GW Pharma (GWP) - Very quiet week for GW Pharma on very low trading volumes and share price holding at around £1.00. Continuing to hold sizeable position.
Falkland Islands Oil drillers (Desire Petroleum DES, Falkland Oil and Gas FOGL, Borders and Southern BOR) - The prices of the Falkland Oil explorers continued to drop this week on lack of news causing investor apathy, speculators moving their money elsewhere or shorters in action. The investment thesis for these shares has not changed since the spudding of the first well in February. Actual results from Desire's drilling prospect on the Liz field in the North Falklands basin is keenly awaited. It is expected that Desire's Ocean Guardian Rig should have an indication of oil/gas finds in the next 1-2 weeks. These shares are a binary bet on what happens on Liz. Either Desire will go to less than 50p or we will see a move several pounds higher its that simple. CFD's with guaranteed stops have been placed on BOR and FOGL to limit any downside.
ITV (ITV) - Again little movement in ITV this week, closing at 52p on lack of any news.
Prudential (PRU) - Short term long position taken in PRU earlier in the week which was closed yesterday as the price moved over £5.50. Contrarian Investor UK likes the PRU Asian story but the surge in the markets on both sides of the Atlantic over the last couple of weeks makes me nervous and I have reluctantly decided to take profits given the move from £5.00 to £5.53 in little less than a week, after the falls from over £6 precipitated by the huge rights issue to fund the AIA acquisition (AIG's Asian unit).
Micron Technology (MU) - After a move up from around $8 to over $10 over the last 2 weeks or so on continued positive sentiment on memory chip prices and consumption levels, I have taken profits in half my position at $10.17. Micron closed last night at $9.97 and I continue to hold 1000 shares.
Saturday, March 13, 2010
Thursday, March 11, 2010
REUTERS - PRU INVESTORS WARM TO AIA DEAL
Raji Menon, 13:57, Thursday 11 March 2010
LONDON (Reuters) - Major shareholders in Prudential are warming to the insurer's $35.5 billion (23.6 billion pound) bid for AIG's Asian business following meetings with chief executive Tidjane Thiam, investor sources said. Thiam, who has been meeting UK investors this week to explain the merits of the blockbuster deal, appears to be winning over sceptics, they said. "We asked him to justify the deal to us and he made a pretty good fist of it," said one head of equities who met with Thiam. "Coming out of it, we were a little more positive than we thought we would be. It is a bit of an opportunity for Pru; a real catch and it will make them very strong indeed. All in all, there is an argument for (the deal)."
Another large investor who also met Thiam added: "The key message was that AIA will make a lot more money under Prudential's ownership. "The AIA business has much poorer margins than the existing Pru business so there is some credibility in that argument. Overall, we felt what they are doing does have some merit."
LONDON (Reuters) - Major shareholders in Prudential are warming to the insurer's $35.5 billion (23.6 billion pound) bid for AIG's Asian business following meetings with chief executive Tidjane Thiam, investor sources said. Thiam, who has been meeting UK investors this week to explain the merits of the blockbuster deal, appears to be winning over sceptics, they said. "We asked him to justify the deal to us and he made a pretty good fist of it," said one head of equities who met with Thiam. "Coming out of it, we were a little more positive than we thought we would be. It is a bit of an opportunity for Pru; a real catch and it will make them very strong indeed. All in all, there is an argument for (the deal)."
Another large investor who also met Thiam added: "The key message was that AIA will make a lot more money under Prudential's ownership. "The AIA business has much poorer margins than the existing Pru business so there is some credibility in that argument. Overall, we felt what they are doing does have some merit."
AIG shares were up nearly five percent in pre-market trade shortly after Reuters reported growing backing for the deal. Investors said Thiam told them that removing inefficiencies in AIA's operations would result in strong revenue synergies and said he reassured them on the price tag, which some have said was too high. "Pru's Asian operations are very efficient and as a result their margins are very high...AIA is not as productive. Get the two together and you can make a case for increasing that productivity and justifying what ostensibly looks like a pretty high valuation," said the head of equities.
"Pru sees some $770 million of revenue synergies coming through this increased agency productivity. This isn't a company that is going to make $500 million of new business, it can in time make $2 billion on new business and so you can justify the price."
Thiam also told investors AIA has been on his radar since September 2008, when he was Prudential's chief financial officer. "We thought this is quite important because they do know the operations better than we may have thought," added the head of equities.
