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Jubak Picks 50 Portfolio


This long-term, buy-and-holdish portfolio is based on my 2008 book The Jubak Picks. In that book I identified ten trends that were strong enough, global enough, and long-lasting enough to give anyone who invested in them a good chance of beating the stock market averages. To make things easier for the average investor I picked 50 stocks that are well-positioned to ride those trends. This portfolio has only been around since December 30, 2008 but that’s long enough to get tested by the near bear market of 2011. In its first year, 2009, The Jubak Picks 50 portfolio gained 57.8% versus a gain of 28.3% for the S&P 500. Year two, 2010, the portfolio gained 20.1% versus 15.01% for the S&P 500. Then in 2011, the portfolio lost 18.6% versus a 2.1% gain for the S&P 500. Year four, 2012, the portfolio gained 6.6% versus 16% for the S&P 500. Total for four years comes to a gain of 64.4% for  the Jubak Picks 50 portfolio versus 72.3% for the S&P 500. This is a much less active portfolio than my Jubak’s Picks portfolio; I anticipate turning over less than 10% of the portfolio annually. I made my adds and drops for 2013 on May 3, 2013 http://jubakpicks.com/2013/05/03/10-long-term-picks-in-a-short-term-market/

View Sells

Symbol Date Picked Price Then Price Now Today's Change Jubak's Gain/Loss
Apache
APA 12/30/2008 $73.64
It's Apache's ability to get more oil out of old fields that makes this an oil stock that I want to own during the supply crunch that awaits the world... more
BHP Billiton
BHP 12/30/2008 $41.94
Update February 18, 2011: As tea leaves go, those presented to investors in BHP Billiton’s (BHP) February 16 post-earnings-report conference call could have been a bit clearer. I think the way to decide buy/sell/hold... more  |  Read Jim's Original Buy
Bunge
BG 12/30/2008 $50.08
Update January 15, 2010: Brazilian iron ore giant Vale (VALE) said on January 15 that it’s in talks with Bunge (BG) to buy that company’s fertilizer assets in Brazil. The deal, for as much as... more  |  Read Jim's Original Buy
Canadian National Railway
CNI 01/05/2010 $55.38
With Warren Buffett’s purchase of Burlington Northern (BNI), there’s one less trans-continental railroad in North America. And nobody is going to build another one anytime soon. Actually make that ever.  Canadian... more
Cemex
CX 12/30/2008 $8.78
Update January 19, 2011: A cement maker like CEMEX (CX) couldn’t have picked a worse set of markets for the global economic crisis if it tried. Second biggest market for the company? The United States,... more  |  Read Jim's Original Buy
Cheniere Energy
LNG 05/03/2013 $28.55
On May 20 I wrote http://jubakpicks.com/2013/05/20/a-second-lng-plant-gets-a-u-s-export-license-the-best-stock-pick-on-that-news-is-chicago-bridge-and-iron/ that that the decision to award only the second license to export liquefied natural gas from the United States to the Freeport project... more
Cisco Systems
CSCO 12/30/2008 $16.23
Update August 21, 2009: Ever since this recession began Cisco Systems (CSCO) CEO John Chambers has shown an unexpected talent for taking all the joy out of his company's earnings report. And he did it again... more  |  Read Jim's Original Buy
Coach
COH 12/30/2008 $20.36
Update July 28, 2009: Coach (COH) reported that its earnings for the June quarter matched Wall Street expectations at 43 cents a share. That's about the last good news for the fourth fiscal quarter that... more  |  Read Jim's Original Buy
Corning
GLW 12/30/2008 $9.01
Update June 5, 2012: If Mr. McGuire were to whisper to Benjamin his “just one word” of advice today, instead of 1967, it would be not “plastics” but “glass.” And the stock that he’d tell... more  |  Read Jim's Original Buy
Cummins
CMI 05/03/2013 $110.60
Update June 27, 2015: Update:  April 28, 2015. Today, April 28, Cummins (CMI) announced a penny a share miss on first quarter earnings of $2.14 a share and a disappointing 6% increase in revenue... more  |  Read Jim's Original Buy
Deere
DE 12/30/2008 $37.65
Update December 14, 2014: If you want to get really, really depressed about the near-to-medium term prospects for the agricultural sector, may I recommend Deere’s (DE) December investors presentation? (It’s posted on Deere’s web... more  |  Read Jim's Original Buy
DuPont
DD 01/18/2011 $48.96
Update December 11, 2013: E.I. du Pont de Nemours, hereafter DuPont (DD), is a clear case of addition through subtraction. After selling its performance coatings unit—which makes paints for cars and other industrial uses—for $4.9... more  |  Read Jim's Original Buy
eBay
EBAY 05/03/2013 $54.21
eBay (EBAY) has been a volatile stock since I added it to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on May 3. (For all of my annual changes to... more
Enbridge
ENB 12/30/2008 $32.23
Enbridge has an impressive number of pipeline projects set to start pumping up revenue in the next two to three years. The Alberta Clipper Expansion is projected to deliver heavy... more
ExxonMobil
XOM 12/30/2008 $78.59
Update July 30, 2012: Wall Street analysts have been busy cutting their ratings on shares of ExxonMobil (XOM) after the company’s second quarter earnings announced on July 26. If you’re a long-term investor or if... more  |  Read Jim's Original Buy
Flowserve
FLS 12/30/2008 $51.33
Update August 26, 2009: Turns out the pumping business is a very good place to be in this economy. On July 29 Flowserve (FLS) announced second quarter earnings of a better than expected $1.92 a... more  |  Read Jim's Original Buy
Fluor
FLR 01/18/2011 $70.60
Doing some catch up on this stock. I added Fluor (FLR) to the Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on January 18, but this is the first time I’ve... more
Fortescue Metals Group Ltd
FSUMF 12/30/2008 $1.35
Update September 12, 2012: This isn’t good news for Fortescue Metals Group (FMG.AU in Sydney or FSUMF in New York) and it indicates the problems increasingly facing smaller mining companies as commodity prices remain... more  |  Read Jim's Original Buy
Freeport McMoRan Copper & Gold
FCX 12/30/2008 $23.73
Update July 21, 2009: At least they were honest. Executives at Freeport McMoRan Copper & Gold (FCX) told Wall Street on July 21 that they weren't seeing any signs of a recovery in developed... more  |  Read Jim's Original Buy
General Cable
BGC 12/30/2008 $16.69
Update August 7, 2009: Looking for the dark side of the recovery in commodity prices?  Look no farther than the second quarter earnings reported by General Cable (BGC) on August 5. The company did indeed beat... more  |  Read Jim's Original Buy
General Electric
GE 07/22/2009 $15.82
The one-stop-shop for industrial infrastructure. Need a locomotive, steam turbines, a power plant, a nuclear reactor or just something mundane like a hundred jet engines? General Electric can sell it... more
GOL
GOL 01/18/2011 $16.05
Update October 23, 2013: The New York traded ADRs of Brazilian airline Gol Linhas Aereas Inteligentes (GOL) went on a tear during the first two days of this week on a jumbo jet full... more  |  Read Jim's Original Buy
Goldcorp
GG 12/30/2008 $30.72
Update March 8, 2010: What you want in a gold stock is a company with rising reserves and falling costs. Goldcorp’s (GG) end of 2009 report on reserves shows that it’s still delivering rising... more  |  Read Jim's Original Buy
Google
GOOG 12/30/2008 $303.11
Update July 19, 2011: Just in case you were in danger of forgetting, Google’s (GOOG) second quarter earnings report on Thursday, July 14, should remind you: It’s good to be out in front of... more  |  Read Jim's Original Buy
HDFC
HDB 12/30/2008 $72.35
Update January 27, 2011: Another day, another interest rate increase from an emerging economy central bank. On January 25, it was the turn of the Reserve Bank of India. The bank raised its benchmark repurchase... more  |  Read Jim's Original Buy
Home Inns and Hotels Management
HMIN 01/13/2012 $27.18
Home Inns and Hotels Management (HMIN) is “now the indisputable leader in economy hotels” in China according to Deutsche Bank. I’d have to say I agree which is why I... more
HSBC
HBC 12/30/2008 $47.08
Update August 19, 2009: One half of HSBC's (HBC) business is performing beautifully. Unfortunately, it's not the part that I most want to own. On August 3, HSBC reported second quarter earnings that showed that its... more  |  Read Jim's Original Buy
Impala Platinum
IMPUY.PK 12/30/2008 $13.97
Early 2008 wasn't an easy period for South African mining companies. Power shortages shut the country's deep mines. News that China passed South Africa to become the largest gold producer... more
Infosys
INFY 12/30/2008 $24.45
One of the four horsemen of Indian information technology outsourcing, Infosys combines fast growth with proven management. Infosys has had to win over global clients that now include 113 members... more
Itau Unibanco
ITUB 12/30/2008 $10.84
Update November 8, 2011: On November 1 Brazil’s Itau Unibanco (ITUB) reported third quarter adjusted net income, which excludes one-time items, of 3.94 billion reais (or $2.3 billion). That was up from 3.16 billion... more  |  Read Jim's Original Buy
Johnson Controls
JCI 12/30/2008 $17.90
Update August 31, 2009: The long-term future for Johnson Controls (JCI) is in batteries for hybrid and electric cars, and systems for building-wide energy efficiency. Not that the near-term future is so bad. What... more  |  Read Jim's Original Buy
Joy Global
JOY 12/30/2008 $21.99
Update June 1, 2012: Are we all market timers now? What makes me wonder? My reaction to Joy Global’s (JOY) second quarter earning report yesterday, May 31, before the New York markets opened. The company beat... more  |  Read Jim's Original Buy
Lan Airlines
LFL 12/30/2008 $8.64
Update April 1, 2013: It’s all about Brazil. On March 19 LATAM Airlines Group (LFL) reported a 97% drop in earnings for 2012 to just $10.96 million. Higher taxes in Chile, the group’s home market, certainly... more  |  Read Jim's Original Buy
Luxottica
LUX 12/30/2008 $17.95
Update March 3, 2011: Not very ambitious, are they? Luxottica, the biggest maker of eyeglasses in the world and a member of my Jubak Picks 50 long-term portfolio, announced that it looking to increase sales... more  |  Read Jim's Original Buy
Lynas
LYSDY 01/13/2012 $1.04
Update May 6, 2013: Whether or not the victory on Sunday of Prime Minister Najib Razak and the ruling Barisan Nasional coalition is good for Malaysia democracy or not—and it’s hard to believe that... more  |  Read Jim's Original Buy
Middleby
MIDD 05/03/2013 $48.26
Update February 26, 2014: If more companies were reporting sales and earnings growth like Middleby (MIDD) reported on February 25, the Standard & Poor’s 500 wouldn’t be having such trouble moving above its all... more  |  Read Jim's Original Buy
Monsanto
MON 12/30/2008 $69.52
Update September 10, 2009: It’s hard to keep earnings growing when competitors cut the price you can charge for your signature product in half. That’s the reality that’s finally put an end to Monsanto’s (MON)... more  |  Read Jim's Original Buy
PepsiCo
PEP 12/30/2008 $54.88
This company delivers like clockwork. Take operating margins: 18% in 2004, 18.2% in 2005, 18.5% in 2006, and 18.2% in 2007--even as the cost of such raw materials as corn... more
Pioneer Natural Resources
PXD 01/13/2012 $97.63
I added Pioneer Natural Resources to my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ ) To understand why I’m picking this oil and gas company... more
Potash of Saskatchewan
POT 12/30/2008 $73.80
Update July 30, 2013: The danger was clearly implied in Potash of Saskatchewan’s (POT) July 25 earnings results. Potash volumes were up, the company reported, but prices were down—and the implication was that pricing discipline... more  |  Read Jim's Original Buy
Rayonier
RYN 12/30/2008 $30.76
Rayonier owns, controls or leases about 2.7 million acres of timberland. Some of those 2.7 million acres--what's known as higher-and better-use land -- are more valuable for development than as... more
Schlumberger
SLB 12/30/2008 $42.12
Update June 28, 2015: Update January 20, 2015. Today, January 20, Schlumberger (SLB) announced that it will pay $1.7 billion for a 46% stake in Eurasia Drilling (EDCL in London), Russia’s largest drilling company.... more  |  Read Jim's Original Buy
Standard Chartered Bank
SCBFF 01/05/2010 $26.30
Despite its London headquarters, Standard Chartered Bank (SCBFF) does most of its business outside the United Kingdom. (A good place not to be during the global financial crisis.) In fact... more
SunPower
SPWR 01/05/2010 $24.84
Demand will pick up—eventually—for solar energy companies as the global economy crawls toward recovery and as countries add more incentives for clean power. That doesn’t mean that everyone is going to... more
Tenaris
TS 12/30/2008 $20.85
You can make a very nice little $10 billion (in sales) business out of selling something as seemingly mundane as drilling pipe if you realize that as companies drill in... more
Thompson Creek Metals
TC 12/30/2008 $3.89
Update April 14, 2014: Shares of Thompson Creek Metals closed up 9.4% Friday, April l1, as the company’s first quarter earnings report showed that the miner made essential progress in its transition from a... more  |  Read Jim's Original Buy
Ultra Petroleum
UPL 12/30/2008 $34.03
What energy supply could be more secure than natural gas from Wyoming and Utah? And Ultra Petroleum owns a lot of it. I mean a lot. The company's proved reserves... more
Vale
VALE 12/30/2008 $11.24
Update September 20, 2013: Vale (VALE) continues to make good progress in cutting costs and selling off non-core assets. But for the next year big additions to global iron ore supply are likely to... more  |  Read Jim's Original Buy
Weyerhaeuser
WY 01/13/2012 $20.22
I added Weyerhaeuser (WY) to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to... more
Yamana Gold
AUY 01/13/2012 $15.68
Update August 1, 2013: It’s early in the transition of gold mining companies to the lower price of gold, but I think we can already stake out a few of the important differences among... more  |  Read Jim's Original Buy
Yingli Green Energy
YGE 01/18/2011 $11.61
Last year—on January 18, 2011 to be precise—I replaced Sun Tech Power Holdings (STP) with Yingli Green Energy Holdings (YGE) in my long-term Jubak Picks 50 portfolio. (See my post... more

Buy Apache (APA)

December 30th, 2008

It’s Apache’s ability to get more oil out of old fields that makes this an oil stock that I want to own during the supply crunch that awaits the world on the other side of the current global recession.

