Jubak’s Picks – Sells

Company	Symbol	Date Sold	Sell Price	Price Now	Today's Change	Gain/Loss Since Sale
Concho Resources	CXO	05/22/2012	$89.92
What to do about Concho Resources (CXO)? Answering the question depends on weighing the negative global macroeconomic trends versus positive company specific developments. I think that exercise fits a lot of... more
ASML Holding	ASML	05/03/2012	$50.05
Update February 3, 2011: The semiconductor equipment race is heating up even faster than I laid out in my January 14 post on Intel http://jubakpicks.com/2011/01/18/the-chip-war-thats-bad-for-intel-is-good-for-the-shares-of-chip-equipment-makers/ Samsung Electronics, perhaps Intel’s biggest competitor at the moment,... more    Read Jim's Original Sell
Yara International	YARIY.PK	04/11/2012	$46.35
Update October 26, 2011: Companies such as Cummins (CMI) are reporting big positive earnings surprises for the third quarter—11 cents a share above consensus for Cummins—and then seeing shares get slaughtered after warning investors... more    Read Jim's Original Sell
DuPont	DD	02/23/2012	$51.60
Update January 30, 2012: DuPont’s fourth quarter earnings results, announced on January 24, shouldn’t have come as any surprise. (The stock is a member of my Jubak’s Picks 12-18 month portfolio http://jubakam.com/portfolios/ ) Back... more    Read Jim's Original Sell
Mead Johnson Nutrition	MJN	01/27/2012	$74.05
Update January 4, 2012: The Centers for Disease Control and the Food and Drug Administration have concluded that there is no evidence of Cronobacter contamination during the manufacture or shipping of Mead Johnson Nutrition’s... more    Read Jim's Original Sell

Sell Concho Resources (CXO) out of my Jubak’s Picks portfolio

May 21st, 2012

What to do about Concho Resources (CXO)?

Answering the question depends on weighing the negative global macroeconomic trends versus positive company specific developments. I think that exercise fits a lot of stocks these days. Company or sector specific good news is having a hard time getting a hearing amidst the headline fear from Greece, Spain, and China.

The financial results Concho Resources announced for the first quarter on May 2 had a flaw or two. But the fundamental oil exploration and production results provided exactly the solid stuff that investors own this stock for.

Adjusted earnings climbed to $1.05 a share from 79 cents a share in the first quarter of 2011. That was 11 cents a share below Wall Street estimates. Net income on a GAAP (Generally Accepted Accounting Principles) basis was just 30 cents a share, however, as the company took a big $126 million loss on commodity derivatives. That was almost $100 more than the company’ loss on similar derivatives in the first quarter of 2011. Revenue climbed by almost 41% to $508 million. That was above the $485 million Wall Street consensus.

In contrast to those financials, Concho Resources’ production record in the quarter was spotless. Production for the first quarter rose to 6.9 million barrels of oil equivalent, a 32% jump from the first quarter of 2011. The company began drilling 210 wells in the first quarter on its leases in the Permian Basin. Of the 66 completed in the quarter, all were successful. In the Delaware Basin, a less well-explored part of the Permian Basin and an area critical to the company’s growth, Concho Resources drilled 28 wells. Both of the wells completed in the quarter were successful. That’s not a very big sample but it is encouraging.

After the quarter ended, Concho Resources announced on May 13 that it would buy the oil and gas resources of Three Rivers Operating Company for $1 billion in cash. Three Rivers owns 200,000 acres in the Permian Basin with an estimated reserves of 58 million barrels of oil equivalent, according to Concho Resources, and production of 7,000 barrels of oil equivalent a day.

I think the first quarter results and the Three Rivers acquisition position Concho for continued participation in the current boom in land-based U.S. oil production. The company had 387 million barrels of oil equivalent in reserves at the end of 2011 and leases on 533,509 net acres. Production has grown by a compounded annual rate of 43% from 2006 through 2011 and reserves are up at a 38% compounded annual growth rate during that period.

But that hasn’t stopped shares of Concho from being pounded in the last few months as investors worried about falling oil demand and prices on recession in Europe and slowing growth in China. The stock has, in fact sketched in a classic pattern of lower highs and lower lows over the last couple of months with the February 22 high at $116 being followed by the April 27 high at $108.20 and the April 10 low at $95.21 being followed by the May 18 low at $85.90.