However, some investors are yet to be convinced. "Tidjane is relatively unknown -- he's only been there for nine months and therefore for an unknown to be asking for this kind of money, people are reasonably sceptical," one said. "There is also a bit of worry that they may redomicile -- we may end up buying all the stock and they may take off to Hong Kong," he added.
(Editing by David Cowell)
"Pru sees some $770 million of revenue synergies coming through this increased agency productivity. This isn't a company that is going to make $500 million of new business, it can in time make $2 billion on new business and so you can justify the price."
Thiam also told investors AIA has been on his radar since September 2008, when he was Prudential's chief financial officer. "We thought this is quite important because they do know the operations better than we may have thought," added the head of equities.
However, some investors are yet to be convinced. "Tidjane is relatively unknown -- he's only been there for nine months and therefore for an unknown to be asking for this kind of money, people are reasonably sceptical," one said. "There is also a bit of worry that they may redomicile -- we may end up buying all the stock and they may take off to Hong Kong," he added.
(Editing by David Cowell)
China - is this a bubble soon to burst?
Today it was announced that Chinese inflation hit a 16 month high, meaning potentially higher interest rates. The annual rate of consumer price inflation rose to 2.7% in February, up from 1.5% in January, and ahead of analysts' expectations of 2.3%. In addition, new loans exceeded forecasts, adding to the case for the government to cut stimulus measures. The People’s Bank of China hasn’t raised benchmark interest rates since December 2007, but the central bank has ordered commercial lenders to increase their capital reserves three times since last December. However it has been pointed out that the figures should not set alarm bells ringing, as the New Year in 2009 fell in January not February, economists say the rate of increase in consumer prices in February 2010 was boosted as it is being compared with weaker spending last year.
China's exports in February were up 46% from a year ago, which was more than analysts' forecasts and the economy grew by 8.7% last year, exceeding government expectations driven partly by the Rmb4,000bn ($585bn) stimulus programme. The Shanghai Composite (SSE) is down 7% year to date to 3,052.
In addition to inflation concerns, some commentators worry about the Chinese property market increasingly looks to be entering a bubble phase. But an interesting perspective was offered by the FT.com today, "Unlike the dramatic increase in household leverage that precipitated the US subprime crisis, Chinese household debt amounts to approximately 17 per cent of gross domestic product, compared with roughly 96 per cent in the US and 62 per cent in the eurozone. Home buyers in China are required to make minimum downpayments of 30 per cent before receiving a mortgage, and at least 40 per cent for a second home.
Although price increases in the Chinese residential market appear rapid (more than 20 per cent in 2009), such headline figures cannot be viewed in isolation. Over the past five years, urban household incomes grew at a 13.2 per cent compound annual growth rate, compared with an 11.9 per cent CAGR in home prices. Pockets of overheating can be found in some regional markets. In Beijing, Shanghai, Shenzhen and Hangzhou, for instance, prices outpaced income growth by more than 5 percentage points over the same period. But, this can be seen as a symptom of new urban wealth being put to speculative use, rather than the profligate use of leverage.
The combination of excessive leverage and mortgage securitisation were at the epicentre of the US subprime crisis. Both these factors are absent in the Chinese context. The commercial property sector has inspired just as much concern, with prices rising 16 per cent in 2009, in spite of low rental yields and prime office vacancy rates as high as 21 per cent and 14 per cent in Beijing and Shanghai, respectively. Yet occupancy and rental rates have started to pick up for prime properties.
The crux of the problem with the Chinese real estate sector is that property is seen by the country's investing class as a store of value, within an economy that offers its citizens limited investment options. I share many of the concerns about flawed incentives and overheating in the property market - but even if prices were to correct, this would not trigger the type of devastation that might arise in an over-leveraged economy."
China's exports in February were up 46% from a year ago, which was more than analysts' forecasts and the economy grew by 8.7% last year, exceeding government expectations driven partly by the Rmb4,000bn ($585bn) stimulus programme. The Shanghai Composite (SSE) is down 7% year to date to 3,052.