Update BHP Billiton (BHP)

February 18, 2011

As tea leaves go, those presented to investors in BHP Billiton’s (BHP) February 16 post-earnings-report conference call could have been a bit clearer. I think the way to decide buy/sell/hold on BHP and on the mining sector as a whole is to look past the very confusing top down strategic message to the nitty gritty of the key commodities of iron ore and copper. (BHP Billiton is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ ) Let’s start with the murky top-down stuff first, okay? CEO Marius Kloppers said the company would increase its dividend for the first half of 2011 to 46 cents (U.S.) from 42 cents. I’m not clear what that is a sign of since the increase barely keeps pace with appreciation in the Australian dollar—for Australian shareholders, in other words, the increase is no increase at all. Kloppers also announced an expansion of the company’s current $4.2 billion share buy-back to $10 billion. That amounts to about 4% of the company’s outstanding shares. And he said that the company wasn’t actively looking at any acquisitions right now although the company has plenty of cash and cash flow: BHP Billiton reported six month profits of $10.7 billion on February 16. So was BHP Billiton saying that it thinks mining stocks are expensive now, so no acquisitions? Hard to tell because Kloppers may be feeling a bit burned on the acquisition front after a failed bid for Potash of Saskatchewan (POT) in 2010. And are the increases in the dividend and in the share buy-back plan a signal that the company thinks the commodities boom is getting near an end and it’s time to pull back on investments in its business? Nope. Kloppers also announced that BHP Billiton will spend $15 billion in 2011 to grow production. The capital budget for the next four and a half years comes to a staggering $80 billion. BHP Billiton certainly seems to be saying that it thinks the commodities boom has years and years to run. Should investors take that market call to the bank? Not if they remember the Ravensthorpe nickel mine debacle. In 2008 BHP Billiton took a $3.7 billion write down when it shut down that Australian mine. This wasn’t just a case of getting the 2008 top in the commodities cycle wrong—lots of folks (including yours truly) did that. Ravensthorpe had been announced way back in 2004 and plagued with cost overruns from the start. The cost of the project doubled during construction. BHP finally shut it down in 2008, writing down the book value to $0, when it concluded that operating the mine just wouldn’t pay. So in our search for clarity let’s look at the reported results for the key commodities of iron ore and copper. BHP Billiton expanded iron ore production by 5% in the most recent period. Production is up about 25% from three years ago and BHP Billiton has plans to increase production by another 60% by 2013. That strikes me as pretty aggressive and given the plans of other iron ore producers to also increase capacity on roughly that time table, I’d certainly think that 2012 might be a good time to revisit my exposure to iron ore producers such as BHP Billiton, Rio Tinto (RTP), and Vale (VALE). Copper production climbed by 4%, but that good news—since it was ahead of Wall Street projections—came with a ton of company warnings. At the Escondida mine for example, ore grades are declining and in 2011 production is, consequently, likely to drop by 5% to 10% from 2010 levels. Copper production volumes will be stagnant in 2011 since expanding production in the face of declining ore grades at existing mines will be slow and expensive. On the face of it, Billiton’s production report says that the copper boom has longer to run than the iron ore boom. If you’re looking to put new money to work in commodities, I’d go with copper and I think there are better copper plays than BHP Billiton—Freeport McMoRan Copper & Gold (FCX)—comes to mind where companies will have to spend less capital to increase production. (For why I like Freeport McMoRan see my post http://jubakpicks.com/2011/01/24/update-freeport-mcmoran-fcx-and-some-thoughts-on-what-to-own-in-an-emerging-economy-slowdown/ ) Given BHP Billiton’s mix of commodities, if you already own this stock, I’d hold it for 2011 and look to see if it’s smart to start lightening up in 2012. In the longer run, if there is a pull back in 2012 or so, I’d use it as a buying opportunity. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of BHP Billiton, Freeport McMoRan Copper & Gold, and Vale as of the end of January. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Bunge (BG)

January 15, 2010

Brazilian iron ore giant Vale (VALE) said on January 15 that it’s in talks with Bunge (BG) to buy that company’s fertilizer assets in Brazil. The deal, for as much as $3.8 billion, would relieve Bunge of a unit that showed a loss of $127 million in the third quarter, and give the company cash to pay down debt that stood at $4.1 billion at the end of September 2009. For Vale, the deal would give the company, which already produces potash fertilizer at Taquari-Vassouras in northeast Brazil and is developing new projects in Brazil, Argentina, Canada, and Peru, additional scale in the short-term and in the longer-run a potential path to dominating Brazil’s fertilizer market. The deal would include, Vale said in a regulatory filing, Bunge’s 42.3% stake in Fertilizantes Fosfatados or Fosfertil, Brazil’s largest supplier of raw materials for fertilizers. The deal would also take some of the political heat off Vale to invest more in Brazil. On October 20 Vale said it would invest almost two-thirds of its 2010 capital budget in Brazil after Brazilian President Luiz Inacio Lula da Silva urged the company to invest more in the country. “Urged” may be too weak a term. Brazilian Agriculture Minister Reinhold Stephanes has noted that Vale might have to give up rights to two fertilizer deposits if it didn’t start exploration soon. In 2008 Brazil imported 70% of its fertilizers. The government has said that the country wants to be self-sufficient in fertilizer by the end of the decade.

Buy Canadian National Railway (CNI)

January 5th, 2010

With Warren Buffett’s purchase of Burlington Northern (BNI), there’s one less trans-continental railroad in North America. And nobody is going to build another one anytime soon. Actually make that ever.

 Canadian National Railway (CNI) generates the highest operating margins among North American railroads. Its operating ratio (that’s the ratio of operating expenses to revenue) has climbed to 63.6% from 89.9% over the last decade, according to Morningstar, and the company’s 10-year free-cash flow is more than 13% of revenue.

Update CEMEX (CX)

January 19, 2011

A cement maker like CEMEX (CX) couldn’t have picked a worse set of markets for the global economic crisis if it tried. Second biggest market for the company? The United States, epicenter for the global housing meltdown. Next biggest? Spain and the United Kingdom. And then, of course, there is No. 1 Mexico, where domestic economic activity closely follows growth (or the lack thereof) in the United States. No wonder that CEMEX almost went under during the crisis, drowning in an ocean of debt including that for its $14 billion 2007 top of the market acquisition of Rinker, an Australian cement maker with even bigger exposure to the U.S. market than CEMEX. The stock, which had looked like it was closing in on $30 a share in May 2008, bottomed below $4 in November 2008. Now, however, the market concentration that was so damaging in 2008 is turning into a plus. Growth in U.S. economy looks like it is accelerating. Mexico’s economy grew by 7.6% in the second quarter of 2010 and by 5.3% in the third quarter. The Mexican economy is projected to grow by 4.8% in 2011, according to Grupo Financiero Banamex. Volumes in Europe are still falling but they’re no longer in free fall. (Cement volumes fell by 52% in Spain and 32% in the United Kingdom from 2007 to 2009.) And it looks like CEMEX has paid down, refinanced, and restructured enough debt that it will get to the return to modest revenue growth in 2011 without getting slapped with a punitive increase in interest charges by its creditors. I’d project roughly 7% growth in revenue in 2011—nothing to get excited about unless you’re running a company that saw revenue fall by nearly 20% from 2008 to 2009. Credit Suisse sees the company’s return on invested capital crawling off the floor at 1.3% in 2010 (the company would have done better investing in a CD) to 2.8% in 2011 to 3.56% in 2012. Earnings per share, projected to bottom at a loss of 70 cents a share in 2010 are forecast, by Credit Suisse, to return to profitability with 21 cents a share in 2011 and then grow by 148% (to 51 cents a share) in 2012. I’d look for an entry point of $10.50 or less. I think the stock can go to $13.50 to $15 depending on the strength of the U.S. economy and when the Spanish economy stabilizes. Which, of course, is why I picked the stock as one of my 10 stocks for 10 years in my annual update http://jubakpicks.com/2011/01/18/6215/ to the Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ . CEMEX is an original member of that portfolio. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of CEMEX as of the end of November. For a full list of the stocks in the fund as of the end of November see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.  I’ll have the fund’s portfolio as of the end of December posted in a few days.

Cheniere Energy (LNG)

May 23rd, 2013

On May 20 I wrote http://jubakpicks.com/2013/05/20/a-second-lng-plant-gets-a-u-s-export-license-the-best-stock-pick-on-that-news-is-chicago-bridge-and-iron/ that that the decision to award only the second license to export liquefied natural gas from the United States to the Freeport project in Texas wouldn’t hurt Cheniere Energy (LNG), the holder of what had been the only permit until May 20. Freeport projects that it will be able to ship gas in 2017, I noted, which just draws a line under Cheniere’s projected ship date of 2015.

I’ve spent a few days thinking about that post—in which I added stock pick Chicago Bridge & Iron (CBI), the leading candidate to get the work to build Freeport, to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ And I’ve concluded that I missed part of the Freeport story, which adds even more value to shares of Cheniere Energy. You see Cheniere has a second proposed LNG plant to go with the Sabine Pass plant in Louisiana. This one, in Corpus Christie, Texas, doesn’t yet have an export license. The Department of Energy permit for Freeport with its crucial finding that the export of U.S. natural gas is consistent with the public interest raises the odds that the Corpus Christie LNG plant will get an export permit too. The ruling also increases the odds that Cheniere Energy will be able to easily secure the $3 billion to $4 billion in debt financing the company is currently seeking. Doing that deal as debt rather than equity would prevent shareholder dilution.

All this makes me even more certain that adding Cheniere Energy to my long-term Jubak’s Picks portfolio http://jubakpicks.com/jubak-picks-50/ on May 3 as part of my annual revision to that portfolio was the right move.

Right now by date of filing with the Federal Energy Regulatory Commission (FERC), Cheniere’s Corpus Christie plant stands fourth in line of LNG projects awaiting approval from the Department of Energy. Cheniere’s ability to fund production trains 1-4 at Sabine Pass and to line up contracts for the full capacity of those trains certainly won’t hurt Corpus Christie in front of FERC and the Department of Energy. (Cheniere is now moving to add an additional two trains at Sabine Pass.)

Right now it looks like Cheniere has a two- to four-year window before enough competitors in the United States and Australia start production to significantly reduce the extraordinary premiums that U.S. and Australian LNG will earn in Asian markets.

In the near-term, say the next 12 to 18 months, the driver for the price of Cheniere Energy shares will be progress toward production at Sabine Pass and the rising odds that the company will get a second Department of Energy permit for Corpus Christie. Shares of Cheniere Energy traded at $28.55 a share when I added them to the Jubak Picks 50 portfolio on May 3 and closed at $29.92 on May 23.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Cheniere Energy as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Cisco Systems (CSCO)

August 21, 2009

Ever since this recession began Cisco Systems (CSCO) CEO John Chambers has shown an unexpected talent for taking all the joy out of his company's earnings report. And he did it again when, on August 5, Cisco Systems reported earnings of 31 cents a share for the company's fiscal fourth quarter that ended on July 25.  That beat Wall Street estimates by two cents a share. (Both Cisco's and Wall Street's numbers exclude things like stock compensation that I think should be deducted as costs but, hey, that's how Wall Street scores the quarterly earnings game.) Revenue did fall 18% from the fiscal fourth quarter of 2008, but still beat Wall Street estimates of $8.51 billion by about $300 million. Gross margins held steady at 64%. But investors who might have hoped that Chambers would call this quarter the bottom or forecast a looming turnaround would have been disappointed. "If we continue to see these positive order trends for the next one to two quarters, we believe there is a good chance we will look back and see that the tipping point occured in our business" in this quarter, he said in a company statement. Chambers' tempered tone is about right for the short-term given that most of Cisco's ability to beat earnings targets comes from cost-cutting. The company set out to cut about $1 billion in annual costs by July and it looks like  the company met or exceeded that target. But it also masks the way that Cisco's very positive long-term story has gotten even stronger during the recession. Unlike some cash-strapped competitors, Cisco will come out of this down turn sitting on a mountain of cash. It finished the quarter with $35 billion in cash and cash equivalents. That's up from $26.2 billion a year ago at the end of the fiscal July 2008 quarter. That cash stockpile provides plenty of fuel to drive Cisco's traditional growth by technology acquisition stategy over the next year or more. Over it's history Cisco has been remarkably successful in using its cash to acquire smaller companies with promising technologies and then using its marketing muscle to push those technologies out into the market. Having all this cash is especially valuable now because even if the recession is winding to an end, many small technology companies will run out of cash before their sales can turn up or before the financial markets become hospitable again to risky equity offerings. But Cisco's cash isn't just an edge in going after small companies and small but fast growing markets. The company is using its muscle to push into markets controlled by former partners. For example, Cisco Systems has started selling its Unified Computing System, a mix of computer servers, storage devices, and networking gear, in an effort that pits it head to head against Hewlett-Packard (HPQ) and IBM (IBM), long-term partners in selling Cisco's networking equipment. Cisco's cash is an especially important weapon in that battle since it enables the company to finance sales, a necessity when potential customers are struggling to find financing. The battle with IBM and Hewlett-Packard won't be won easily. Those companies are one and two, respectively, in the 53 billion global server market, according to the research by Gartner. Cisco doesn't show up on Gartner's rankings.

Update Coach (COH)

July 28, 2009

Coach (COH) reported that its earnings for the June quarter matched Wall Street expectations at 43 cents a share. That's about the last good news for the fourth fiscal quarter that Coach had to announce, however.  Coach certainly hasn't escaped the collapse in retail sales--although it is weathering the downturn better than most. For investors who can get past the bad news of this quarter, though, the stock remains a compelling way to profit from the increasing number of middle-class consumers in China. That's why I put the stock in my book, The Jubak Picks, and why it stays in that portfolio. Here's more of the bad news for the recently concluded quarter. Net income dropped to $145 million from $214 million in the June quarter of 2008. Revenue held up better but still fell about 1% to $778 million from $782 million in the 2008 period. Gross margin dropped to 70.4% from 75.9% in the June quarter of 2008, and operating margin tumbled to 28.2% from 35.9% in the June quarter of 2008. Comparable store sales in North America declined 6.8% in the quarter. Sales in Japan were flat on a constant currency basis. The one bright spot was China--and that's especially good news because Coach and investors are counting on that country for future sales and earnings growth. Comparable store sales climbed at a "douible-digit rate," the company said. Whatever that means exactly, it was enough to make the company accelerate its planned store openings there. The company told investors that it now plans to open 15 new stores in China, most of those on the mainland instead of Hong Kong, in the 2010 fiscal year that ends in June 2010. (Full disclosure: I own shares of Coach in my personal portfolio.)

