Jubak’s Picks – Sells

Company	Symbol	Date Sold	Sell Price	Price Now	Today's Change	Gain/Loss Since Sale
GulfMark	GLF	03/10/2010	$28.38
Update February 2, 2010: Lots happening at GulfMark Offshore (GLF) over the last quarter. Much of it good. But nothing that yet indicates the decisive turn in the company’s business that I’ve been looking... more    Read Jim's Original Sell
Ritchie Bros. Auctioneers	RBA	03/05/2010	$21.54
Before the stock market opened yesterday morning (March 4) Ritchie Bros. Auctioneers (RBA) reported earnings per share of 20 cents and revenue of $97.1 million. The earnings number matched Wall... more
Corning	GLW	01/04/2010	$19.67
Here’s the dilemma that Corning (GLW) presents to investors right now. It’s one that we’ll face a lot in 2010 with all kinds of stocks. The Wall Street consensus says that... more
Deere	DE	12/01/2009	$54.54
Update August 25, 2009: Deere’s (DE) third quarter earnings report on August 19 confirmed what the company forecast in its second quarter report: forget about 2009. In the quarter earnings per share fell by 25%... more    Read Jim's Original Sell
Lynas	LYSCY.PK	11/30/2009	$28.50
Lynas (LYSCY.PK) isn’t set to produce revenues from its rare earth mine at Mount Weld in Western Australia and from its Advanced Materials Plant in Malaysia until the fiscal year... more

Update GulfMark Offshore (GLF)

February 2, 2010

Lots happening at GulfMark Offshore (GLF) over the last quarter. Much of it good. But nothing that yet indicates the decisive turn in the company’s business that I’ve been looking for. The best I can say is that it feels closer. First, at the end of October the company announced a restructuring, scheduled for completion in the first quarter of 2010, that would merge the existing GulfMark Offshore with a wholly owned subsidiary New GulfMark Offshore, in order to limit the percentage of stock owned or controlled by non-U.S. citizens to a maximum of 22%. This is intended to preserve the company’s status as a U.S. citizen under the Jones Act, which governs maritime activity in U.S. ports. I’m sure this has engendered confusion and probably some selling but the reorganization is a neutral event (other than for the confusion that led to selling) for most investors since each common share of the existing company will be converted into one share of New GulfMark Class A stock. The new stock will be governed by the ownership provisions of the Jones Act. Second, on December 17 GulfMark Offshore announced that it had arranged a new $200 million term-loan facility to replace the prior loan facility of $220.6 million.  The interest rate on the new loan (Libor plus 2.5 percentage points) is a modest step up from the old facility (LIBOR plus 1.5 percentage points). The new facility runs through December 2012. The takeaway message here, though, is that GulfMark was able to roll over the loan and extend the maturity without paying an arm and a leg for the privilege. This is an important sign of health in a financial market where rolling over a loan isn’t guaranteed. None of the company’s debt now matures before 2012 Third, the company announced that in the third quarter revenue fell to $90.8 million, a 27% drop from the third quarter of 2008. The company’s oil services business was strong in Southeast Asia but weak in the Gulf of Mexico and the North Sea. GulfMark CEO Bruce Streeter told Wall Street analysts and investors to expect a difficult fourth quarter (GulfMark reports on February 10) but noted that the company’s new loan facility and the delivery of three new ships in the first half of 2010 put the company in a good position for the eventual turnaround in oil company capital spending budgets. (For my take on the economy in 2010 see my post http://jubakpicks.com/2010/01/22/2010-well-the-first-half-anyway-looks-good-for-stocks-despite-the-current-correction/ ) As of February 2 2010, I’m lowering my target price for GulfMark slightly to $37 a share from the prior $41 and stretching out the schedule to December 2010 from September. Full disclosure: I don’t own shares of any stock mentioned in this post.

Sell Ritchie Bros. Auctioneers (RBA)

March 5th, 2010

Before the stock market opened yesterday morning (March 4) Ritchie Bros. Auctioneers (RBA) reported earnings per share of 20 cents and revenue of $97.1 million. The earnings number matched Wall Street projections but revenue 1% above expectations of $95.8 million. Revenue was up 19% for the quarter from the fourth quarter of 2008.