In addition to inflation concerns, some commentators worry about the Chinese property market increasingly looks to be entering a bubble phase. But an interesting perspective was offered by the FT.com today, "Unlike the dramatic increase in household leverage that precipitated the US subprime crisis, Chinese household debt amounts to approximately 17 per cent of gross domestic product, compared with roughly 96 per cent in the US and 62 per cent in the eurozone. Home buyers in China are required to make minimum downpayments of 30 per cent before receiving a mortgage, and at least 40 per cent for a second home.
Although price increases in the Chinese residential market appear rapid (more than 20 per cent in 2009), such headline figures cannot be viewed in isolation. Over the past five years, urban household incomes grew at a 13.2 per cent compound annual growth rate, compared with an 11.9 per cent CAGR in home prices. Pockets of overheating can be found in some regional markets. In Beijing, Shanghai, Shenzhen and Hangzhou, for instance, prices outpaced income growth by more than 5 percentage points over the same period. But, this can be seen as a symptom of new urban wealth being put to speculative use, rather than the profligate use of leverage.
The combination of excessive leverage and mortgage securitisation were at the epicentre of the US subprime crisis. Both these factors are absent in the Chinese context. The commercial property sector has inspired just as much concern, with prices rising 16 per cent in 2009, in spite of low rental yields and prime office vacancy rates as high as 21 per cent and 14 per cent in Beijing and Shanghai, respectively. Yet occupancy and rental rates have started to pick up for prime properties.
The crux of the problem with the Chinese real estate sector is that property is seen by the country's investing class as a store of value, within an economy that offers its citizens limited investment options. I share many of the concerns about flawed incentives and overheating in the property market - but even if prices were to correct, this would not trigger the type of devastation that might arise in an over-leveraged economy."
Prudential added to portfolio following announcement of Asian deal
On March 1st, U.K. listed life insurer Prudential (PRU) announced an ambitious plan to acquire AIA, the Asian assets of troubled U.S. life insurer AIG for £23.5 billion ($35.5 billion). The deal dwarfs the company's market capitalisation of £13.6 billion ($20.4 billion). AIA is a significant player in the fast growing Asian insurance market, having a 19% share in China. The acquisition will make the combined company the no.1 player in China, Vietnam, Hong Kong, Singapore, Indonesia, South Korea, The Philipines and Thailand and over 85% of profits will come from the region (46% currently). To fund the acquisition, a £13.4 billion ($20 billion) rights issue was announced, the largest ever in the U.K.. Prudential will also issue $5bn of senior debt, while AIG will receive $5.5bn in new Pru shares plus $3bn of convertible shares and $2bn of preferred shares. The rights issue is fully underwritten and a number of Asian sovereign wealth funds are lined up to share a share. PRU's share's fell 20% on the day of the announcement and now trade at £5.38. Tidjane Thiam, the Pru's chief executive also said the deal will generate $340m in savings once the offices have been rationalised The company has also accelerated plans for a dual listing of the shares in Hong Kong in April.
In effect a reverse takeover of AIA, the deal is a high risk strategy for Prudential but given the maturity of the U.K. life insurance business, an acceleration of the company's presence in the fast growing Asian region seems strategically sound. The added bonus of cost cutting potential is also supportive. Though the deal is not cheap at 1.6 times embedded value (UK insurers trade at one times embedded value), the future growth potential of the Asian region is significant and way ahead of Europe. Though UK brokers were largely unimpressed and hedge funds were said to be shorting heavily on the announcement, Asian buyers drove Pru back from its lows last week. Existing institutional investors have been making negative noises about the priority that Thiam is placing on new Sovereign wealth investors and lack of information before the rights issue prospectus, but given the importance of the new Asian Investors this seems sensible. I have opened a position today at £5.36 given the potential of the Hong Kong listing and over negative reaction to the acquisition. It is frustrating to have missed the £5.00 low, but a move over £5.50 seems likely as the investor road show continues.
In effect a reverse takeover of AIA, the deal is a high risk strategy for Prudential but given the maturity of the U.K. life insurance business, an acceleration of the company's presence in the fast growing Asian region seems strategically sound. The added bonus of cost cutting potential is also supportive. Though the deal is not cheap at 1.6 times embedded value (UK insurers trade at one times embedded value), the future growth potential of the Asian region is significant and way ahead of Europe. Though UK brokers were largely unimpressed and hedge funds were said to be shorting heavily on the announcement, Asian buyers drove Pru back from its lows last week. Existing institutional investors have been making negative noises about the priority that Thiam is placing on new Sovereign wealth investors and lack of information before the rights issue prospectus, but given the importance of the new Asian Investors this seems sensible. I have opened a position today at £5.36 given the potential of the Hong Kong listing and over negative reaction to the acquisition. It is frustrating to have missed the £5.00 low, but a move over £5.50 seems likely as the investor road show continues.