Update Corning (GLW) in my long-term Jubak Picks 50 portfolio

June 5, 2012

If Mr. McGuire were to whisper to Benjamin his “just one word” of advice today, instead of 1967, it would be not “plastics” but “glass.” And the stock that he’d tell Benjamin to buy would almost certainly be Corning (GLW). (Corning is a member of my Jubak Picks 50 long term portfolio http://jubakpicks.com/jubak-picks-50/ ) This is a golden age for glass. New larger, brighter, and more detailed displays require larger and purer glass. The world’s army of mobile devices requires new tougher but thinner glass for screens. Reducing energy use in brighter LCD and OLED displays requires more uniform and flexible glass to use in a new generation of backplane substrates that allow the use of smaller and faster transistors. And from new product announcements this week and from teasers about new products at recent company presentations, it’s clear that these high technology glass products will be followed by others. On June 4, for example, Corning announced that had shipped samples of Willow Glass to device manufacturers that include (AAPL) and Samsung. The glass is so flexible that it can be manufactured in a roll and wrapped around a device or a structure. The company is hoping that Willow Glass will start showing up in consumer products in 2013. Further out, according to recent company presentations are such products as an anti-microbial glass. Corning has always been a stock that you buy as much for its tomorrows as for its products today. It is one of the world’s great research and development companies. Sometimes, frankly, the company gets ahead of itself, building out capacity for a new product—optical fiber, for example—faster than the market can ultimately absorb it. Sometimes the market’s uptake of a new Corning technology such as the extra tough Gorilla Glass for mobile displays lags behind the company’s enthusiasm for a technology. And sometimes, and this becomes a real problem during a market slump, Corning convinces itself that the superior technology of its glass will keep sales growing even as the company’s customers are seeing their end sales drop. Those moments give you your buying opportunities in the stock—if you can wait on the sidelines as the company eventually comes around to rationalizing supply and demand. I think you’re looking at one of those now. The big deal for Corning over the past year or so has been a global oversupply that has depressed the price of display glass. The company’s display technologies segment, which accounted for about 40% of sales in 2011, saw prices and sales slump as the global economic slowdown reduced demand for flat screen displays especially in the TV and PC segments. That slump occurred even though Corning’s proprietary manufacturing processes allow it to produce larger, thinner and higher-quality pieces of glass than competitors. That had allowed Corning and its 50%-owned subsidiary, Samsung Corning Precession, to grab more than 50% of the display glass market. But that market share—and Corning’s high margins in this business—didn’t protect the company’s display revenues when the global economic slowdown ate into consumer purchases of TVs and PCs and Corning’s customers stopped ordering as they worked down inventories. That slump is forecast to gradually end in the second half of 2012, which should lead to stable margins by the end of the year and some margin expansion in 2013. According to Standard & Poor’s sales will grow by 4% in 2012 and 7% in 2013. Margins and earnings should pick up in 2013 because Corning will have completed spending on upgrades and additions to manufacturing capacity. Wall Street projects that 2012 will mark the earnings trough for this cycle at $1.34 a share and that 2013’s projected 14% earnings growth will begin the recovery to the 9% or so growth earnings growth rate that the company averaged over the last five years. The stock now trades at just 7.6 times trailing 12-month earnings and at 9.1 times projected 2012 earnings. The company showed $6.8 billion in cash and cash equivalents on its balance sheet at the end of the March 2012 quarter and $3.1 billion in long-term debt. The shares pay a 2.45% dividend. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Corning as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Cummins

June 27, 2015

Update:  April 28, 2015. Today, April 28, Cummins (CMI) announced a penny a share miss on first quarter earnings of $2.14 a share and a disappointing 6% increase in revenue to $4.71 billion that nonetheless beat analyst forecasts of $4.53 billion. For the year, Cummins said revenue would grow by just 2% to 4% to $19.6 billion to $20 billion versus a consensus estimate of $19.81 billion. Hardly tearing up the track. The stock is in fact down 5% over the past 12 months. (Cummins is a member of my 12-18 month Jubak’s Picks portfolio and my long-term Jubak Picks 50 portfolio.) But with a company like Cummins, which has successfully navigated the ups and downs of the cyclical market for diesel engines, what you should pay attention to aren’t the results in those down parts of the cycle. Instead you should check to see that the company continues to follow the very simple formula that has driven its success up cycle and down cycle—and to see that formula is still working. In the case of Cummins a simple rule for those times when the stock is lagging the market might be “If it ain’t broke, buy it.” Cummins is currently cheap with a trailing 12-month price to earnings ratio of 15.4 and a forward PE of 13.62. I don’t think the current weakness in the global economy that has slowed growth at Cummins is likely to end in 2015 so I’d certainly understand if you wanted to wait until you saw signs that the cycle was about to head up. (And it’s the weakness in that global economy that leads me to reduce my target price for Cummins to $154 by December 2015 from the previous $181.) On the other hand, I’ve personally missed the turn of the cycle on Cummins more than once and the shares do pay a dividend of 2.2%. That’s higher than the 2% yield on 10-year U.S. Treasuries so you do get paid something if you’re early. Update: April 28, 2015:  It’s pretty clear what was wrong with revenue and earnings at Cummins this quarter and, according to company guidance, what will be wrong for the rest of 2015. A strong U.S. dollar whacked revenue and earnings. And weak global economic growth in general and in Brazil and China in particular offset solid growth in North America and a decent recovery in Europe. But Cummins continued to execute. Here’s what I saw in the quarter that was more important than the cyclical swing in revenue and earnings. Cummins continued to pick up market share in key markets. The company already has a 72% share of the North American market for medium-duty truck engines and forecasts a 36% share of the North American market for heavy-duty truck engines in 2015. Internationally, Cummins saw its share of the diesel truck market grow to 12% from 10% in the quarter. Gains in market share in China compensated for anemic growth in that market in general. For example, Cummins said it was on track to deliver more than 100,000 light-duty truck engines in China this year. That would be growth of 28% in a market that is projected as flat for the year. A second part of the Cummins formula is to invest—even in a weak market--in technology and quality improvements that cut costs. Warranty costs are one measure of that effort since fewer engines sent back for repairs at company expense is a good measure of product quality. In its conference call Cummins said that it expects warranty costs to fall in the second half of 2015 from the first half of this year and from the last half of 2014. This attention to growing market share and cutting costs means that Cummins is a cash flow cow. The company has used that cash flow to grow dividends at a compounded annual growth rate of 34% over the last five years. (It has also bought back $1.5 billion in stock over the last three years.) With the payout ratio at just 34% of free cash flow, Cummins has plenty of room to keep the dividend growing. The company has a history of announcing dividend increases in May. In May 2014 Cummins raised its quarterly dividend to 78 cents a share from 62.5 cents. The shares closed at $137.25, down 1.44%, on April 28.

Deere

December 14, 2014

If you want to get really, really depressed about the near-to-medium term prospects for the agricultural sector, may I recommend Deere’s (DE) December investors presentation? (It’s posted on Deere’s web site at http://investor.deere.com/files/doc_financials/Investor-Presentation-Dec14-FINAL.pdf ) On the other hand, if you want to read a strong case for Deere’s own long-term prospects, I’d recommend the same document. This stock remains in my long-term Jubak Picks 50 portfolio because of that case http://jubakam.com/portfolios/ . The depressing news? In fiscal 2015 (which ends in October 2015) Deere expects sales of agricultural equipment across the sector to be 25% to 30% lower than in fiscal 2014 in the U.S. and Canadian market, 10% lower in the European Union, 10% lower in South America and slightly down in Asia. Sales of large agricultural equipment—the big tractors that Deere sells, for example—will drop more than the sector as a whole with big equipment sales falling 40%. That will bring the two-year drop in big equipment sales to about 60%. Deere expects that it’s sales will hold up slightly better than that—with sales down 15% in 2015—but we’re still talking about a crushing downturn in the sector. Credit Suisse calls it one of the worst U.S. farm downturns ever—made worse by declines overseas. And yet—Wall Street analysts expect Deere to earn $5.53 a share in fiscal 2015. Granted that’s a huge drop 37% drop in earnings per share from fiscal 2014’s $8.75. But it’s still a long way from a loss—and a pretty stunning accomplishment in the midst of a 60% drop in sector sales. In fiscal 2016 Credit Suisse expects Deere’s earnings per share back to near the $8.75 of fiscal 2014. That’s a pretty good performance for a horrendous sector downturn. But if you’re looking for hope rather than just the assurance that things aren’t as bad as they could be, I’d suggest reading deeper into the Deere presentation. The company spends a couple of slides talking about integrating data from farm operations with its equipment. Granted that doesn’t pop right out at you as a big innovation, but it is. And it puts Deere, along with other sector players such as Monsanto (MON), at the leading edge of a big trend in farming. With the cost of farm inputs—fuel, seed, fertilizer, water, etc.—soaring, farmers are looking for companies that can not just sell them products but that can also do the heavy Big Data number crunching that lets them use those products most efficiently. That’s why Monsanto has moved into the weather data business through the 2013 acquisition of The Climate Corp. for $1.1 billion. And why Deere acquired Brazil’s Auteq Telematica on December 4. Auteq Telematica is an onboard software and computer company that specialized in technology solutions for sugarcane growers. The deal expands Deere’s presence in Brazil and in the sugarcane industry, but just as important it is an example on the growing importance of Big Data services in the farm sector. Deere, according to its press release on the deal, sees the acquisition as a way to help customers leverage the data produced by onboard computers used in the equipment that plants, cultivates and then harvests the sugarcane crop. The important trend here is to put data collection and crunching together with farm equipment in order to increase the productivity of farmers. Always glad to see a company pushing the envelope like this in the middle of tough times for the sector. As with that strategy at Cummins (CMI), another long-term Jubak Picks 50 stock, competitors have to match these moves while they are stressed by the sector downturn, or give up future market share to Deere. I think there’s a good likelihood that Deere will be cheaper sometime in 2015 as investors get discouraged by a farm sector downturn that is likely to drag on and on and on. Today, December 9, I'm rating these shares "Neutral" on price. I’d like to get these shares at $80 or lower. They closed on December 9 at $89.20.A horrible

Stock pick DuPont is highlighting its seed business by subtraction

December 11, 2013

E.I. du Pont de Nemours, hereafter DuPont (DD), is a clear case of addition through subtraction. After selling its performance coatings unit—which makes paints for cars and other industrial uses—for $4.9 billion in February, and after the planned spin off of its performance chemicals unit—which makes titanium dioxide pigments used in paint and paper, Teflon, and fluorochemicals—DuPont will look like a totally different company. By subtracting the coatings and chemicals businesses, DuPont will have increased the percentage of revenues coming from such faster growing units as agriculture, nutrition and health, and industrial bioscience. For example, the agriculture unit, which includes Pioneer Hi-Bred, the world’s largest seed company, will go to 37% of revenue from 24% in 2011. Acquisitions and divestitures have added faster growth and subtracted slower growth. For example, the acquisition of enzyme company Danisco added a business with long-term revenue growth projected at 7% to 9% a year; the spin off of the performance chemicals unit will subtract a business with a projected revenue growth rate of 3% to 5%. The resulting stripped down company looks more like a pure play seed company with major businesses in nutrition and health and in industrial bioscience attached. What would you rather own? A chemical company that makes paints or a seed company that developed the AQUAmax line of drought resistant seed corn? Because investors still think of du Pont as a chemicals company, the shares trade at a substantial discount to those of a stock such as Monsanto (MON) that is thought of as a pure play seed company (despite the drag of its big agricultural chemicals business.) DuPont trades at 16.1 times forward earnings per share while Monsanto trades at 21.3 times forward earnings per share. DuPont also pays a 2.93% dividend yield. (The stock is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of du Pont or Monsanto as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

eBay (EBAY)

August 5th, 2013

eBay (EBAY) has been a volatile stock since I added it to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on May 3. (For all of my annual changes to that portfolio see my post http://jubakpicks.com/2013/05/03/10-long-term-picks-in-a-short-term-market/ .) From $51.63 on April 22 to $54.21 on May 3 and $56.65 on May 15 down to $50.74 on June 20 and then back up to $57.38 on July 16.

The issue I think is timing.

The company is generating considerable momentum in its PayPal payments and its market place business but it’s not clear when that momentum will lead to accelerated revenue and earnings growth. In the second quarter eBay reported a 14% year over year increase in revenue plus a 10% increase in EBIT (earnings before interest and taxes.) But both those figures were disappointing to investors who were looking for faster growth given the increase in the company’s traffic fundamentals. Guidance that told Wall Street analysts to expect the lower range of the company’s revenue and earnings projections for the full year just added to the disappointment.

Looking at the underlying trends at eBay I can understand the disappointment and impatience. The company has added 19 million active users to its PayPal base in the last year and 15 million active users on for its market place.

You’d think, the reaction went, that these numbers would have added up to more.

I believe what eBay needs is patience from investors rather than an overhaul of its business model.

Payment revenue at PayPal rose 20% year over year in the quarter and there’s no reason to think that that growth rate isn’t sustainable over the next five years as more and more Internet commerce moves to mobile devices that require payment platforms such as PayPal. The issue for eBay and PayPal is the same one faced by Amazon.com (AMZN)—how much do you invest and how fast in driving growth in this Internet platform? Margins for PayPal at 23% in the quarter were lower than many analysts had expected because of investment in the platform.

The company has turned around its market place business, which had been acting as a drag on PayPal. Revenue in this eBay segment took a hit from a stronger dollar. On a reported basis revenue for the unit grew by 10.5% year over year. Correcting for foreign exchange growth would have been 13.1%. Foreign exchange effects—along with slower growth in Europe and Korea—accounted for the bulk of the company’s lower guidance for the full year.

The big question for eBay is when the scale that the company has built and is building turns into higher margins. It may take time—which is why this stock is in my long-term portfolio—but I think an increase from the 23% margin in the last quarter to 25% in 2014 is doable. Margin in the marketplace business climbed to 39.7% in the quarter from 39.6% in the second quarter of 2012. Slow progress but progress nonetheless.

I think the stock’s volatility is likely to continue until the company can demonstrate that scale is turning into higher margins on a consistent basis. I’d look for that in 2014.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of eBay as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

 

Buy Enbridge (ENB)

December 30th, 2008

Enbridge has an impressive number of pipeline projects set to start pumping up revenue in the next two to three years. The Alberta Clipper Expansion is projected to deliver heavy crude from Alberta’s oil sands to Wisconsin by mid-2010. The Southern Access Expansion will deliver heavy crude to Chicago and southern Illinois from Wisconsin in 2009. The Clarity pipeline will transport natural gas from the Barnett Shale and Anadarko Basin in Texas.

