Jubak’s Picks – Sells

Company	Symbol	Date Sold	Sell Price	Price Now	Today's Change	Gain/Loss Since Sale
Akamai Technologies	AKAM	04/26/2013	$42.00
Akamai Technologies (AKAM) blew out earnings Wednesday night, reporting earnings per share of 51 cents, which easily beat Wall Street projections for 46 cents. Earnings for the first quarter of... more
Westpack Banking	WBK	04/16/2013	$164.65
I’m going to take advantage of today’s bounce (or whatever) to recommend selling shares of Westpac Banking (WBK in New York or WBC.AU in Sydney.) More specifically, I’m going to... more
Novartis	NVS	04/03/2013	$71.44
Novartis (NVS) has hit my $71 target price in my Jubak’s Picks portfolio. I was fairly aggressive when I set that target price. The drug maker does have one of... more
Banco Bilbao Vizcaya	BBVA	03/13/2013	$9.91
Update September 14, 2012: So now where for Spain’s biggest and healthiest banks, Banco Bilbao Vizcaya (BBVA) and Banco Santander (SAN)? Let me concentrate on Banco Bilbao in this post. Banco Bilbao is a member... more    Read Jim's Original Sell
Cummins	CMI	02/11/2013	$119.54
Update August 2, 2012: The headline on the second quarter earnings release from Cummins (CMI) on July 31, read: “Cummins Reports Strong Second Quarter Profits.” Kind of surprising since revenue for the quarter fell by... more    Read Jim's Original Sell

Time for some profit taking in Akamai

April 26th, 2013

Akamai Technologies (AKAM) blew out earnings Wednesday night, reporting earnings per share of 51 cents, which easily beat Wall Street projections for 46 cents. Earnings for the first quarter of 2012 had come in at 36 cents. First quarter revenue climbed 15% to $368 million, well above Wall Street estimates of $357.5 million. Akamai guided Wall Street to revenue of $368 million to $378 million in the second quarter vs. Wall Street projections of $363 million. Earnings for the quarter, the company projected, would fall in a range of 44 cents to 46 cents against the analyst consensus of 44 cent a share.

On the report shares of Akamai climbed $6.39, or 17.7%, to $42.48.

You wouldn’t think that this company’s results share anything at all with Apple’s earnings disappointment of April 23. But they do. The big issue for both companies is the direction of margins in the future.

Much of Wall Street’s sell off of Apple shares is based on fears that the company’s margins will fall with lower margin products such as the iPad mini and lower-priced iPhones.

The bears on Akamai point to the same worries. Margins for accelerating media and entertainment content on the Internet aren’t as juicy as the margins for accelerating enterprise (read corporate) traffic. Part of that’s because of the higher costs of building out media and entertainment systems and part of it is because of increased competition in the media and entertainment sector. In other words, while the growth is in the media and entertainment sector—and while Akamai saw media and entertainment revenue climb to 43.5% of total revenue in the quarter–the increase might not be an unmitigated good thing if it leads to a decline in margins.

There was nothing in the quarter to indicate that margins are in any immediate danger at Akamai. Gross margins, in fact, increased to 76.4%, above the consensus projection of 75%.

But after today’s pop Akamai is within 6% of my February 2014 target price. With the market unsettled and with what has been a weak summer quarter in the last two years approaching, I’m going to take my 12% gain since I added the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on February 14, 2013 and move to the sidelines for a few months on this stock until I have a better sense of the market direction in the near term. I’m selling Akamai out of the Jubak’s Picks portfolio with an 11.9% gain since I added it on February 14, 2013.

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 positions in Akamai 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/

Sell Australia’s Westpac Banking on China worries and valuation

April 16th, 2013

I’m going to take advantage of today’s bounce (or whatever) to recommend selling shares of Westpac Banking (WBK in New York or WBC.AU in Sydney.) More specifically, I’m going to recommend selling the shares of this Australian bank out of capital gains oriented portfolios such as my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ . I’d keep the shares, however, in income oriented portfolios such as my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ for a while longer on the 5.31% yield

I think the yield is attractive and safe. I just don’t see much upside for the share price. Especially with the market seeing the rebirth of fears about slowing economic growth in China. When China catches a cold these days, Australia sneezes.

The problem, basically, is that Westpac Banking has run so far ahead of its banking peers that the shares are susceptible to stagnating or even retreating here. The stock has traded at a 2% premium to its peers on average over the last four years, Credit Suisse calculates, but it now trades at a 6% premium. With the bank near the end of its cost restructuring, I think that opportunity for bottom line growth is mostly already in the share price. The bank continues to emphasize growing its share of deposits in the Australian market—that would be a more attractive story to me right now if the Reserve Bank of Australia hadn’t cut its benchmark interest rate to 3% and signaled at its April 2 meeting that it saw room for further interest rate cuts. At the moment, then, raising capital from deposits is a relatively expensive source of funds.