Wednesday, March 10, 2010
Horizon III clinicial trial failure puts further pressure on future AstraZeneca earnings
AstraZeneca (AZN) had yet another piece of bad news on Monday from its R&D pipeline with the news that cancer drug, Recentin (cediranib), failed to meet the primary endpoint in the Horizon III study. The company was evaluating the effectiveness of Recentin in a phase II/III study compared with Roche’s Avastin (bevacizumab), both in combination with chemotherapy in patients with first-line metastatic colorectal cancer (mCRC). As reported in a previous Contrarian Investor UK article, Horizon III was identifed as a high-risk study for Astra. The company also reiterated its financial guidance for 2010 and announced further cost cutting measures including site closures. The company guided for 2010 earnings of £3.80 ($5.75) to £4.10 ($6.15) , lower than the £4.20 ($6.32) reported in 2009 and putting the company on a forward price/earnings (p/e) of just over 7. With the loss of patent proection on cancer drug, Arimidex, and asthma drug, Pulmicort, in the US, the company expects a mid single-digit decline in revenue in 2010.
The pressure for Astra Zeneca to deliver on its R&D pipeline is signficant given the large number of patent expiries over the next 3-4 years. The failure of Horizon III puts the risks ahead for Astra into perspective and although the company trades on an undemanding forward p/e of 7 (compared to sector peers of 10 or so), the picture into 2011 and beyond is hazy. Although the company is focused on earnings growth through cost cutting, the scale of the patent expiries ahead means this will not be enough to sustain earnings per share. Astra has been plagued by bad luck in clinical trials, they need this luck to change quickly before Contrarian Investor UK advises this stock above other more diversified pharma stocks.
10th anniversary of internet bubble - "dot.com boom and bust"
Yet another anniversary today and its the tenth anniversary of the bursting of the internet technology bubble in March 2000 - the "dot.com boom and bust". Today the technology heavy U.S. index, the NASDAQ, stands at 2,341, down 53.6% or 2708 points from its peak of 5,100 achieved in March 2000 . Between January 1998 and March 10th 2000, the Nasdaq increased by over 200%.
For many private investors, the Internet bubble of 2000 was the first time they began trading stocks and for many it was a painful experience as they bought into companies with stratospheric valuations based on promises of future earnings, and watched prices plummet from March 2000 onwards. The rush into tech and internet stocks turned into a stampede as IPO's (Initial Public Offering) of new companies doubled and tripled overnight. The internet was seen as the only place to be. Share prices of traditional companies such as utilities, bricks and mortar retailers and even Buffett's Berkshire Hathaway collapsed as investors sold their"safe and boring" stocks to get into the internet revolution. Internet bulletin boards were awash with posters, "pumping and dumping" stocks with gullible amateur investors.
The classic example of Internet boom and bust was Boo.com, a U.K. listed company founded by Swedes Ernst Malmsten, Kajsa Leander and Patrik Hedelin in 1999, selling fashion items over the internet. The company spent $135 million of venture capital in just 18 months, and it was placed into receivership on 18 May 2000 and liquidated. The story of Boo.com's failure is captured in the fascinating book, "Boo Hoo: A Dot Com Story" by Ernst Malmsten, Erik Portanger, Charles Drazin. Despite only a few hundred thousand pounds in revenues the company had a staff of over 400, spent lavishly on champagne parties and first class travel round the world. Boo.com represented the new age of internet company, ones with lavish spending and no thought to cost control as the revenues would one day come. In the case of Boo these revenues just didn't come in fast enough as funding for these ventures dried up as the Dot.com bubble burst.
Another example of the tech bubble at its worst and an expensive lesson for many investors was a company founded in the U.K. in 1988 as Bookham Technology. It became the first company in the world to make optical components that can be integrated into a silicon chip. It floated in July 2000 at £10 and in August 2000 its shares hit an eye-watering £53! it was promoted to the FTSE 100 of the U.K.'s leading companies in 2000. By the end of 2000, its shares had fallen 99% to less than 50p a share and in 2004 it moved its listing to the U.S. on Nasdaq. A classic case of investors not understanding a business model and hype overtaking any sort of reality in terms of revenue projections.