After second quarter earnings, you have to ask if ExxonMobil (XOM) deserves its premium to other super-major oil stocks

July 30, 2012

Wall Street analysts have been busy cutting their ratings on shares of ExxonMobil (XOM) after the company’s second quarter earnings announced on July 26. If you’re a long-term investor or if you own ExxonMobil because it pays more than a 10-year U.S. Treasury bond (2.6% yield on ExxonMobil versus 1.54% on 10-year Treasuries)—and you suspect ExxonMobil is less risky than the U.S. government, you’re likely to simply shake off some of these downgrades. So what if an analyst thinks the current low price of oil is the reason to take the stock from buy to hold? So what if an analyst thinks the current valuation is stretched? You know in your heart that the cash flow at ExxonMobil is very safe and very dependable. But what if your heart is wrong? What if a few of the downgrades raise questions about the quality of ExxonMobil earnings? Here’s the problem in the company’s second quarter earnings. Net income rose by 49% to $15.9 billion from the second quarter of 2011—if you include $7.5 billion in asset sales. If you don’t, the quarter’s results show ExxonMobil producing less oil and natural gas and selling them at lower prices and weak sales from the company’s chemical unit in Asia and Europe. Absent the asset sales ExxonMobil’s operating profit was just $8.4 billion, the lowest since the third quarter of 2010, and down from $8.5 billion in the second quarter of 2011. If you’re a long-term investor who owns ExxonMobil for its cash flow and dividend, what you now have to decide is whether the negative trends in the second quarter are signs of long-term problems or will be relatively quickly reversed. Standard & Poor’s is in the quickly reversed camp. S&P projects that ExxonMobil earnings will fall to $8.00 a share in 2012 from $8.42 in 2011, but then rebound to $9.10 in 2013. The Wall Street consensus isn’t so sure. The consensus sees earnings dropping to $7.64 in 2012 and then rebounding to only $8.25 in 2013. That would still be below the 2011 figure. What worries me is the company’s production projections for the next few years.  Total production of oil and nature gas fell by 5.6% from the second quarter of 2011—that was much worse than the 3% decline for the entire 2012 year that the company projected in March. The company recently told Wall Street that it expects production to be down for 2012 as a whole but to increase in 2013 as the company’s Kearl Canadian oil sands project comes on line. The company’s capital budget is pegged at $37 billion a year for the next few years, but the company is still projecting just 1% to 2% production growth annually from 2011 through 2016. In my book companies that trade at big premiums to their peers shouldn’t show big uncertainties, but that’s exactly what I see with ExxonMobil. S&P calculates a 12-month target price for the shares of $103—up 18% from today’s price of $87.29—but they get to that price target by assuming that ExxonMobil should trade at 6x projected 2012 EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of the 4.5x ratio for other super major oil companies. Credit Suisse, in contrast, has a 12-month target price of $85. If you don’t see the basis from that kind of premium—and I don’t—then you don’t get to that target price. When I picked ExxonMobil for my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ in December 2008, I wrote that ExxonMobil was the one oil major that had found a way out of the box of higher spending and falling production. I’m not so sure now and I’ll be taking a hard look at the stock—especially versus competitors such as Chevron (CVX) and Statoil (STO)—when I review that portfolio in December. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of ExxonMobil as of the end of March but it did own shares of Statoil. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/ .

Update Flowserve (FLS)

August 26, 2009

Turns out the pumping business is a very good place to be in this economy. On July 29 Flowserve (FLS) announced second quarter earnings of a better than expected $1.92 a share and raised its earnings forecast for 2009. The company increased its target for 2009 earnings to $7.15 to $7.75 a share from an earlier target of $6.75 to $7.50. Sales climbed to $1.09 billion. That was an increase of 6% from the first quarter of 2009 but a decrease of 6% from the second quarter of 2008. Taking out the effect of a stronger U.S. dollar, on a constant currency basis sales climbed 4% year-over-year.  Bookings, a key measure of future sales trends, climbed by 7% from the first quarter of 2009. The company still has a way to go, though, to recover all the ground it has lost in the global slowdown: bookings decreased by 21% (13% on a constant currency basis) from the second quarter of 2008. The company’s order backlog was a little over $2.7 billion at the end of the quarter. The book-to-bill ratio, which compares the value of new orders to the value of orders shipped, came in at 0.95. Investors can see some very promising growth ahead—in 2010 I’d estimate—in preliminary orders from solar thermal power operators (which concentrate sunlight on a central tower to generate electricity) of $31.5 million for boiler feed water, condensate, cooling water and molten salt pumps. And in $45 million in orders for valves to be used in two nuclear power plants now under construction in the United States. (Full disclosure: I own shares of Flowserve in my personal portfolio.)

Buy Fluor (FLR)

February 8th, 2011

Doing some catch up on this stock. I added Fluor (FLR) to the Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on January 18, but this is the first time I’ve had an opportunity to explain why in detail or to actually add it to the portfolio. I’m working on explaining the other sells and buys announced on January 18 from that group over the next week or so.

It’s only one deal but it’s an important one: Last month Fluor (FLR) announced that it had won a $3.5 billion contract to build a liquefied natural gas project in Australia.

Why is one deal so important? First, because it demonstrates that Fluor can sign big energy infrastructure deals in the face of intense competition from Asian engineering and construction companies—in the Asian companies’ backyard. Second, the deal will add to a near record order backlog at the end of the third quarter. (Fluor reports its fourth quarter numbers on February 23.) Third, most Wall Street estimates for Fluor’s earnings in 2011 are based on a shift in the mix of the company’s projects from energy to lower-margin mining work. Standard & Poor’s, for example, sees revenue climbing at a double digit rate in 2011—after a 5% decline in 2010—but with operating margins falling from the 5.2% rate in 2010 on a shift toward mining and away from energy. More energy projects in 2011 would push margins above analyst estimates. And I’d say there’s a good chance for higher than expected levels of energy work with oil prices pressing $100 a barrel at the moment. (Brent Crude futures traded at $99.29 a barrel on February 7.)

Fluor looks to be a major beneficiary of the huge surge in capital spending in the oil and gas industry (For example, Chevron has announced a $26 billion capital spending budget for 2011, up from a $21.6 billion budget in 2010), in the mining industry (Rio Tinto, for example, reports that it will raise its capital budget for 2011 to $11 billion from $5 billion in 2010), and in infrastructure spending by governments from China to Brazil.

New Fluor CEO David Seaton, who just took over the top slot, says that Fluor can double its sales and order backlog over the next ten years. There’s a measure of the new guy’s desire to rally the troops in that prediction, but Fluor actually shouldn’t have a big trouble in reaching those targets. Revenue went from $9 billion to $22 billion from 2001 to 2009.

The shares aren’t cheap at the moment trading at 21 times trailing 12-month earnings per share. The market seems to be looking past a projected 45% drop in earnings per share in 2010, caused by delays in some projects due to a spotty global economic recovery, to a projected 60% increase in earnings for 2011. In November the shares sold off on the company’s earnings report—stocks that have outperformed the market and then miss a quarter tend to do that. If you don’t own shares or want to add to a position, you might wait for something similar after the February 23 earnings report to give you a good buying opportunity.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Fluor as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Fortescue Metals and its balance sheet problems

September 12, 2012

This isn’t good news for Fortescue Metals Group (FMG.AU in Sydney or FSUMF in New York) and it indicates the problems increasingly facing smaller mining companies as commodity prices remain depressed. (For more on Fortescue’s problems and those for the iron ore sector see my post http://jubakpicks.com/2012/08/31/plunge-in-iron-ore-prices-stresses-fortescue-metals-balance-sheet/ ) Fortescue is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ Yesterday Bank of America (BAC), the underwriter on a syndicated $1.5 billion loan, extended the syndication deadline for a month, Bloomberg reported. That’s usually a sign that the syndicate leader is having trouble lining up enough syndicate members to sell the entire loan without significantly sweetening the terms. Fortescue Metals Group, Australia’s third largest iron ore miner and by far its youngest, shows $7.6 billion in debt and the company needs an iron ore price of $105 a metric ton, Citigroup estimates, to service the debt it has taken on to develop its mines and transportation infrastructure. On August 29 Moody’s Investors Service announced that it had put its Ba3 rating—junk bond territory--for Fortescue under review because of the 24% drop in iron ore prices in the last month. On September 5 Fitch Ratings revised the Australian miner’s outlook to negative from stable to reflect the “increasing pressure on liquidity and covenants that Fortescue is facing as a result of a precipitous fall in iron-ore prices.” Fortescue Metals Group is the largest issuer of junk bonds in the mining sector. The stock fell 5.07% overnight yesterday in Sydney and 1.79% yesterday in New York on the news. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Fortescue Metals Group as of the end of June. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Freeport McMoRan Copper & Gold FCX

July 21, 2009

At least they were honest. Executives at Freeport McMoRan Copper & Gold (FCX) told Wall Street on July 21 that they weren't seeing any signs of a recovery in developed economies that would lead the company to restart its idled U.S. copper mines. So where did the amazing 69 cents a share earnings surprise, that the company announced on July 21, come from? Not from revenue, that's for sure. Revenue fell by 32% from the second quarter of 2008. And not from a  huge increase in production. Second quarter production of gold did did rise by 600,000 ounces (and that sure didn't hurt), but production of copper just inched up (by about 10%) and molydenum production fell. Rather look at an unexpected jump in the price of copper and a huge drop in costs. Any investor buying in now is hoping that those moves can be duplicated next quarter. The company itself has some doubts. In the quarter Freeport was able to sell copper at an average of $2.22 a pound. That's a huge improvement from January--a 75% gain in price--but still a daunting 37% decline from the price a year ago. Freeport sees a $200 million increase in cash flow for every 10 cent a pound increase in the price of copper. But increases in copper prices--and in gold production--only hit the bottom line if costs are stable or falling. Toward the end of the commodities boom in 2007 production costs for everything from diesel fuel to truck tires were rising so fast that they were eating into mining company profits even though commodity prices were at peaks. Now the companies are seeing the other side of the cycle as costs plummet. With commodity prices stabilizing that can produce a huge swing in profits like that Freeport reported this quarter. This quarter the company saw a 55% drop in the cost of diesel fuel and a 30 fall in the post of power. The production cost of producing a pound of copper fell to $1.24 from $1.84 in the second quarter of 2008. For the third quarter Freeport expects sales of copper to retreat about 10% from this quarter's numbers, gold sales to fall by about 25%, and molybdenum sales to decline by about 25%. Investors buying these shares now are then looking for a big increase in copper and molybdenum prices for their profits. That's iffy unless the developed world economies do grow faster than current projections.Pretty much everyhbody in the mining industry is sitting on idle capacity so it will take a big pickup in demand to keep copper prices climbing once that capacity comes back into production. Deutsche Bank now projects that colpper prices will decline for current spot prices near $2.40 a pound to $1.90 by the end of 2009, recovery only slightly in 2010, and not return to the $2.40 level until 2011.

Update General Cable (BGC)

August 7, 2009

Looking for the dark side of the recovery in commodity prices?  Look no farther than the second quarter earnings reported by General Cable (BGC) on August 5. The company did indeed beat Wall Street earnings estimates by 20 cents a share but that doesn't mean that earnings were actually good in the quarter. Adjusted earnings in the quarter fell to $1.02 a share from $1.37 in the second quarter of 2008. Operating income dropped 35%. Revenue came up short of projections at $1.13 billion instead of the $1.21 consensus. That was a drop of 17% from the second quarter of 2008. But the worst was yet to come.  The company told investors to expect just 45 cents to 55 cents in earnings per share in the third quarter instead of the 72 cents a share Wall Street was looking for. Revenue will drop too, but not nearly as sharply: The company expects to miss Wall Street revenue estimates for the quarter by $80 million to $130 million. Why the much bigger drop in earnings than in revenue? That's where the dark side of the commodities rally comes in. As a maker of all kinds of cable, General Cable is a huge buyer of copper. And copper prices have been on a tear in 2009. Copper sold for roughly $1.50 a pound at the beginning of the year. The metal had tacked on about 50 cents a pound, a 33% increase, by May. And recently on heavy buying from China and heavier speculation that Chinese buying meant the global economic recovery was at hand, it climbed another 75 cents a pound to close at $2.75 on August 6. That's a move of $1.25 a pound or 83% in less than eight months. No way that General Cable could pass much of that on to its customers that quickly. Even if the global recovery is just around the corner, General Cable's customers are still struggling to sell their product at current prices. A price hike big enough to cover the company's costs would dry up orders overnight. So the company will eat a good percentage of the jump in raw materials and wait for a return to economic growth--or a decline in copper prices as speculative fever subsides--to bring margins and earnings back up. Fortunately, for long-term investors--and this stock is one of the 50 long-term picks in my book The Jubak Picks--General Cable has managed through commodity booms and busts  before. Despite a U.S. recession and a global slowdown, the company managed to stay on the right side of cash flow (Operating cash flow hit $152 million in the second quarter) and to actually reduce its debt load by about 10% in the quarter. With that kind of financial base the company has been able to continue its strategy of building market share through acquisition. Nothing as big as the buy of the cable business of Freeport McMoRan Copper and Gold (FCX). That was a before the recession deal. This past quarter General Cable acquired Gepco International, a maker of high-end broadcast cable products. (Full disclosure: I own shares of General Cable in my personal portfolio.)

Buy General Electric (GE)

December 30th, 2008

The one-stop-shop for industrial infrastructure. Need a locomotive, steam turbines, a power plant, a nuclear reactor or just something mundane like a hundred jet engines? General Electric can sell it to you. And infrastructure is the fastest growing part of GE’s business.