The number to watch, though, if you want to understand what’s going on at Ritchie Bros. is gross auction proceeds. That’s the amount of money that Ritchie Bros. collects for buyers in selling their items. Ritchie Bros. earns a commission on gross auction proceeds.

 Gross auction proceeds climbed 1% in the quarter from the fourth quarter of 2008 but fell 2% for all of 2009 from the 2008 level.

The problem was that while the number of items Ritchie sold grew by 12% in 2008, the average price of the equipment the company sold fell.

At the beginning of 2009 the company had expected a surge in the volume of equipment coming to auction as equipment owners, faced with the slowdown in the economy, sold idle equipment. The surge would be big enough, they figured, to more than offset any drop in price.

Well, the company got an increase in volume but hardly a surge. As best as Ritchie CEO Peter Blake can figure it, interest rates are so low and equipment lenders so willing to work out deals that many companies have decided to hold onto their equipment even though business is slow.

All this makes it very hard to predict Ritchie Bros. revenue and earnings in the rest of 2010. If the economy picks up, auction prices should rise, but the number of companies with currently idle equipment could well lead to fewer buyers at the company’s auctions. And if the economy picks up, it’s hard to see why the companies that have been holding onto their equipment through the slowdown would sell.

The shares have had a decent bounce off a low of $19.49 on February 18—that’s about 10% as of the $21.57close yesterday—largely because every analyst on Wall Street was busy preparing for the company to deliver  below consensus earnings on March 4.

But I’d rather own a company where the trends in 2010 are more predictable—the larger economy is unpredictable enough, thanks. So today March 5 I’m selling these shares out of Jubak’s Picks with an 11.5% loss from my initial purchase price of $24.37 on December 3, 2009. This sell will build my cash position in Jubak’s Picks to 11%.

Full disclosure: I don’t own shares of any company mentioned in this post.

Sell Corning (GLW)

January 4th, 2010

Here’s the dilemma that Corning (GLW) presents to investors right now. It’s one that we’ll face a lot in 2010 with all kinds of stocks.

The Wall Street consensus says that Corning will announce earnings of 42 cents a share when it reports fourth quarter 2009 earnings on January 25.

That would be a huge 223% increase in earnings from the 13 cents a share that the company reported in the fourth quarter of 2008.

So why not hold onto the stock? No need to sell just because the shares have hit my $19 price target, right?  At $19, Corning sells for just 14.3 times projected 2009 earnings. That’s without a doubt cheap for a stock growing earnings at 223%.

The problem is that it doesn’t look like Corning is going to grow earnings by 223% in 2010. Or by 123%. But more like 23%. And just about all of that growth will be stacked into the first half of 2010. In the second half of 2010 Deutsche Bank projects that Corning will grow earnings by just one penny from the second half of 2009. That works out to 1.2% growth.

(I think that as investors get further into 2010 they will see a lot of stocks with this kind of earnings growth pattern: Big growth in the first half of the year on easy year to year comparisons and meager growth in the second half on tougher comparisons with post-economic-bust quarters.)

The Wall Street consensus is that Corning will grow earnings by just 6.7% a year for the next five years. That includes the 163% projected earnings growth in the first half of 2010.

If Corning were set to grow at 23% in 2010 and if that were the long-term growth rate, then Corning would be cheap at 14.3 times projected 2009 earnings. The PE to earnings growth ratio (PEG ratio) would be just 0.62. That’s way under the PEG ratio of 1 that classically defines growth at a reasonable price.

 But if Corning’s long term growth rate is just 6.7%, then this is a very over-priced stock with a PEG ratio of 2.1.

At today’s price of $19.71, I think the stock trades with too much risk for the likely return over the next year. So I’m selling these shares out of my Jubak’s Picks portfolio today with a 25% gain since I added them to that portfolio on October 12, 2009.

If you are an aggressive trader, you can hold on until closer to the January 25 reporting date on the hope that the stock’s momentum will carry it higher and that a large number of traders will hang on in the hope that the company will beat expectations. (Or in the belief that you’re so much smarter than most investors who aren’t aware of the possibility that Corning’s growth is front-end loaded in 2010.)