For many private investors, the Internet bubble of 2000 was the first time they began trading stocks and for many it was a painful experience as they bought into companies with stratospheric valuations based on promises of future earnings, and watched prices plummet from March 2000 onwards. The rush into tech and internet stocks turned into a stampede as IPO's (Initial Public Offering) of new companies doubled and tripled overnight. The internet was seen as the only place to be. Share prices of traditional companies such as utilities, bricks and mortar retailers and even Buffett's Berkshire Hathaway collapsed as investors sold their"safe and boring" stocks to get into the internet revolution. Internet bulletin boards were awash with posters, "pumping and dumping" stocks with gullible amateur investors.
The classic example of Internet boom and bust was Boo.com, a U.K. listed company founded by Swedes Ernst Malmsten, Kajsa Leander and Patrik Hedelin in 1999, selling fashion items over the internet. The company spent $135 million of venture capital in just 18 months, and it was placed into receivership on 18 May 2000 and liquidated. The story of Boo.com's failure is captured in the fascinating book, "Boo Hoo: A Dot Com Story" by Ernst Malmsten, Erik Portanger, Charles Drazin. Despite only a few hundred thousand pounds in revenues the company had a staff of over 400, spent lavishly on champagne parties and first class travel round the world. Boo.com represented the new age of internet company, ones with lavish spending and no thought to cost control as the revenues would one day come. In the case of Boo these revenues just didn't come in fast enough as funding for these ventures dried up as the Dot.com bubble burst.
In January 2000, AOL Time Warner was created when AOL purchased Time Warner for $164 billion. The shareholders of AOL owned 55% of the new company while Time Warner shareholders owned only 45%. In 2002, the company was forced to report a loss of $99 billion due to the goodwill write-off related to AOL, at the time, the largest loss ever reported by a company. In 2003, the company dropped the "AOL" from its name, and removed Steve Case as executive chairman. In May 2009 Time Warner announced that it would spin off AOL as a separate independent company, with the change occurring on December 9, 2009.
Finally, it would not be right to write an article on dot.com hype without including lastminute.com. Online travel agent, lastminute.com was founded by Martha Lane Fox and Brent Hoberman in 1998 that became an icon of the UK internet boom and bust. It, floated at the end of the dot com bubble in March 2000 and its share price peaked at over £5, valuing the company at close to £2.5 billion . By the end of 2000 its shares were trading at around 80p. It was purchased by U.S. company, Travelocity in July 2005 for £577 million.
Finally, it would not be right to write an article on dot.com hype without including lastminute.com. Online travel agent, lastminute.com was founded by Martha Lane Fox and Brent Hoberman in 1998 that became an icon of the UK internet boom and bust. It, floated at the end of the dot com bubble in March 2000 and its share price peaked at over £5, valuing the company at close to £2.5 billion . By the end of 2000 its shares were trading at around 80p. It was purchased by U.S. company, Travelocity in July 2005 for £577 million.
The dangers of "momentum investing" where investors buy into stocks purely on historical changes in a stock price is exemplified by the dot.com crash. Some investors profited from the herd mentality of the crowd but many "lost their shirts". Buying a company's share purely on share price movement is very high risk and although momentum should influence an investment decision, the classic value parameters should always be assessed i.e. comparative future price/earnings, balance sheet, news flow as discussed in a previous Contrarian Investor UK education segment (http://contrarianinvestoruk.blogspot.com/2010/01/contrarian-investors-guide-to-stock.html).
Tuesday, March 9, 2010
Portfolio review of the week March 9th 2010
The portfolio review is a little late due to a holiday. As I noted on my previous post, Contrarian Investor UK is searching for suitable short term trading opportunities and there appear to be few obvious long only options. The volatility of the market makes me reluctant to commit to large shorts so the portfolio is on a holding pattern waiting for results from the Falkland Islands and news from GW pharma. New ideas are being assessed.