Stock pick Gol is suddenly flying high on news

October 23, 2013

The New York traded ADRs of Brazilian airline Gol Linhas Aereas Inteligentes (GOL) went on a tear during the first two days of this week on a jumbo jet full of good news. (Gol is a member of my Jubak Picks http://jubakpicks.com/jubak-picks-50/ long-term portfolio.) The ADRs climbed 9.4% on October 21, and another 4.6% yesterday. Today they pulled back 0.54% along with the general market. What was the news? First, as a result of cutting flights in order to reduce the number of unfilled seats, Gol reported a 23% year over year increase in net passenger income per available seat-kilometer. This marked the 18th consecutive increase in this measure of profitability. Second, the weakness in the U.S. dollar after the Fed’s September decision not to begin tapering off its $85 billion in monthly asset purchases and the continued decline in the dollar on a belief that the Fed isn’t about to change policy until March 2014 has sent the dollar price that Gol pays for jet fuel, debt service, and airplane leases tumbling. All those costs at Gol are denominated in dollars while Gol’s revenue is denominated in the Brazilian real. A stronger dollar against the real had hammered Gol’s bottom line. Third, the company has announced that it expects to sign two to three agreements with European partners that could include Air France and Lufthansa in the next year. That would go a long way to close the international traffic gap (just in time for the World Cup) between Gol and its biggest Brazilian competitor Tam that opened up when that airline was acquired by Latam Airlines (LFL), the biggest airline in Latin America and the fifth biggest airline in the world. Despite the recent rally in Gol’s price, I think these ADRs have further room to run: the 52-week high is still another 38% above the current price even after this rally. Exactly how far and fast Gol will run will depend on the dollar/real exchange rate—as long as the dollar remains weak, Gol’s costs will either stabilize or decline. Brazil is due to host the 2014 World Cup with matches in the country beginning in June. The exchange rate and Gol’s fuel costs have overshadowed any likely pick up in traffic from that event over the last year but with the tournament now so close, I’d expect to see those hopes reflected in enthusiasm for the ADRs.  I think a 20% gain from here is certainly an achievable target. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Latam Airlines as of the end of June. For a complete list of the fund’s holdings as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Goldcorp (GG)

March 8, 2010

What you want in a gold stock is a company with rising reserves and falling costs. Goldcorp’s (GG) end of 2009 report on reserves shows that it’s still delivering rising reserves. We’ll see how the company is doing on costs when it reports after the market closes on March 11. In 2009, the company said in February reserves grew by 5.3% to 48.8 million ounces from 46.3 million ounces at the end of 2008. But that's not all that Goldcorp mines. The company also reported silver reserves of 1.3 billion ounces (up from 1.25 billion ounces at the end of the end of 2008), copper reserves of 1.23 billion pounds (down from 1.37 billion pounds at the end of 2008), lead reserves of 10.7 billion pounds (down from 12.5 billion pounds at the end of 2008) and zinc reserves of 27.8 billion pounds (down from 34.8 billion pounds).

Update Google (G OOG)

July 19, 2011

Just in case you were in danger of forgetting, Google’s (GOOG) second quarter earnings report on Thursday, July 14, should remind you: It’s good to be out in front of the market, but as an investor you don’t want to be too far out in front. I can pick a ton of holes in Google’s competitive position and the challenges it faces over the next couple of years. But the market right now doesn’t want to hear about anything so far off. The news that counts is that Google is producing great numbers from its current dominance of the Internet search space. For the second quarter Google reported earnings of $8.74 a share (excluding one-time items). That was 91 cents a share above the Wall Street consensus estimate of $7.83. Net revenue (for Google you have to subtract the cost of acquiring traffic from the revenue the traffic brings in) climbed 26% from the second quarter of 2010 to $9.03 billion. (Wall Street was looking for $8.63 billion.) Operating income grew to $3.32 billion for the quarter from $2.67 billion in the second quarter of 2010. Analysts who dinged the company last quarter on rising costs were relatively quiet on that front this quarter even though operating expenses climbed 49% from last year. Operating expenses increased to 33% of revenue from 29% of revenue in the second quarter of 2010. And recent criticism that the company was throwing too much cash at too many ideas was also muted. The focus was on things that are working—the Android operating system and the Chrome browser—and not on things like the company’s effort to develop a driverless car that have drawn attention in recent quarters as signs that the company lacks discipline. But that’s what happens when a company reports earnings that kill on analysts’ favorite metrics. The company’s 32% gain in quarterly revenue was a faster growth rate than that for the global search market as a whole. Given that Google’s market share for search held steady this quarter, the increase in revenue was a sign that Google was converting more of its traffic into dollars. For core search and YouTube, paid clicks grew by 18% from the second quarter of 2010. That’s an impressive number to analysts who have been fretting at the valuations of Internet companies LinkedIn (LNKD) and wondering if these companies could turn traffic into revenue. All that said, from a longer-term perspective this wasn’t the greatest quarter for Google. The company lost a bidding war against the Rockstar Bidco consortium to buy 6,000 patents that once belonged to Nortel Networks. This follows Google’s loss of another patent auction last year to another consortium in bidding for 882 patents owned by Novell. The winning consortium in each case included Apple (AAPL) and Microsoft (MSFT). The losses point to a troubling weakness at Google: the company owns just 600 patents in the United States compared to Apple’s 4,000 and Microsoft’s 17,000. That wouldn’t be a big deal except that a number of critical Android phone makers have either lost recent patent battles to Microsoft or to Apple (preliminarily in the case of Android phone maker HTC.) Microsoft signed a licensing agreement with HTC last year and now collects $5 for every Android phone HTC sells. And Microsoft has sold licenses to four other Android phone makers in the last month or so. The long-term worry for Google—and Google investors--is that this imbalance in patents will work to disadvantage Android and advantage Microsoft and Apple’s phone software and hardware. Not now but somewhere down the road. I’d say it certainly bears watching. But it’s not a big enough worry now for you not to enjoy Wall Street’s love affair with Google’s revenue and earnings growth. In the hours after Google reported results on July 14 and before the market opened for trading the next day, just about every analyst on Wall Street upped his or her earnings estimate for 2011 on the stock. Briefing.com calculates that the total came to an increase of 3.5% in 2011 estimates by the time trading opened on July 15. So worry all you want about Google’s fight with Apple and Microsoft in the quarters and years to come. But enjoy Wall Street’s focus on the earnings here and now. The stock closed today at $594. With Wall Street analysts calling for target prices of $725 to $830, I doubt that Wall Street will rethink its enthusiasm for Google’s earnings growth until we see the $700 a share marker. Full disclosure: I do not own shares of Google, Apple or Microsoft in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple and Google as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/ A full list of the fund’s holdings as of the end of June will be posted this week.  

Update HDFC Bank (HDB)

January 27, 2011

Another day, another interest rate increase from an emerging economy central bank. On January 25, it was the turn of the Reserve Bank of India. The bank raised its benchmark repurchase rate to 6.5% from 6.25%. The Reserve Bank of India raised interest rates six times in 2010 and the benchmark rate is now at a two-year high. I don’t think the Reserve Bank of India is done either. The bank’s most recent projections are pointing to inflation of 7% by the end of the country’s fiscal year on March 31. That’s a huge increase from earlier projections of 5.5% inflation. (The bank is also calling for GDP growth of 8.5% for the year that ends in March. That’s unchanged from earlier projections.) And the Reserve Bank’s projection is very likely low. Inflation in wholesale prices, India’s preferred inflation measure, hit an annual rate of 8.4% in December. Not surprisingly Indian stocks fell on the news of the interest rate increase with the Mumbai market’s Sensex 30 Index closing down 1%. The drop was widespread—Infosys Technologies fell 0.8%, for example--but property and bank stocks were among the shares suffering the biggest declines. Even before the interest rate increase India’s over-heated real estate market was showing signs of slowing. Home registrations in Mumbai, the country’s most expensive real estate market, fell in November to their lowest level in 20 months. (Property prices climbed 30% to 70% across India in 2010.) India’s banking sector is already reeling from a scandal in which officials at some of the country’s state-run banks took bribes to approve loans and it still hasn’t completely recovered from a rise in bad loans during the global financial and economic crisis. Of India’s big private banks the one that worries me most here is ICICI Bank (IBN). The bank had just started to recover from two years of deteriorating credit quality but non-performing loans still made up 5% of the bank’s portfolio at the end of the October quarter. (Contrast that to the 2% non-performing loan ratio at competitor HDFC Bank (HDB) at the peak of its non-performing loan problem in mid-2009.) Higher inflation, much of which is a result of higher food prices, cuts deeply into the purchasing power of India consumers and then ripples out into consumer and corporate loans. I certainly wouldn’t be adding to any bank positions in India until the Reserve Bank gets closer to the end of this interest rate cycle. And I would be actively reducing positions in ICICI Bank right now. HDFC Bank is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of HDFC Bank and ICICI Bank as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

Buy Home Inns and Hotels (HMIN)

January 17th, 2012

Home Inns and Hotels Management (HMIN) is “now the indisputable leader in economy hotels” in China according to Deutsche Bank. I’d have to say I agree which is why I added the stock to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to the portfolio.)

With the acquisition of Shanghai’s Motel 168 chain, Home Inns and Hotels strengthened its multi-brand strategy in the economy segment and expanded its geographic coverage. As the end of the third quarter the company operated 1,004 hotels (500 leased and operated and 504 franchised and managed) in 174 cities in China. Another 202 hotels were contracted or under construction at the end of the period. The company’s occupancy rate was 94.1% as of the end of the quarter. That was down slightly from 96.7% in the third quarter of 2010 and from 94.0% in the second quarter of 2011 due to more new hotels going into operation in the quarter than in those earlier quarters.

The past year hasn’t been kind to either the Chinese hotel industry or shares of Home Inns and Hotels. The industry built out rapidly when China’s economy was growing at 10% or better and has gone into a period of consolidation as economic growth slowed below 10% in 2011 and looks headed to 8.5% for 2012 as a whole. That has slammed the price of shares of hotel companies—for example, shares of Home Inns and Hotels were down 37% in 2011.

But the downturn is actually a long-term advantage to the stronger companies that can consolidate this market since it will leave them with a bigger market share when growth kicks up. The long-term trend that links increased household income with increased consumption of travel services including hotels remains intact. Between 2003 and 2008 the number of households with annual disposable incomes of more than $5,000 grew at a 31.7% compound annual rate. By 2020 the number of households in that category is projected to grow to 341 million from 134 million in 2008. During that same 2003 to 2008 period domestic tourism spending in China grew at an annual compound rate of 20.5%.

I think these shares may face tough going in the first half of 2012 if, as I suspect, investors focus on China’s slowing growth. But that fear should peak in mid-2012 and then gradually lessen as evidence accumulates that the growth rate of China’s economy has bottomed. The U.S. traded ADRs (American Depositary Receipts) closed at $27.18 on January 13. That’s toward the low end of the $44.86 to $22.09 price range for the shares over the last 52 weeks. If you have a shorter holding period than my long-term Jubak Picks 50 portfolio, I think you can look for a target price of $40 a share or so by December 2012 after that rough first six months of 2012.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Home Inns and Hotels Management as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update HSBC (HBC)

August 19, 2009

One half of HSBC's (HBC) business is performing beautifully. Unfortunately, it's not the part that I most want to own. On August 3, HSBC reported second quarter earnings that showed that its investment banking and trading had doubled its pre-tax profit for the first half of 2009. For the division in charge of that business, the Global Banking and Markets group, that added up to a $6.3 billion pre-tax profit. That was enough to push the bank as a whole into the black with earnings of 21 cents a share. In the rest of the business restructuring remained the order of the day. The company took a charge of $13.9 billion for losses in its North American retail banking and mortgage lending operations as the company continues to exit the mortgage market and cut back on North American operations in favor of its traditional core strength in Asia. That strength in Asia is one of the reasons that the bank is in The Jubak Picks 50 portfolio. On that front, the bank showed some progress. In the first half 52% of earnings came from Asia and the bank added $17 billion in customer accounts in Hong Kong, India, and China in the first half of 2009. But the bank is still a small player in China, the big prize in the region. All foreign banks are, let's be clear. China only "fully" opened its banking industry to overseas banks in December 2006. Today overseas banks account for about 2.2% of total banking assets in China. HSBC now has 88 outlets in China, up from 79 at the end of 2008. The other reason to own this stock for the long term is that HSBC is one of the world's great deposit gathering machines. That hasn't changed in this crisis. In the second quarter the bank announced a loan to deposit ratio of just 80%. With so much more money coming in as deposits than going out as loans, the bank is well positioned to expand in Asia as the global economy recovers.

Buy Impala Platinum (IMPUY)

December 30th, 2008

Early 2008 wasn’t an easy period for South African mining companies. Power shortages shut the country’s deep mines. News that China passed South Africa to become the largest gold producer in the world strengthened the impression that the industry’s best days were behind it in South Africa. But in the case of platinum specifically and the platinum metal group of platinum, rhodium, and palladium in particular, nothing could be further from the truth. South Africa was the source of 50% of newly mined metal in the platinum metal  group in 2007 Deutsche Bank projects that figure will climb to 55% in 2008. Impala Platinum, the second largest of South Africa’s three major platinum producers, was the only one to increase its output in 2007.

Buy Infosys (INFY)

December 30th, 2008

One of the four horsemen of Indian information technology outsourcing, Infosys combines fast growth with proven management. Infosys has had to win over global clients that now include 113 members of the Fortune 500. These companies can do business with anyone in the world and the fact that they’re doing business with Infosys should give an investor confidence in the company. In effect, these international clients have vetted the company for you. (Full disclosure: I own shares of Infosys in my personal portfolio.)