My target price on these New-York-trade ADRs (American Depositary Receipts) was $146. That was left in the dust long ago: The ADRs traded at $164.65 at 2:45 p.m. New York time today. The position in the Jubak’s Picks portfolio is up 48% since I initiated it on November 10, 2010.

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 positions in Westpac Banking 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/

I’m selling Novartis on valuation–and market risk

April 3rd, 2013

Novartis (NVS) has hit my $71 target price in my Jubak’s Picks portfolio. I was fairly aggressive when I set that target price. The drug maker does have one of the sector’s most promising pipelines of new drugs but a leading seller Diovan (10% of sales) lost patent protection at the end of 2012 and Gleevec is scheduled to lose patent protection in 2015. (The recent decision by an Indian court to deny Novartis patent protection in India for Gleevec is a non-issue as far as the share price is concerned, in my opinion.)

Given the extended nature of the current market rally, I think its risky to push my target for Novartis higher here. I don’t this is the time to add risk to a portfolio.

What I’d prefer to do is sell this stock at my target price and look for a stock in the sector where the risk has come down after recent news. I’ve got one in mind and I’ll be looking to add it after the volatility of the next few days—meetings of the Bank of Japan and the European Central Bank, and Friday’s numbers on U.S. jobs—has receded.

I’m selling Novartis with a 14.7% gain since I added it to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on December 7, 2012. The shares paid out a dividend on March 1 to shareholders of record as of February 25.

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 Novartis 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/

Looking for an exit in Banco Bilbao to set up another swing trade on the next round of the euro debt crisis

September 14, 2012

So now where for Spain’s biggest and healthiest banks, Banco Bilbao Vizcaya (BBVA) and Banco Santander (SAN)? Let me concentrate on Banco Bilbao in this post. Banco Bilbao is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ When I last visited this stock on May 30, it sat at $5.25 and I suggested that a reasonable one-year range for the stock’s price was $8.00 to $10.25. That gave me a potential 42% gain to the bottom of that range at $8. At 12:30 p.m. New York time today, September 14, the shares traded at $8.715. Now what? A climb to the $10 a share top of the range over the next year, for example, offers only a 14% gain from here. That’s not enough, in my estimation, to justify holding onto to these shares given the likelihood that we’ve still got another patch of bad news ahead from Spain. (The stock also pays a 5.63% dividend so the total potential return is about 20%.) A move to $12 a share—my target price earlier in 2012--would produce a potential gain of 38% plus that 5.63% dividend. How likely is that? And how many bumps lie in the road to $12? I think there are some useful clues in the second quarter earnings report released at the end of June. It comes down to how bad debt balances out against easier capital. Banco Bilbao missed Wall Street consensus on profits in the quarter by about 25% because the bank had to take higher provisions than expected against bad loans. Impairment losses climbed to 2.182 billion euros in the quarter, roughly double the 1.085 billion euros of the previous quarter. Non-performing loans rose to 4.03% from 4.02% in the first quarter. Non-performing loan ratios were stable in the bank’s South America unit and improved in Asia. Mexico was a concern with non-performing loans climbed to 4.0% from 3.8%. But the big problem was Spain where the non-performing loan ratio is both high—at 5%--and looks to be continuing to climb—up from 4.9% in the previous quarter. What really pops out though in looking at Spain is the relatively low coverage levels on this bad debt at the bank even after the latest round of provisions for bad loans. Provisions cover just 50% of non-performing loans on the Spanish portfolio (66% for the bank as a whole.) That’s only a slight improvement from the 49% coverage in the first quarter. Core capital rose to 10.8% in the quarter and while it looks like Banco Bilbao will have to raise more capital to meet future regulatory requirements, the improvement in financial markets after the latest plan from European Central Bank President Mario Draghi has meant that Banco Bilbao has been able successfully to tap financial markets again. On September 10 Banco Bilbao was able to sell 1.5 billion euros in a 3-year senior unsecured note with a 4.375% yield. No guarantee that the bank will be able to repeat that if Spain’s bond market takes a turn for the worse, but the offering does demonstrate that Banco Bilbao is one of Spain’s strongest banks. Unfortunately, at the same time as access to the financial markets has improved for a strong bank such as Banco Bilbao, the Spanish economy continues to deteriorate. The economy shark by 0.3% in the first quarter and by 0.4% in the second quarter and is now forecast to show a contraction of 1.7% for the year as a whole. That—with unemployment of 25% or more—certainly suggests that more of Banco Bilbao’s loans will head toward the non-performing category. (People without jobs and companies without customers tend to have trouble paying on their loans.) The bank had only recognized about 24.4% of the losses in its property book as of the end of the second quarter, well short of the 40% required by new regulations. I think it’s safe to say that the bank could see another quarter or two with higher than currently expected provisions against bad loans. So here are your options.