GW Pharma (GWP) - The portfolio's largest holding had a good week, with a solid move from around the 90p mark to £1.00. However, a minimum 35% upside is expected if the European approval for cannabis spray, Sativex, is announced this month. In addition to this, clinical trial results from the 336 patient phase II/III study funded by partner Otsuka are due early this year. The patients in the study have advanced cancer for which there is no curative therapy and are experiencing little relief from pain using conventional opiods. The primary goal of the study is response rate after 5 weeks. Further studies are planned to start in mid-2010 to enable the U.S. FDA registration of Sativex in 2011 and an additional European indication for cancer pain, also in 2011.
Falkland Oil drillers (Desire Petroleum DES, Falkland Oil and Gas FOGL, Borders and Southern BOR) - The potential intervention of U.S. Secretary of State, Hillary Clinton, helped to dampen sentiment in the Falkland Island Oil drillers. Following a meeting with the Argentinian President, Cristina Fernandez de Kirchner, Clinton said she encouraged the U.K. and Argentine governments to negotiate a settlement in relation to the sovereignty of the Falkland Islands. DES, FOGL and BOR are all down 20%-30% from the point when Desire's Ocean Guardian Rig began drilling in the North Falklands basin. However, news from the Ocean Guardian should be forthcoming in the next 1-2 weeks.
ITV (ITV) - ITV's 2009 results were initially positively received by the markets with a rise on the announcement to 57p. However, the shares have now drifted back to 52p with the markets expecting the return to health of the company to take some time under Norman/Crozier's leadership. ITV seem to be stuck in a trading range in the 50's and further positive news is needed to propel them through the 60p mark.
Amgen (AMGN) - The final tranche of Amgen stock was sold today at $57.6, giving a 5% gain despite the propects for Osteoporosis drug, Prolia. I am hoping for a buyback situation around $55 given the trading range of $55-58.
Micron Technology (MU) - Micron is stubbornly stuck below the $10 mark and currently trades at $9.5 despite the positive outllook for memory chips.
GW Pharma (GWP) - The portfolio's largest holding had a good week, with a solid move from around the 90p mark to £1.00. However, a minimum 35% upside is expected if the European approval for cannabis spray, Sativex, is announced this month. In addition to this, clinical trial results from the 336 patient phase II/III study funded by partner Otsuka are due early this year. The patients in the study have advanced cancer for which there is no curative therapy and are experiencing little relief from pain using conventional opiods. The primary goal of the study is response rate after 5 weeks. Further studies are planned to start in mid-2010 to enable the U.S. FDA registration of Sativex in 2011 and an additional European indication for cancer pain, also in 2011.
Falkland Oil drillers (Desire Petroleum DES, Falkland Oil and Gas FOGL, Borders and Southern BOR) - The potential intervention of U.S. Secretary of State, Hillary Clinton, helped to dampen sentiment in the Falkland Island Oil drillers. Following a meeting with the Argentinian President, Cristina Fernandez de Kirchner, Clinton said she encouraged the U.K. and Argentine governments to negotiate a settlement in relation to the sovereignty of the Falkland Islands. DES, FOGL and BOR are all down 20%-30% from the point when Desire's Ocean Guardian Rig began drilling in the North Falklands basin. However, news from the Ocean Guardian should be forthcoming in the next 1-2 weeks.
ITV (ITV) - ITV's 2009 results were initially positively received by the markets with a rise on the announcement to 57p. However, the shares have now drifted back to 52p with the markets expecting the return to health of the company to take some time under Norman/Crozier's leadership. ITV seem to be stuck in a trading range in the 50's and further positive news is needed to propel them through the 60p mark.
Amgen (AMGN) - The final tranche of Amgen stock was sold today at $57.6, giving a 5% gain despite the propects for Osteoporosis drug, Prolia. I am hoping for a buyback situation around $55 given the trading range of $55-58.
Micron Technology (MU) - Micron is stubbornly stuck below the $10 mark and currently trades at $9.5 despite the positive outllook for memory chips.