Update Itau Unibanco (ITUB)

November 8, 2011

On November 1 Brazil’s Itau Unibanco (ITUB) reported third quarter adjusted net income, which excludes one-time items, of 3.94 billion reais (or $2.3 billion). That was up from 3.16 billion reais in the third quarter of 2010. That’s a 24.7% increase. The results also easily beat the analyst estimate of 3.65 billion reais for the quarter. (Reais is the plural of real.) Great numbers. But before you rush out to buy these shares—and the stock is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ --you need to get your head around this number. In the quarter the bank posted an annualized return on equity of 22.7%. That was up from 22.2% in the second quarter. As you’d expect that measure of profitability at Itau obliterates the return on equity at troubled U.S. banks. The comparable measure at Citigroup (C) is just 6.72% for the last 12 months and a negative 1.45% at Bank of America (BAC). But it also humbles the profitability at some pretty good U.S. banks. JPMorgan Chase (JPM), for example, shows a return on equity of 10.9%, PNC Financial (PNC) 11.92%, and U.S. Bancorp (USB) 14.24%. That ought to raise a big screaming question in your mind—Is the Itau Unibanco story that good? Or is there some huge burden of risk hanging over the stock that means you shouldn’t buy it even with that kind of differential in profitability? I certainly wouldn’t say that Itau Unibanco doesn’t face some risks—but they are surprisingly modest. And even after accounting for them, I think this is a bank stock worth buying. Even in the current market for bank stocks. The big risk for any bank these days is bad loans. That’s especially a worry because Brazil has been on a credit binge with average annual credit growth of 22% since 2003. That has brought total credit to the private sector to 47.3% of Brazil’s GDP in 2010 from just 26% in 2002. Households pay 20% to 25% of their incomes on debt payments. That compares to a ratio of just 14% in the United States when the credit bubble burst. But there are some solid reasons to think that Brazil isn’t headed toward a massive credit bust. First, private credit in Brazil is incredibly expensive with an average annual interest rate of 47% and short-term. Borrowing hasn’t, by and large, gone into mortgages or other long-term borrowing and it hasn’t created, by and large, a huge asset bubble. Second, unlike in the United States where just about nobody has gone to jail because of the way that banks behaved during the creation of the mortgage bubble, under Brazilian law controlling shareholders in a bank have unlimited personal liability. (Think that might focus your mind?) Third, Brazil’s banks are amazingly over-reserved against bad loans with existing reserves at Itau Unibanco, for example, equal to 156% of the bank’s non-performing loan balance in the third quarter. And fourth, the Banco Central do Brasil has begun to lower interest rates to stimulate growth. That has the effect of increasing net interest margins—the difference between what a bank pays to raise money and what it charges borrowers—and provides some relief to indebted consumers (by lower interest rates and encouraging growth.)   Nonperforming loans—that is loans past due by 90 days of more—did rise at Itau Unibanco to 4.7% at the end of the third quarter, an increase of 0.2 percentage points from the second quarter. And that 4.7% number wasn’t particularly clean. Once you took account of renegotiated credits and charge-offs the increase was more like 0.5 percentage points. But bank CEO Roberto Setubal has been talking recently as if he thinks this is close to the worst that the bad loan situation will get thanks to the central bank’s interest rate cuts and the likelihood that the economy will accelerate next year. The bank told investors to expect a small increase of about 0.2 percentage points in non-performing loans when it reports fourth quarter results. At a November 7 closing price of $18.55 the ADRs (American Depositary Receipts) of Itau Unibanco trade at a price to earnings ratio of 9.8 times projected 2011 earnings per share. The analyst consensus is calling for earnings growth of 11% for all of 2011, which could well be low in the fourth quarter turns out to be a profitable as the third. I think $24 is a reasonable one-year target price for the ADRs. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Itau Unibanco as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/  

Update Johnson Controls (JCI)

August 31, 2009

The long-term future for Johnson Controls (JCI) is in batteries for hybrid and electric cars, and systems for building-wide energy efficiency. Not that the near-term future is so bad. What with the recovery, slow though it might be, in the global auto industry. Johnson Controls knows how to make auto batteries. Lots and lots of them at once while keeping costs under control. The company has a 35% share of the global lead acid auto battery market after all. And that’s important, as important as technology, when it comes to grabbing a big share of the next generation lithium-ion batteries that will power the hybrid and electric cars of coming decades. Not that the company has ignored technology: it’s joint venture with the Saft Groupe adds key experience in lithium battery systems. Batteries currently make up about 15% of sales, while building efficiency systems account for another 37% of revenue. In the company’s fiscal third quarter, reported in July, Johnson Controls swung to a profit after two consecutive quarters of losses on the strength of cost cutting. Gross margin climbed to 14.9%. The company also told Wall Street to expect stronger profits sequentially in the fourth quarter in both the  battery and building segments.

Update Joy Global (JOY) in my Jubak Picks 50 long-term portfolio

June 1, 2012

Are we all market timers now? What makes me wonder? My reaction to Joy Global’s (JOY) second quarter earning report yesterday, May 31, before the New York markets opened. The company beat Wall Street projections by 8 cents a share on earnings and reported a 45% year-to-year gain in revenue to $1.54 billion (above the $1.43 billion consensus among analysts), but the stock got savaged when the company lowered its guidance for fiscal 2012 to $7.15-$7.45 a share from the prior guidance of $7.40-$7.780 a share. Before that revision, the Wall Street consensus had been $7.64 a share in earnings for fiscal 2012. The stock closed the day at $55.86, near the bottom of its 12-month range of $53.26 to $101.44 a share. The stock is down 34% in the last year and 41% from its February 3 closing high at $95.23. The shares are well below the 50-day moving average at $68.71 and the 200-day moving average at $77.92. In fact they’re pretty much back to where they were at the October 2011 low before the stunning end of the year rally that extended into the first two months of 2012. Did I rush to buy on the bad news? Nope. My first reaction was that I should wait for the shares to move lower. They were cheap today. But they’d probably be cheaper tomorrow. That’s a totally understandable reaction to the current market environment where stocks seem to move lower every day on a steady diet of bad news from Europe, China, Brazil, and the United States; where a horrible May has pretty much wiped out all the gains from the first two months of the year for stock indexes in the United States, and where it’s hard to find a silver lining in any of the gray clouds that still crowd the horizon. But while the reaction is understandable, I’m not sure it’s the correct one. We know from work in the last few decades in behavioral finance that investors have a roughly 2-to-1 preference for avoiding losses to acquiring gains even at the best of times. And this certainly isn’t the best of times. Recently we’ve all taken losses on “good” stocks so that pulling the trigger on anything has become incredibly difficult. Better, our emotions and recent experience tell us, to wait until prices are lower tomorrow. At least that way we won’t suffer another loss. So is the long-term case that I can make for owning Joy Global relevant at all to a buy/sell/hold decision now? (Joy Global is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ ) To decide I’d start first with what the company said in its conference call when it lowered guidance for fiscal 2012. The company sees weakness in markets around the world. The U.S. market is soft. Growth in the EuroZone has slowed. China’s economy looks to be slowing. All this slowing is expected to reduce earnings by 18 cents a share in fiscal 2012. At least that’s the way things look now—they could get worse because uncertainty is so high, the company noted. The U.S. coal market is coping not just with weakness in global economies but also with increased competition from cheap natural gas in the United States. That has reduced production and revenue at mining companies—leading to a slowdown in orders. But the company expects that this market will stabilize by the end of the year. In China, Joy Global said it expects the economic slowdown to bottom in the near term and that its markets there will return to growth due to increased government spending. Investors have heard this before from many companies, of course, and we’re entitled to be skeptical about predictions for a turn in the company’s markets. The company admitted at much in its conference call saying that they don’t know whether the upside will appear in the near or longer term. Second, I’d look at the Wall Street reaction to the news. This uncertainty has left Wall Street target prices all over the map. For example, after the guidance from the company, Barclays cut its target price to $88 from $96. UBS, however, cut its target to $58 from $78. And third, I’d look at whether any of this changes the long-term positive trend for Joy Global. I think here the answer is no. World demand for mined commodities will increase over the long-term and the need to buy more mining equipment to expand mine capacity and production is intact. I’d even argue that any orders lost in the current slowdown aren’t so much lost as delayed. The average age of an electric shovel used in mining is now more than 16 years. At some point aging equipment has to be replaced and I think Joy Global is looking at the same kind of deferred demand that powered revenue and earnings growth at Cummins (CMI) once truck owners decided to upgrade their aging fleets. My conclusion: I would like to own Joy Global for the long-term and so far the short-term hiccups haven’t really changed the long-term story. But experience tells me that once a Wall Street favorite has hit a soft patch like this, the stock is likely to go through a period of further weakness as Wall Street analysts cut their target prices to catch up with the current share price. I’d wait on Joy Global for a while with an eye to watching for when analysts stop cutting their target prices by $20 at a pop and for when the spread among analysts isn’t quite so extreme. I’d put this one on my watch list http://jubakpicks.com/watch-list/ for a few months at this point. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Joy Global as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

LATAM Airlines (long-term) opportunity and (short-term) problem is Brazil

April 1, 2013

It’s all about Brazil. On March 19 LATAM Airlines Group (LFL) reported a 97% drop in earnings for 2012 to just $10.96 million. Higher taxes in Chile, the group’s home market, certainly didn’t help, but the big problem was the cost of integrating the 2012 acquisition of Brazil’s TAM and the continued doldrums of the Brazilian economy. The idea—and in the long term I think this still makes sense—is that LATAM would cement its position as the dominant airline in South America by acquiring TAM, which has roughly a 39% market share in Brazil. But the integration is taking longer than expected and the projected total synergies of $600 million to $700 million from the deal look like they’ll take three to four years materialize. LATAM has been cutting TAM’s capacity in Brazil by shutting down routes that were only 30% to 50% full. That’s had the effect of increasing the load factor in Brazil, but not as quickly as projected thanks to a slow Brazilian economy. LATAM reported that Brazilian passenger traffic rose by just 2.4% in February from a year earlier. Route cuts had reduced capacity by 11.9%. The combination resulted in the load factor for Brazil climbed to 75.1% in February, up 10.5 percentage points. But that improved load factor still lags LATAM’s typical pre-acquisition load factor for its system as a whole. It looks like EBIT margins (earnings before interest and taxes) have started to recover after cratering in 2012. EBIT margins will increase, Wall Street projects, to 5.3% in 2013 and 7.7% in 2014. But that still doesn’t make this stock a very attractive comparative investment right now. LATAM trades at a premium to Panama’s Copa Holdings (CPA)—a forward price to earnings ratio of 24.07 for LATAM versus 12.81 for Copa—but Copa shows a projected EBIT margin of 19% in 2013 and 21% in 2014. I think you need either to let more time pass before buying LATAM—so that the company is closer to those cost synergies and the expected bump in Brazilian passenger traffic from the 2014 World Cup and the 2016 Olympics—or get the stock at a cheaper price. The continued struggles of the Brazilian economy could well provide that lower price this year. I still like this stock for the long run—that’s why it’s a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/  --but I wouldn’t buy it now at this price. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of LATAM Airlines Group as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Update Luxottica (LUX)

March 3, 2011

Not very ambitious, are they? Luxottica, the biggest maker of eyeglasses in the world and a member of my Jubak Picks 50 long-term portfolio, announced that it looking to increase sales in emerging markets by about 20% in 2011, achieve double digit growth at its premium and luxury brands (such as Ray-Ban and Oakley), and grow volumes in China and India by 120% over the next three years. Did I leave out plans to open 40 Sunglass Hut stores in India, 15 in Brazil, and 50 in China? (The company also acquired 70 stores in Mexico at the end of 2010.) Oh, and by the way, on February 28, Italian company, which also makes eye glasses under license for fashion houses such as Prada and Chanel, also reported a 16% increase in sales for the first quarter, a 1.2 percentage point increase in gross margins, and an increase in net income of 88% from the fourth quarter of 2009. For the full year, Luxottica reported a 35% increase in net income on a 14% increase in sales. The company announced that it planned to raise its annual dividend payment by 26% to 44 euro cents a share. At the March 2 closing price that works out to a yield of 1.9%. Luxottica is benefitting from the economic recovery in the United States. The company forecast 2011 sales growth of 4% to 7% in the U.S. retail segment. Sales in North America (about 60% of the company’s total sales) at the wholesale level to stores such as Target (TGT) of fashion-label licensed eyeglasses will grow by 10% to 12% in 2011, the company projects. But the big driver of sales growth will continue to be the world’s emerging markets, where the company has tripled sales in the past six years. Luxottica forecast that it will finish the year with 500 stores in China. Luxottica is in the process of turning itself into a low risk play on growth in the world’s developing economies. Of course, you get all the usual risk from volatile growth in these economies—and in this fashion business the usual risk of piracy and knock-offs—but you also get solid accounting, a management structure that’s relatively transparent, and a manufacturing and design strategy split between China and Italy. (Chairman Leonardo Del Vecchio, founded the company n 1961 and owns 68% of the company’s shares. CEO Andrea Guerra has held that job since 2004.) With an earnings growth rate projected at 16% and a forward price-to-earnings ratio on those projected earnings of 23.5 Luxottica isn’t particularly cheap. But the company’s growth strategy is sustainable in the long run in my opinion. (Which is, by the way, why the stock is a member of my Jubak Picks 50 long-term portfolio.) I think $39 is a reasonable one-year target price for the stock. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Luxottica as of the end of January. For a full list of the stocks in the fund as of the end of January see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Australian rare-earth miner Lynas soars 18% on Malaysian election results

May 6, 2013

Whether or not the victory on Sunday of Prime Minister Najib Razak and the ruling Barisan Nasional coalition is good for Malaysia democracy or not—and it’s hard to believe that 55 years of uninterrupted rule by one party is a good thing—investors in Lynas (LYC.AU in Sydney or LYSDY in New York) clearly breathed a sign of relief today. Shares of the rare earth mining company closed up 18%. The victory by the Barisan Nasional government, which has already approved an operating permit for Lynas’s plant to process rare earth minerals mined in Australia in Malaysia, just about guarantees that the courts won’t over-turn the decision and that a new government wouldn’t rescind the permit. (Lynas is a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ ) The victory gave Barisan Nasional a majority with 133 seats in the 222-member parliament—but this is the second election in a row to deny the party its customary two-thirds super-majority. The relatively narrow victory is likely to push the government to move full-steam ahead on the $444 billion in infrastructure spending and investment by 2020 that the company had promised during the campaign. Plans include the construction of a high-speed rail link between Kuala Lumpur and Singapore and the construction of a new shopping district to rival Singapore’s Orchard Road. Stocks that moved up on the election results include CapitaLand (CAPL.SP in Singapore), Southeast Asia’s biggest developer and construction company Gamuda (GAM in Kuala Lumpur.) Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares in Lynas as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Wash, dry, repeat: Middleby repeats its way to a 37 cent a share earnings beat

February 26, 2014

If more companies were reporting sales and earnings growth like Middleby (MIDD) reported on February 25, the Standard & Poor’s 500 wouldn’t be having such trouble moving above its all time highs. For the fourth quarter, Middleby reported earnings of $2.62 a share, 37 cents a share above the Wall Street consensus and a 29.1% increase from earnings in the fourth quarter of 2012. Revenue climbed 29.4% year over year to $377.4 million versus the $364.9 million consensus among analysts. As of 2 p.m. New York time on February 25 Middleby shares were up $36.07 to $299.78 for a 13.7% gain. Middleby is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/  ) Now I know that this pick is up 107% since I added it to this portfolio on May 3, 2013, but I don’t see any reason to sell here. The reason that Middleby is a long-term pick is that the company has a very simple growth strategy that it can repeat over and over again until the world stops opening and remodeling restaurants. And I don’t see that happening any time soon. Middleby noted in a 2012 investment conference presentation that it has products in one-third of all restaurants. That’s impressive—but it also means that Middleby doesn’t have products in two-thirds of the market. Simple in Middleby’s case doesn’t mean easy to execute. The company operates in a fragmented market for restaurant equipment—which means it has the opportunity to buy up promising small equipment makers. It then uses its relatively larger size to drive down costs at those companies while opening up new markets for their equipment. If you sell pizza ovens to Papa John’s, for example, you can sure sell soda vending machines too, right? But Middleby doesn’t stop there. The goal isn’t simply to cut costs but to drive innovation. In 2012 20% of sales came from new products—the goal is 40% by 2016. New products have 5% to 10% higher gross margins so you can see why Middleby wants to add new products to its revenue stream. Why do Middleby’s customers want to buy these new products? Because they cut costs by being more energy efficient, by reducing cooking times, by producing a more uniform product (thus reducing waste), and by cutting labor costs by reducing cooking staff. Middleby figures that the average time to payback on its new equipment for a customer is less than two years. Middleby’s has got two big sources of growth on its horizon in my opinion (besides that two-thirds of the market that doesn’t yet use its equipment.) First, thanks to a slowish U.S. economy, there hasn’t been a big wave of restaurant kitchen remodelings since 1998-2000. 56% of casual dining restaurant kitchens, for example, haven’t been remodeled since 2000, Middleby calculates. Second, Middleby has lots of room to grow with emerging markets. In 2011 28% of company revenues came from these economies where Middleby is already No. 1 in China, India and Latin America for chain restaurants. Middleby’s new product strategy in these markets isn’t to simply try to force existing U.S.-oriented products on these markets. The company has engineered tandoor ovens and samosa fryers, rice steams, pita ovens and gyro broilers to name a few products for restaurant kitchens in these markets, and then, to stay in touch with these customers it is manufacturing locally. I think you can continue to hold onto this one. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Middleby as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.  