1. You can just hang on since this is one of the strongest banks in Spain and Banco Bilbao is likely to pick up market share in Spain from weaker banks. The decision here may hinge on how attractive you think the bank’s Mexican operation, the largest in Mexico, is. I do think the current 5.63% dividend is safe.
2. You can sell, taking the 66% gain from $5.25 on May 30 (offset against losses you have from buying the stock when I first recommended it back in February 2011 at $12.10), and then look to re-enter if the stock falls back to $7.00 to $7.50 or so on the next leg of the Spanish debt crisis. A drop back to $7 would return the potential gain to $10 to 30%. A drop to $7.50 would give a potential gain of 25%. I think this could be a profitable swing trade since the odds of another uptick in the Spanish debt crisis are high and Banco Bilbao is a likely long-term winner among European banks.

If you own shares of the two big Spanish banks as I do with Banco Bilbao in the Jubak’s Picks portfolio and Banc Santander in the dividend income portfolio, and you’d like to reduce your exposure to Spain and the euro crisis, I’d suggest sticking with Banco Santander over Banco Bilbao because of the greater attractiveness of Banco Santander’s non-Spanish operations. Which then leaves you with just the issue of timing. I think the euro and the Euro debt crisis is on a temporary upswing that has longer to run. So you might let Banco Bilbao run for a bit longer—through the next round of European summits in October/November, for example. A decision by the government of Mariano Rajoy to ask for formal support of Spain’s bonds would be a positive for Spanish stocks. But do remember that you’re looking for an exit here before the next swing of the pendulum. 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 Banco Bilbao and Banco Santander 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/

Cummins (CMI) beats low expectations for the second quarter–but I’d wait until fall to add to positions

August 2, 2012

The headline on the second quarter earnings release from Cummins (CMI) on July 31, read: “Cummins Reports Strong Second Quarter Profits.” Kind of surprising since revenue for the quarter fell by 4% from the second quarter of 2011 and earnings, excluding the effect of divestitures, declined to $663 million from $707 million in the second quarter of 2011. But the results were much stronger than expected so let’s give the headline writer a pass. Excluding divestitures the company reported earnings of $2.45 a share. That was up from $2.41 in the second quarter of 2011, but a huge 18 cents a share above what Wall Street expected. (Cummins is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  ) The stock climbed almost 6% on July 31, before giving back 2.4% yesterday. Cummins is almost a classic example of a good company operating in a bad economy. The company is executing about as well as anyone could in this very tough global economy. EBIT margins (earnings before interest and taxes) are holding up extremely well with the company projecting 14.25% to 14.75% for all of 2012 compared with 14.2% in 2011 and 12.2% in 2010. The company has cut capital spending modestly to a projected annual range of $750 million to $800 million, a decline of $50 million, but has found the bulk of its cost improvements in improvements to the supply chain (forecast at a 0.2 percentage point improvement in the second half of 2012) and in lower raw materials costs (a forecast 1 percentage point improvement.) Cummins is suffering like all U.S. exporters from the effect of a stronger dollar, which is forecast to take about $500 million off the revenue numbers for the second half of the year. Cummins isn’t looking for a particularly strong second half. The company had previously guided analysts to look for flat revenue growth for all of 2012. Engine sales are forecast as flat. Component sales are forecast to climbed 5%. And power generation sales are also forecast to be flat. All those forecasts are lower than previous guidance of 10%, 12%, and 5%-10% growth, respectively. All these projections assume that Cummins is calling growth in the Chinese economy correctly—something the company called unlikely in its conference call. Don’t trust anyone who says they are certain about what is going to happen in China, Cummins advised. For example, China showed 0% growth in electricity consumption in the second quarter, which certainly implies an economy growing much more slowly than the official 7.6% rate. Cummins has been aggressive recently in cutting its projected revenue growth to 0% from 10% for all of 2012 and that has certainly lowered the risk that the company will disappoint in the second half. Expectations are extremely modest with Wall Street looking for just 2.8% earnings growth in 2012 to $9.17 a share from the $8.92 a share in 2011. That does mean, however, that although the odds of disappointment are relatively low, investors are buying the shares for a 2013 recovery. In 2013, Wall Street projects, earnings growth will rebound to 10.6%. I think it’s a little early to buy Cummins now for that growth—I’d hold off on adding to current positions or starting new positions until the fall. If you hold a position now, as Jubak’s Picks does, I don’t think I’d sell based on the relatively low level of risk in the company’s earnings and revenue guidance. The stock currently pays a dividend of 2.14%--more than a 10-year Treasury--after the company raised the quarterly dividend by 25% to 50 cents a share on July 10. The record date for the dividend is August 22. I am cutting my target price, however, to $120 a share by July 2013 from the previous $130 a share. 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 Cummins 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/