Anniversary of market rebound gives opportunity for reflection
The Dow Jones Industrials and the Standard & Poor's 500 both bottomed on March 9, 2009. It is incredible to think that 12 months ago, the S&P 500 stood at 672 and now is at 1,139, a 69% increase, the DOW Jones Industrials stood at 6,547 and are now at 10,550 (a 61% increase) and the FTSE 100 stood at 3,532, having increased 58% to today's 5,584. You could have picked up great stocks like Google (GOOG) for $289 (now $558), Caterpillar (CAT) for $23 (now $59), Apple (AAPL) for $83 (now $219), BP (BP.) for £4.29 (now £6.35) and HSBC (HSBA) for £3.04 (now £6.98). Despite having strong balance sheets, good profitability and great in-market positions these stocks were swept up in the negative spiral precipitated by the near collapse of the financial system, as exemplified by the demise of Lehman Brothers in September 2008. It really was the "sale of the century" for those brave enough to take a contrarian position back in the dark days of early 2009. For investors in more specialist vehicles such as commodity related stocks or emerging markets, returns in 2009 have been even more spectacular. For "value" investors, the signs of an oversold market were plain to see - forward price/earnings ration's close to the single digits for the DOW and FTSE, a yield on the FTSE of close to 5% and many quality companies close to cash value. But the fear gripping the market was such that with the exception of investors like Buffett's Berkshire Hathaway (who invested too early in cases such as Goldman Sachs despite highly favourable terms), many chose to stay on the sidelines and waited for a signal of a turn. The volatility even frightened me and despite buying heavily back in March 2009, I chose to take quick profits rather than hold with a hope of higher returns.
So now in March 2010, the investment case is less certain. It may seem a crazy thing to say, but despite all the positive signals that the U.S. economy is slowly coming out of a painful recession, the risks of buying the market are higher than back 12 months ago. Whereas at the peak of the panic, you could have bought almost anything with a reasonable balance sheet, the market is much more tricky now with the big gains in the second half of 2009. Contrarian Investor UK is inclined to stay on the side lines for a time now and let the established positions run. The risk of a correction (albeit modest) is very much concerning me. Bad news has been largely discounted by the market during 2010, but any significant set back in U.S. or European recovery may well be a catalyst for profit taking and volumes are already so low in the U.S. that it suggests that the major players are not active in the market and waiting for a better investing opportunity.
So now in March 2010, the investment case is less certain. It may seem a crazy thing to say, but despite all the positive signals that the U.S. economy is slowly coming out of a painful recession, the risks of buying the market are higher than back 12 months ago. Whereas at the peak of the panic, you could have bought almost anything with a reasonable balance sheet, the market is much more tricky now with the big gains in the second half of 2009. Contrarian Investor UK is inclined to stay on the side lines for a time now and let the established positions run. The risk of a correction (albeit modest) is very much concerning me. Bad news has been largely discounted by the market during 2010, but any significant set back in U.S. or European recovery may well be a catalyst for profit taking and volumes are already so low in the U.S. that it suggests that the major players are not active in the market and waiting for a better investing opportunity.
Friday, March 5, 2010
Big day for markets with U.S. jobs data due later today
This afternoon at 1.30 pm GMT , the U.S. Labour Department will report on the number of nonfarm payroll number during February.The consensus is for payrolls to decline by a seasonally adjusted 50,000 - 80,000, with the unemployment rate going up to 9.8% (against 9.7% in January), partly due to the bad weather in the United States during the month. Contrarian Investor is expecting a great deal of volatility in both the U.S. and U.K. markets as the numbers are announced.
The FTSE 100 hit an 18 month high this morning of 5,557 up 30 points on the day. DOW industrials futures are currently up 18 pts at 10,464. At these levels, the markets are looking a little overheated and I am considering a short on the FTSE 100 this morning on anticipation that the non-farm payrolls will be in line or fall short.
Thursday, March 4, 2010
Warren Buffett's Top Ten Quotes
1."We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
2. "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1"
3. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."
4. "Try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later one will."
5. "Derivatives are financial weapons of mass destruction."
6. "I buy expensive suits. They just look cheap on me."
7. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."
8. "In the business world, the rearview mirror is always clearer than the windshield."
9. "Our favourite holding period is forever"
10. "Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful""
2. "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1"
3. "Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results."
4. "Try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later one will."
5. "Derivatives are financial weapons of mass destruction."
6. "I buy expensive suits. They just look cheap on me."
7. "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact."
8. "In the business world, the rearview mirror is always clearer than the windshield."
9. "Our favourite holding period is forever"
10. "Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful""
Wednesday, March 3, 2010
RAB cuts stake in Falkland Oil and Gas
RAB Capital has cut its stake in Falkland Oil and Gas (FOGL) with the sale of 4.35m shares, cutting its direct holding to 21.7% of the company. Including warrants and other interests, RAB’s underlying stake is 34.1% which is still a sizeable holding.