Update Monsanto (MON)

September 10, 2009

It’s hard to keep earnings growing when competitors cut the price you can charge for your signature product in half. That’s the reality that’s finally put an end to Monsanto’s (MON) run of eight consecutive years of earnings growth. On September 10, the company, a member of the Jubak Picks 50 portfolio, told Wall Street that earnings for the fiscal year that ends in August 2010 would be just $3.10 to $3.30 a share. Wall Street analysts had projected earnings of $4.26 a share, according to Zacks Investment Research. For the fiscal year that ended in August 2009, analysts had projected earnings of $4.41 a share, a 21% increase from the $3.64 reported for fiscal 2008. The problem is the company’s herbicide Roundup. With the market facing a glut of glyphosate-based generic competitors to Monsanto’s branded Roundup, prices have nose-dived for both the generic and branded herbicides. Competition from generics has cut Roundup prices roughly in half. In 2010 Monsanto expects to sell 250 million gallons of Roundup at $10 to $12 a gallon. In May Monsanto projected 2009 sales of 200 million gallons of Roundup at $20 a gallon. Gross profits from the seed business will climb to $5.2 billion in fiscal 2010 from the $4.5 billion that Monsanto projected in May for fiscal 2009. But that’s not enough to offset the plunge in revenue from Roundup. The bad news on Roundup is likely to give impetus to plans to carve the Roundup business into a separate company and put it up for sale sometime in 2011. (I’m projecting here from reading between the lines in CEO Hugh Grant’s June comments about a sale of the Roundup business after the company finishes its current cost cutting.)

Buy PepsiCo (PEP)

December 30th, 2008

This company delivers like clockwork. Take operating margins: 18% in 2004, 18.2% in 2005, 18.5% in 2006, and 18.2% in 2007–even as the cost of such raw materials as corn and corn syrup soared. Part of the reason is that PepsiCo is the U.S.-based company that has done the best job at becoming truly global. Today steady North American sales get a powerful boost from a fast-growing international business. In 2008, international sales, which make up about 40% of total revenue, climbed by 15%.

Buy Pioneer Natural Resources (PXD) in my long-term Jubak Picks 50 portfolio

January 16th, 2012

I added Pioneer Natural Resources to my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ )

To understand why I’m picking this oil and gas company from a long list of alternatives you have to get deep inside the U.S. oil boom going on now.

That boom is a result of oil companies bringing new technologies to bear on fields that were thought to be near the end of their lives or on fields that were thought to be impossible to drill.

Pioneer’s Spraberry field fits that first category. The field is one of the oldest—and largest—in the Permian Basin and despite having drilled in the area since the late 1980s, Pioneer continues to expand production by using technology to drill into deeper formations that has almost doubled estimated ultimate reserves. Pioneer has 900,000 Spraberry acres under lease.

Those estimated reserves don’t include what looks like it will turn out to be a major new Permian play from the deep Wolfcamp Shale formation. This reserve, initially thought to be a relatively small niche play, now looks to be a big horizontal reserve like that found in the Eagle Ford shale. The Wolfcamp reserve continues to look bigger as Pioneer drills more wells.

In the second category—fields that were thought impossible to drill before new technology developed in the late 1970s—I’d put the Eagle Ford shale formation, where Pioneer controls 140,000 net acres. Thanks to a $.15 billion joint venture deal with Reliance Industries in 2010, the company has been able to pursue an aggressive drilling program that targets 1,000 wells over the next five years. That will, the company believes, expand production 34-fold by 2015. About one-third of Pioneer’s Eagle Ford acreage is in formations rich in natural gas liquids and distillates rather than in natural gas.

Pioneer rounds out its Texas big three with 70,000 acres in the Barnett Shale formation.

The relatively high presence of oil and natural gas liquids in these shale reserves has let Pioneer cut new drilling activity to almost nothing on its natural gas fields in Colorado, Kansas and Texas. In the face of depressed natural gas prices, Pioneer has reduced its natural gas production by about 4% while increasing its overall production by 15% in 2011. The company now projects 18% compounded annual production growth through 2014.

If you’re interested in these shares for something shorter than the five to ten year holding period of my Jubak Picks 50 portfolio, I calculate a target price of $115 a share by December 2012. The shares closed at $97.63 on January 13.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Pioneer Natural Resources as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Potash cartel cracks leading to rout in fertilizer stocks

July 30, 2013

The danger was clearly implied in Potash of Saskatchewan’s (POT) July 25 earnings results. Potash volumes were up, the company reported, but prices were down—and the implication was that pricing discipline among the seven companies that control the global potash fertilizer market was under stress. That discipline has now cracked. Totally. Today OAO Uralkali, the world’s largest potash producer, announced that it would end limits on production that have kept potash fertilizer prices from collapsing. The company also said it would end cooperation with Belarus that controlled potash supplies from the countries that once made up the Soviet Union. The result has been a rout for potash fertilizer shares. Potash of Saskatchewan is down 18.7% as of 2 p.m. New York time. Mosaic (MOS) has tumbled 18.4%. The worst-case scenario, as articulated by Mosaic today, is that OAO Uralkali’s increased production will undermine prices in global markets that the cartel was struggling to push up to near $400 a metric ton AND lead to increased imports into Mosaic and Potash’s core North American markets. In my post yesterday on Potash of Saskatchewan http://jubakpicks.com/2013/07/29/stock-pick-potash-volumes-up-but-earnings-down-so-still-too-early-to-buy/ I said that I’d like to see some signs that potash pricing had turned up before buying the shares and that investors might see such evidence in the fourth quarter. I think that advice is even more appropriate today since now we don’t know how much production OAO Uralkali will push onto the market or whether other producers will follow suit. A key question is whether other cartel members will retain some production and pricing discipline or whether everyone will decide to produce as much as they can. For example, Potash of Saskatchewan has idled a lot of production to support prices. Will the company keep that capacity on the sidelines? I think we might have some answers on production levels by the end of the third quarter. I would be extremely reluctant to buy in the sector before I had some more information on that. Potash of Saskatchewan is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ . Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Potash of Saskatchewan as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

Buy Rayonier (RYN)

December 30th, 2008

Rayonier owns, controls or leases about 2.7 million acres of timberland. Some of those 2.7 million acres–what’s known as higher-and better-use land — are more valuable for development than as timberland. I’d estimate that about 400,000 acres fall into that category. At the June 2009 price of $41 a share, investors who bought the stock were getting Rayonier’s land for about $7,500 an acre. (Full disclosure: I own shares of Rayonier in my personal portfolio.)

Update Schlumberger

June 28, 2015

Update January 20, 2015. Today, January 20, Schlumberger (SLB) announced that it will pay $1.7 billion for a 46% stake in Eurasia Drilling (EDCL in London), Russia’s largest drilling company. Schlumberger can buy the rest of Eurasia Drilling three years after the deal closes. This is exactly the kind of long-term thinking that a patient investor with a long-term time horizon wants to see from a company. Schlumberger is able to look past the current plunge in oil prices and the current sanctions on Russia’s oil industry, imposed as a result of the war in Ukraine, to see the time when today’s oil surplus has again turned into a deficit and when the world is again willing to invest in tapping (and modernizing) Russia’s huge oil reserves. But Schlumberger’s move throws the dilemma facing investors now into stark relief. Do you want to be; can you be as patient as Schlumberger? Current forecasts of oil prices suggest that markets won’t see a recovery in oil prices until the second half of 2015 and that even then the increase in oil prices might only be to $65 or $60 a barrel from the current $45 a barrel. And a number of forecasts predict that oil prices will stagnate or even retreat again in the first half of 2016 as oil that has been pumped into storage tanks and oil tankers comes back on the market in response to higher prices. Wouldn’t it be better to wait until a mid-2015 recovery in oil prices is visible before buying Schlumberger? Or maybe even wait until that second dip, if it happens, in 2016? What you think of Schlumberger (SLB) now depends on two things. First, it depends on how far away you think any recovery is for oil prices and the oil industry. (For more on that topic see my January 14 post http://jubakam.com/2015/01/when-might-oil-bottom-how-fast-will-the-recovery-be-and-understanding-the-strange-economics-of-oil/ ) Second, it depends on your strategy for building an energy sector position for the eventual recovery in the sector. (Schlumberger is a member of both my Jubak’s Picks 12-18 month portfolio and my long-term Jubak Picks 50 portfolio http://jubakam.com/portfolios/ ) Let me start with the first “it depends” and then move onto “it depends” number 2. On January 15, the company reported earnings of $1.50 a share for the fourth quarter of 2014—excluding “special items.” That $1.50 a share was 4 cents a share above Wall Street estimates. Revenue rose 6.2% year over year to $12.64 billion, matching the consensus from analysts. Two caveats on that earnings beat, for course. First, those “special items” for the quarter included a $1.77 billion pre-tax charge for cutting 9,000 jobs ($296 million) and an $806 million charge for writing down the value of offshore seismic survey ships. I’m not sure that I’d call these “special items” since that implies that they won’t be repeated next quarter and the quarter after that. Second, those earnings and the earnings surprise are backward looking—that is, they reflect what Schlumberger’s business was like in the last three months of 2014. Here I’d pay special attention to the difference between Schlumberger’s confidence in its October guidance after third quarter earnings and the company’s clear expression of uncertainty in the January conference call. In October Schlumberger said falling oil prices—what it characterized as fears of “short-term over-supply”--won’t have a significant impact on its business. “Our view of the overall market continues to include a mix of economic and geopolitical headwinds and tailwinds,” said CEO Paal Kibsgaard. (October’s guidance was itself quite different from the company’s June outlook, which was based on oil at $100 a barrel.) The tone was markedly different in the company’s January 16 conference call. In that call Schlumberger said it anticipates lower spending by customers this year—which is why is cutting its workforce by 7%. “In this uncertain environment, we continue to focus on what we can control,” said CEO Kibsgaard. “We have already taken a number of actions to restructure and resize our organization.” The problem facing Schlumberger, Wall Street analysts, and investors is that estimates of spending plans for 2015 are still a guess. Less than half of the 150 oil and gas companies it follows, Invesco portfolio manager Norman MacDonald told Bloomberg, have reported spending plans for the year. Competitor Halliburton (HAL), which reported on January 20, confirmed those negative trends in the market. The company, which has much more exposure to the North American market than Schlumberger does, reported that the drilling rig count has fallen by 15% recently in the United States and that it expects the rate of decline to accelerate. Right now Wall Street analysts are projecting first quarter revenue of $113 billion for Schlumberger—which would be significantly lower than the $12.6 billion in the fourth quarter, and earnings per share of $1.16 vs. the $1.50 a share, before special items, in the just completed quarter. So what do you do with Schlumberger? I think the stock remains a core energy sector holding in a long-term portfolio. The company’s technology edge and its dominant market position in many of its markets haven’t been impaired during the current oil price plunge. Company management is correct in targeting this downturn in the sector as a time to pick up market share and I like the company’s attitude that the merger of Halliburton and Baker Hughes (BHI) is an opportunity to pick up market share. Schlumberger stays in my long tern Jubak 50 portfolio. On the other hand, I think it’s worth re-evaluating Schlumberger’s role in a more aggressive, short to medium term portfolio. The very solidness that makes the stock such an attractive long-term holding means that it hasn’t declined as much (a good thing) as some of more leveraged and risky holdings in the sector—deep sea drillers such as Ensco (ESV) and SeaDrill (SDRL), for example—but that it won’t show as big a gain (a bad thing) when sometime after the middle of the year investors get evidence that the energy sector is rebounding and that some of the stocks that have been hammered hardest are about to show the biggest gains. At that moment I’d like to own shares that have been beaten down more and that have biggest upside (because of their higher current risk) than Schlumberger. To give me the cash to buy those short and medium term plays in June or so, I’d sell Schlumberger out of a short to medium term portfolio now. (So, yes, I will be selling Schlumberger out of Jubak’s Picks on Wednesday, January 21.) Let me make clear the strategic assumptions behind this particular call on Schlumberger. I’m suggesting dividing your energy position into two pieces, one devoted to companies that are focused on using this down turn in the sector to increase dominant long-term positions and the other devoted to riskier shares that have been pounded more in this oil-price plunge and that, therefore have even bigger upside potential when this downturn ends. How you divide your own energy position between those two poles depends on your own risk/reward profile. I can see some investors going all for the Schlumbergers of the energy sector. I can see others with portfolios more heavily weighted toward the recently pounded.

Buy Standard Chartered Bank (SCBFF)

January 5th, 2010

Despite its London headquarters, Standard Chartered Bank (SCBFF) does most of its business outside the United Kingdom. (A good place not to be during the global financial crisis.) In fact 90% of profits come from its business in Africa, Asia, and the Middle East.

Formed by the merger of The Chartered Bank of India, Australia and China and the Standard Bank of British South Africa in 1869, the bank has spent the financial crisis picking up bits and pieces of business from its more hard-pressed peers.

