, which were created at the formation of ITV in 2003 by the merger of Carlton and Granada, will be relaxed. Potential upside from any relaxation in the rules for Product Placement in programming could generate a potential £100 million plus in additional revenues. Though debt is fairly hefty at over £700 million but this has been refinanced during 2009 but it is expected that aggressive cost cutting led by new Chairman Archie Norman should bring this under control. At 57p, ITV is below analyst targets of 70p and may still be a takeover target.

Nighthawk Energy (HAWK) -  Little movement this week, closing at 32p. Holding for drilling update.

Amgen (AMGN) – Despite the significant falls in the Dow Jones Industrial average in the latter part of the week, Amgen remained relatively resilient at $56.6 as a Republican Victory  in a Senate Election made Obama’s healthcare reform programme less likely to proceed drove up pharmaceutical stocks. Holding.

Google (GOOG) -  A trade in Google prior to the results did not produce positive results with a fall from $580 to $550 during the course of yesterday. Decision to sell under review.

Intel (INTC) – Positions trimmed during the week on Nasdaq strength on Monday and Tuesday. Holding  small position

Micron (MU) -  A very poor week for Micron with a fall from close to $11 to $9.13 as the semi conductor sector fell away at the end of the week. Holding but position at loss with purchases averaging $10.2.

Google earnings underwhelm market despite strong growth

Google (GOOG) posted fourth quarter earnings after the close last night and showed big profit and sales gains as it continued to see an increase in the number of users clicking on its Internet Adwords ads. This very much supports the investment thesis in ITV that media companies will see a significant recovery in revenues in 2010 as advertisers boost investment to more normal levels.

Google’s net income rose to $1.97 billion, or $6.13 a share, in the quarter ended in December, compared with $382 million, or $1.21 a share, in the same period in 2008. Excluding special items, earnings for the quarter were $6.79 a share, compared with analyst estimates of $6.48. After falling close to 5% in after-hours trading to $550, following the earnings announcement, the stock recovered to finish the session at $582.

The stock fell initially on disappointment with the average price paid per click on a Google advertisement in the quarter. Google said the average price paid by advertisers rose 5% compared to the same period last year.The company said its paid clicks, or the number of times that users clicked on advertisements and generated revenue, rose 13% in the fourth quarter compared to the same period last year. Google had posted 14% year-over-year growth in paid clicks for its quarter ended in September.

Google’s stock has risen close to 100% since the lows in 2008 and expectations are very high. Though the results are impressive, they have underwhelmed the market which has built super charged growth into the share price. A short term trade in Google pre earnings release was initiated  but has not delivered and will be reviewed at today's open.