If you are a long-term investor who follows my Jubak Picks 50 portfolio, I suggest you hold onto to Corning. The company has significant new businesses that make the 6.7% growth rate that Wall Street projects way too low over the long term. (Although in the near term, I think that rate is reasonably accurate since the new businesses will take time to grow to the size of the company’s existing fiber optic and flat screen glass businesses. Even a long-term investor, of course, could sell and then buy back during what looks like a disappointing second half of 2010.)

Full disclosure: I will be selling my personal position in Corning three days after this is posted.

Update Deere (DE)

August 25, 2009

Deere’s (DE) third quarter earnings report on August 19 confirmed what the company forecast in its second quarter report: forget about 2009. In the quarter earnings per share fell by 25% to 99 cents from $1.32 in the third quarter of 2008. Revenue dropped 24% to $5.89 billion. The drop in quarterly sales—the second consecutive year-to-year drop in quarterly numbers—came as the global recession continued to reduce demand for construction, forestry, and home lawn equipment. The next quarter isn’t going to be any better either, the company said. Deere forecast that fourth–quarter sales will tumble 34% from the fourth quarter of 2008. Now the question is When do things start to look better?   The company’s forecast of a 21% drop in sales for all of 2009 is down slightly from its May 20 estimate of a 19% drop in 2009 results. Farm equipment sales have held up reasonably well in the United States thanks to big harvests of corn, forecast by the U.S. Department of Agriculture to increase by 5.5% from 2008 levels, and soybeans, forecast up 8.1%. But investors shouldn’t expect an increase in sales in this sector unless commodity prices pick up. Deere’s sales of farm equipment closely track farm incomes and in this quarter’s conference call Deere lowered its 2009 and 2010 forecasts for U.S. farm cash income. In 2009 cash income is expected now expected to be about $5.5 billion less—or about 1.7% lower—than Deere’s earlier forecast. The company also reduced its 2010 forecast for farm cash income to $309.3 billion from the earlier $315.9 billion. The forecasts are based on a projected decline in corn prices in 2009-2010 to $3.40 a bushel from an earlier estimate of $3.80. But the key to 2010 is stabilization in the lawn and garden, and construction and forestry segments.  Construction and forestry sales fell 47 percent to $632 million in the quarter. I still think those markets will show much more modest declines in 2010 and could even register year-to-year increases in the second half on very weak comparisons to the year earlier quarters. As of August 25 I’m leaving my target price at $56 but stretching out the schedule to July 2010 from June. (Full disclosure: I own shares of Deere in my personal portfolio.)

Sell Lynas (LYSCY.PK)

November 30th, 2009

Lynas (LYSCY.PK) isn’t set to produce revenues from its rare earth mine at Mount Weld in Western Australia and from its Advanced Materials Plant in Malaysia until the fiscal year that ends in June 2011. And even then the Wall Street consensus calls for revenue of just $13.3 million (U.S. dollars) and a loss of about 90 cents.

Because the company is still in the process of beginning production, the lack of basic information—what will it cost to mine, ship and then process rare earths?—makes it very difficult to put any kind of price tag on the stock that’s based on fundamentals. In their absence I have to pay more attention to market sentiment and momentum. Right now it looks like Australian stocks are moving toward overbought in the short-term. Risk appetite, judging from flagging momentum, is waning. And leadership seems to be moving from natural resource and other cyclical sectors to consumer goods and health care. I think Lynas has an incredible long-term story given the rising demand for rare earth minerals in every green technology from hybrid cars to wind turbines, and given the scarcity of rare earth producers outside of China. (For more on the long-term rare earth story, see my post http://jubakpicks.com/2009/09/11/rare-earths-you-cant-build-hybrids-or-wind-turbines-without-them-and-china-is-putting-the-squeeze-on-supplies/ )

But given the demonstrated volatility of this stock—the ADR traded at $22.50 on November 2 and at $42.55 on September 23, 2009—I’d rather cut my risk now and look to re-purchase on a dip.

The stock has repeatedly touched my target price of $29 a share in recent days. With this post I’m selling Lynas with a gain of 24% since I added it to Jubak’s Picks on November 6, 2009.

Full disclosure: I will sell my shares of Lynas out of my personal portfolio three days after this column is posted.