For example, the bank moved into Brazil by acquiring the Lehman Bros. team in that country. I think this is a good alternative to ING as a way to invest in the growth of financial markets in what is still so quaintly called the developing world.

Buy SunPower (SPWR)

January 5th, 2010

Demand will pick up—eventually—for solar energy companies as the global economy crawls toward recovery and as countries add more incentives for clean power.

That doesn’t mean that everyone is going to make money, though, since prices are dropping like a stone and many companies, such as Q Cells, are struggling to cut costs faster than prices are falling. SunPower’s (SPWR) way out of that bind is through vertical integration from manufacturing through installation.

The services it provides to solar dealers and installers save dealers and installers significant costs, which lets the company charge slightly higher prices for its solar modules. I don’t think SunPower is ignoring the need to cut manufacturing costs, however. In fact one of the reasons that I like this solar manufacturer is that it’s roots are in the silicon chip industry so it gets the way that higher quality and increased power generation per module can make up for lower labor costs at some competitors.

Buy Tenaris (TS)

December 30th, 2008

You can make a very nice little $10 billion (in sales) business out of selling something as seemingly mundane as drilling pipe if you realize that as companies drill in ever more challenging geologies, they’ll pay extra for pipes that can withstand extremely high temperatures and pressures; than can flex to accommodate new trends in horizontal and guided drilling; and that won’t surrender to extremely corrosive conditions. As oil companies drill in deeper and hotter they need increasingly sophisticated steel pipe and pipe connections. As the global energy industry expands its production of more corrosive fuels, such as ethanol and coal to gas, it demands high technology pipes. Expect even higher margins going forward.

Update Thompson Creek Metals

April 14, 2014

Shares of Thompson Creek Metals closed up 9.4% Friday, April l1, as the company’s first quarter earnings report showed that the miner made essential progress in its transition from a molybdenum producer to a molybdenum/copper/gold producer with an emphasis on copper and gold. (Thompson Creek is a member of my Jubak Picks 50 portfolio http://jubakam.com/portfolios ) The company still isn’t out of the woods—there is simply not very much room for error in Thompson Creek’s cash flow and debt load. A drop of another 10% in metals prices would put the company in the position of needing to raise more capital perhaps as early as 2015. And Thompson Creek has an earthmover’s worth of debt to refinance in 2017. But the company has moved away from the brink of a liquidity crisis that looked very likely in 2013. I certainly wouldn’t bet the farm on this very risky member of my long-term Jubak Picks 50 portfolio. But I think there’s a good chance that another good quarter could take the shares back to the $3.50 level that they hit in November 2013 before falling to $1.84 in December. From   the April 11 closing price that represents a potential 22% gain over the next three months or so. In the first quarter the company reported strong copper and gold production from its Mt. Milligan mine. Ore grades at mine were in line with projections and the still ramping mine is on track to achieve throughput of 75% to 85% of capacity by the end of 2014. It’s good that the story from the Mt. Milligan mine was so strong, because Thompson Creek’s older mines were disappointing. The Endako Mine showed an 8% drop in production from the prior quarter on lower ore grades and operational problems at the mine. Production at the Thompson Creek Mine was up 19% from the prior quarter but water from spring run off looked likely to cut production levels this spring. The big disappointments at the company’s older molybdenum mines, though, were long term. The company reduced the projected life of the Endako molybdenum mine to three to five years based on a revised projection of molybdenum at $10 a pound.  (Previous projections of reserves at higher molybdenum prices had estimated that the mine would last until 2028. That reduction in reserves does create the possibility for big upside if molybdenum prices climb and the company can increase its reserve projections for Endako.) Thompson Creek also announced that it would suspend molybdenum production at its Thompson Creek Mine in late 2014 in response to lower molybdenum prices. Molybdenum prices have fluctuated recently from $9 a pound in mid-2013 to a recent $11.50 a pound. Forward contracts for 2015 have been bid recently at $12 a pound. An increase in molybdenum prices to $12.50 a pound along with an increase of 10% in the price of copper (to $3.30 a pound) and a 10% increase in the price of gold to $1441 an ounce would increase free cash flow to $105 million in 2015. At current prices free cash flow in 2015 comes to about $50 million. The company finished the first quarter with a cash balance of $234 million. If everything works out as now projected the company should finish the year with about that level of cash on hand. If metal prices fall by 10% and the production at Mt. Milligan doesn’t reach projected capacity by the end of 2014, the cash balance will be closer to $160 million. That’s probably not low enough to revive fears of a liquidity crisis—which in itself is a measure of how far Thompson Creek has come in the last year. But that kind of drop in cash on hand if combined with fears of a further drop in the price of molybdenum, copper, and gold would certainly mean that shares of Thompson Creek wouldn’t finish 2014 higher than they are now. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of Thompson Creek as of the end of December. In preparation for closing the fund at the end of May, as of the end of March I had moved the fund’s holdings almost totally to cash.

Buy Ultra Petroleum (UPL)

December 30th, 2008

What energy supply could be more secure than natural gas from Wyoming and Utah? And Ultra Petroleum owns a lot of it. I mean a lot. The company’s proved reserves total 2.4 trillion cubic feet of gas. But the real prize here is Ultra Petroleum’s 150,000 acres in the heart of the Green River Basin. Only about 15,000 of those acres have been developed so this company has years and years of expanding production ahead of it. (Full disclosure: I own shares of  Ultra Petroleum in my personal portfolio.)

Vale: Good progress but still too much short-term risk in this long-term stock pick

September 20, 2013

Vale (VALE) continues to make good progress in cutting costs and selling off non-core assets. But for the next year big additions to global iron ore supply are likely to keep iron ore prices—and the price of Vale shares—relatively depressed. For the first half of 2013 Vale has announced cost reductions of $1.6 billion from the first half of 2012. The company looks to be on track to deliver an additional $1.2 billion in cost savings over the next twelve months. On September 20 Vale announced that it would sell 36% of its logistics unit VLI to Mitsui and an investment fund managed by bank Caixa Economica for 2.7 billion reais ($1.23) and that it was in negotiations with Brookfield Asset Management to sell an additional 26%. This deal follows $1.47 billion in asset sales—a coal mine in Colombia, a shipping company, and lease blocks for oil exploration—in 2012 These efforts make Vale my favorite iron ore stock for the long run. (The stock has been a member of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ since the formation of that portfolio in December 2008.)  But over the next 12 months I believe that increases in iron ore supply as projects green lighted as much as five-years ago come on line are likely to keep iron ore prices at current levels or lower and result in fears among investors that lower iron ore prices will pressure earnings at Vale. I get a potential one-year target price of $18 for these shares—if fears over iron ore prices don’t bite too deeply into market sentiment. That’s about 11% above today’s closing price of $16.21 for the New York traded ADRs. That’s not enough of a potential gain to make me buy these shares now, given the possible downside from a return of fears that the Chinese economy, the big driver of global commodity prices, is slowing. There are also short-term fears hanging over the shares due to continued uncertainty in Brazil about royalty rates, the possibility of a special participation tax, and overseas tax litigation. In other words, wait on this one for greater clarity on those issues and for a reduction in fears of falling iron ore prices as a result of either greater certainty about the rate of China’s economic growth or the market’s ability to absorb scheduled increase in iron ore production. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of any company mentioned in this post as of the end of June. For a complete list of the fund’s holdings as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Buy Weyerhaeuser (WY) in my long-term Jubak Picks 50 portfolio

January 18th, 2012

I added Weyerhaeuser (WY) to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to the portfolio.)

Why? Because as much as I’d hate to pick a precise month for the bottom in the real estate market, I think that we’re close enough to a bottom so I’m willing to put some money to work in the sector—if I get paid to wait for the precise turn. Weyerhaeuser converted to a real estate investment trust in 2010 (2.97% current dividend) so I’m getting paid a better than 10-year-Treasury-bond yield while I wait for a bottom in the second half of 2012 or sometime in 2013. And when the bottom comes Weyerhaeuser’s real estate sales on its 6.15 million acres of timberland and its concentration on products for the construction market give me plenty of leverage to the upside. About 40% of sales come from its wood products business, with about 70% of the products of that unit used in new residential construction. Weyerhaeuser Real Estate Company, 15% of sales, develops master communities, single-family houses, and residential lots.

With that business mix, as you’d expect, 2011 wasn’t the greatest year for Weyerhaeuser. The company is on track to earn 43 cents for the year (Weyerhaeuser reports fourth quarter earnings on February 3). That’s quite a come down from the $1.44 a share the company earned in 2006, but it’s quite a bit better than the $2.58 a share loss in 2010 or the $8.61 loss in 2008.

Weyerhaeuser does have one gem of a business that has kept on pulling in revenue and profits even while real estate and wood products have tumbled. The company’s cellulose fibers business (30% of sales), which produces absorbent pulp used in diapers and specialty pulp used in textiles, showed a 28% EBITDA (earnings before interest, taxes, depreciation and amortization) margin in 2010. Pricing and therefore margins in that business are likely to stay strong in 2012, Standard & Poor’s projects.

I think the stock is fairly valued in the short-term at roughly $20 a share, which is why I’m putting this in a long-term portfolio. The upside here will come from a recovery in the U.S. housing sector. Buy and hold—and collect that dividend–is an appropriate description of these shares.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Weyerhaeuser as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Too early to buy except as a trade, but stock pick Yamana is doing what a gold miner should be doing now

August 1, 2013

It’s early in the transition of gold mining companies to the lower price of gold, but I think we can already stake out a few of the important differences among the mining companies. On this scorecard, I think Yamana Gold (AUY) is a good example of what you should be looking for in the sector even if it may still be a little early in the transition to buy anything. (If you disagree with me on timing, I’d start with a stock such as Yamana. Yamana is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/  And I do think Yamana is a good trading vehicle for this market in gold.) First, write downs. This is an obvious difference and all things else being equal, you’d prefer a company with less in write downs (such as Yamana) to one with more in write downs (such as Barrick Gold (ABX.) But the absolute size of the write down is actually less important than the details. A write down is just a paper expression of the fall in the price of gold if a company is simply writing down the value of current reserves. These write downs will go back into the company accounts when gold prices rise. They are, however, important in a more lasting way if they express a more permanent impairment of assets either through a sale or a closing or abandonment of a project. Second, how aggressively the miner is moving to reduce costs. Costs in the industry will come down by themselves as contracts for mining services and the like get renewed at lower prices because of the falling price of gold. Waiting for that to happen is a very passive approach. What you’d like to see here is a company attack costs now because with the price of gold low every bit of cost reduction is important to cash flows and a company’s need for financing and its ability to maintain outlays such as dividends. To give you a benchmark on the aggressive side, all-in sustaining costs at Yamana Gold fell to $950 an ounce in the second quarter, a drop of $64 an ounce or 6%. The company sees all-in sustaining costs falling to $850 an ounce in 2014. Three, how willing the company is to sacrifice a bit of current earnings in order to reap (potentially) higher returns when gold prices climb again. Yamana Gold reported second quarter earnings per share of 7 cents, 4 cents a share below Wall Street estimates. Revenue dropped 19.6% to $430,5 million versus the $486 million analyst consensus. The obvious cause was the fall in the price of gold, but like all gold miners right now Yamana had a decision to make on how much to increase production and sales to make up for lower prices. The company did increase gold sales to 233,714 ounces in the quarter but that was a relatively modest boost from the 223,279 ounces sold in the second quarter of 2012. Companies that decide to sell less gold now so they can sell more gold later are likely to take a short-term hit to their share price. (Yamana took a big hit today on that earnings miss, falling 7.33%, or 77 cents a share.) If you have a slightly more long-term view, however, that drop in share price today means you are able to buy tomorrow’s production (at tomorrow’s price) at a lower cost. Four, you would like to see a pipeline of new mines—with projected costs at the low end of the scale—ready to come into initial production in the next year or so with a reasonable production ramp taking full production out into 2014 or 2015. Projects that are further out than that have higher execution risks—the future is indeed uncertain. In the second half of 2013 Yamana has three new mines that will be ramping to full production by the end of the year. That will give Yamana a big bump in production in the second half of 2013—about a 30% increase from the first half with full 2013 production 13% above that for 2012. I think that’s a favorable production profile with a good trade off between higher uncertainty if the ramp were further away and the likelihood of higher gold prices if the ramp were further out. Looking out a little further, with all operating mines in full production Yamana projects production 30% higher in 2015 from 2012. Five, the fate of dividends in the sector is a useful indicator of a company’s read on cash flows. I like it that Yamana has said that it feels its current dividend of 26 cents a share is sustainable. Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Yamana Gold as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.

Update Yingli Green Energy (YGE) in Jubak Picks 50

January 2nd, 2012

Last year—on January 18, 2011 to be precise—I replaced Sun Tech Power Holdings (STP) with Yingli Green Energy Holdings (YGE) in my long-term Jubak Picks 50 portfolio. (See my post on http://jubakpicks.com/2011/01/18/6215/ for last year’s revisions. The revisions for 2012 will be coming next week. My apologies for messy bookkeeping. While I deleted Sun tech from the portfolio I didn’t add Yingli. Today’s blurb fixes that error.)

The best that can be said for that switch is that Yingli Green Energy was slightly less terrible a pick in 2011 than Sun Tech Power. Shares of Yingli Green Energy were down 61.5% for 2011 while shares of Sun Tech Power were down 72.4%.

I replaced Sun Tech Power with Yingli Green Energy because Yingli had a significantly lower cost structure and I figured that would be important in what looked like a tough year for solar power companies—even in China.

But 2011 didn’t turn out to be just a tough year—it turned out of the part of the worst downturn ever for the solar industry. There was so much extra capacity in the industry in now as a result of a downturn in demand (from cuts to subsidies in markets such as Germany and Spain) and the overbuilding of new production lines (especially in China) that the difference between better and worse cost structures simply didn’t matter very much. A better-cost structure just guaranteed that a company would lose wheelbarrows instead of truckloads of money.

I don’t think this problem ended with 2011. The coming year is likely to be just as bad. But the Jubak Picks 50 is a long-term portfolio. The survivors of this solar winter will do well from the long-term growth in the solar industry. I just don’t expect to see that growth kick in during 2012. There’s no need to stock up on any solar stock even at current terribly depressed price levels. For more on the timing of any solar recovery and when to invest see my November 15 post http://jubakpicks.com/2011/11/15/what-solar-companies-will-survive-the-solar-winter-to-profit-from-the-solar-spring-and-when-do-you-want-to-own-them/ )

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Yingli Green Energy as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

 



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