ITV results indicate worst is behind company but outlook uncertain
Pre-tax profit for the 12 months to 31 December 2009 was £25m against a £2.7bn loss in 2008 (after £2.7 billion pounds of impairment charges) on revenue down 7% to £1.87bn. Profit before tax and exceptional items dropped 4% to £108m. adjusted earnings before interest, taxes and amortization fell 4.3% to £202 million, but was ahead of the £180 million analyst consensus. The shares were recently up 3% to 57p, having risen close to 20% since the BskyB stake sale.
Television advertising revenues dropped 9% in 2009 to £1.29bn, but that was ahead of the total market which fell 11% and the first quarter of 2010 is estimated to be up 7%. Forecasts for April indicate an increase in ad revenue of 15-20%, but the group warns that in the second half, and particularly the fourth quarter, comparatives are more challenging and the wider economic outlook after the forthcoming election remains uncertain. "Whilst ITV advertising revenues are up 7% in the first quarter, this is against the unprecedented declines of the previous year and, over the medium term, we remain cautious. We recognise also that ITV still faces formidable challenges,” said interim boss John Cresswell.
Adam Crozier joins the company as chief executive on 26th April.
Television advertising revenues dropped 9% in 2009 to £1.29bn, but that was ahead of the total market which fell 11% and the first quarter of 2010 is estimated to be up 7%. Forecasts for April indicate an increase in ad revenue of 15-20%, but the group warns that in the second half, and particularly the fourth quarter, comparatives are more challenging and the wider economic outlook after the forthcoming election remains uncertain. "Whilst ITV advertising revenues are up 7% in the first quarter, this is against the unprecedented declines of the previous year and, over the medium term, we remain cautious. We recognise also that ITV still faces formidable challenges,” said interim boss John Cresswell.
Adam Crozier joins the company as chief executive on 26th April.
Tuesday, March 2, 2010
GW PHARMA FINALLY STARTS MOVE UP ON POTENTIAL SATIVEX NEWS
GW pharma (GWP), developer of the Sativex cannabis spray for pain and spasticity in multiple sclerosis, has finally started moving up. After a 6% rise yesterday, the stock rose 5% today. Rumours are rife that approval for Sativex by the European regulatory body is close. Contrarian Investor UK, awaits tomorrow with interest as GWP is the portfolio's largest holding and is now showing a healthy profit. But I have no intention of selling before approval when I expect a 35%+ share price rise.
Hilary Clinton offers to help on Falklands Islands oil dispute
Hillary Clinton said on Monday that she plans to meet Argentinian President, Cristina Fernandez de Kirchner, was ready to help Argentina and Britain resolve the dispute over the Falkland Islands. Clinton said "It is our position that this is a matter to be resolved between the United Kingdom and Argentina. If we can be of any help in facilitating such an effort, we stand ready to do so."
Micron Technology snaps up 7% on SanDisk results
On Friday, SanDisk (SNDK) raised its forecast for the March quarter and made positive noises about the memory chip market in general. Today, the stock was up nearly 12% to $32.63.
This was seen as good news for sector stocks. A broker note yesterday from Lazard Capital raised revenue and profit forecasts for Micron’s second quarter which ends in February on the basis of solid NAND and DRAM chip demand. Revenue forecast was increased to $1.848 billion from $1.820 billion and EPS forecast increases 7 cents to 30 cents. For 2010, Lazard believes Micron Technology should produce revenues of $7.49 billion and EPS of $1.06 a share, from $7.42 billion and 98 cents.The stock has a $18 target, and is currently $9.7, implying a 100% upside.
Given much DRAM chip demand is created by PC sales, the outlook for stocks such as Microsoft and Hewlett Packard looks strong.
This was seen as good news for sector stocks. A broker note yesterday from Lazard Capital raised revenue and profit forecasts for Micron’s second quarter which ends in February on the basis of solid NAND and DRAM chip demand. Revenue forecast was increased to $1.848 billion from $1.820 billion and EPS forecast increases 7 cents to 30 cents. For 2010, Lazard believes Micron Technology should produce revenues of $7.49 billion and EPS of $1.06 a share, from $7.42 billion and 98 cents.The stock has a $18 target, and is currently $9.7, implying a 100% upside.
Given much DRAM chip demand is created by PC sales, the outlook for stocks such as Microsoft and Hewlett Packard looks strong.
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