If Concho Resources paid a dividend, I would be inclined to wait out these macroeconomic worries about oil demand—but it doesn’t. And after adding Schlumberger (SLB) to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on May 18, I’ve got a little more energy exposure (with Statoil (STO) and SeaDrill (DSRL), which do pay dividends) than I’d like in that portfolio in the current environment. I’ll be selling Concho Resources out of that portfolio tomorrow (when I will revise the sell price used in this post) on the current bounce–the shares closed up 5.1% today—and wait for the next bout of worries to re-buy later in the year.

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 Schlumberger, SeaDrill, and Statoil 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 ASML Holding (ASML)

February 3, 2011

The semiconductor equipment race is heating up even faster than I laid out in my January 14 post on Intel http://jubakpicks.com/2011/01/18/the-chip-war-thats-bad-for-intel-is-good-for-the-shares-of-chip-equipment-makers/ Samsung Electronics, perhaps Intel’s biggest competitor at the moment, and Taiwan Semiconductor Manufacturing (TSM), an Intel partner as well as a manufacturer for some Intel competitors, have announced big increases in their capital spending plans in the last few days as they move to keep pace with Intel and Advanced Micro Devices (AMD) spinoff Globalfoundaries in the battle to win share in the market for the chips that will run tablet computers and smart phones. Spending on semiconductor manufacturing equipment will climb at least 10% in 2011 to $42.2 billion from $38.4 billion spent in 2010, according to technology research house Gartner. The increase is especially stunning because until these new numbers Gartner had been projecting a 1% drop in capital spending on equipment for 2011. Back on January 13 Intel announced that it would spend $9.3 billion on new plants and equipment this year, a 79% jump from 2010 spending. Globalfoundaries has said it will double spending to $5.4 billion. On January 26 Taiwan Semiconductor Manufacturing reported that will increase capital spending by 30% in 2011 to $7.8 billion from a record $5.94 in spending in 2010. On January 28 Samsung Electronics announced that total 2011 capital spending will climb to $20.7 billion from a total $19.4 billion for 2010. Of that $9.2 billion will go into the company’s semiconductor business. The trend should be enough to help the shares of chip equipment makers that include Applied Materials (AMAT) and ASML Holdings rally for another year. ASML is my favorite stock in the sector. On January 19 the company announced fourth quarter earnings of euro 0.94, euro 0.21 above analyst projections. Revenue climbed 161%, beating analyst projections by euro 200 million. Gross margins climbed to 45% in the quarter from 43.6% in the previous quarter. The Dutch company booked euro 2 billion in orders during the quarter to finish the year with a euro 3.9 billion backlog. For the first quarter of 2011 ASML Holding raised revenue guidance to euro 1.4 billion. The consensus projection had been euro 1.32 billion. The company also said that it would pay a euro 0.40 a share dividend for 2010, up from the euro 0.20 dividend paid for 2009. On Wall Street’s projected earnings for 2011, the stock trades at a price to earnings ratio of just 11.7. Price-to-earnings ratios are traditionally very low for chip equipment makers because the industry goes so quickly from boom to bust. But with spending plans moving higher in 2011 ASML Holdings and its peers have at least another year of boom ahead and I’d think it’s reasonable to look for the stock to trade at its current price-to-earnings ratio of 13 on 2011 earnings by December. As of February 3 I’m raising my target price to $52 a share by May 2011. 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 Applied Materials, ASML Holding, Intel, and Taiwan Semiconductor Manufacturing 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 Yara International (YARIY)

October 26, 2011

Companies such as Cummins (CMI) are reporting big positive earnings surprises for the third quarter—11 cents a share above consensus for Cummins—and then seeing shares get slaughtered after warning investors about weakness in the fourth quarter. (Cummins, a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ , fell 5.1% the day of its news.) Norwegian fertilizer maker Yara International (YARIY in New York or YAR.NO in Oslo) did just the opposite. The company announced a slight miss—with EBITDA (earnings before interest, taxes, depreciation, and amortization) coming in about 2% below consensus--about 2% warning investors about a weaker fourth quarter. But then signaled a stronger fourth quarter. Yara International’s shares are up 4.4%, as of 12:30 p.m. in New York on October 26, since the company reported earnings on October 21. (Yara International is also a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/.) Of course, it didn’t hurt that Yara’s “bad” third quarter saw net income climb by 86% from the third quarter of 2010 (excluding currency effects and one-time items the increase was 83%.) EBITDA excluding special items grew by 66%. Not too bad no matter which way you dice it. Yara International is riding a huge wave of rising prices for the value-added nitrate and complex nitrogen/phosphorus/potassium fertilizers that made up 60% of its sales volume in the third quarter. Prices climbed so fast (63% for nitrates and 31% for nitrogen/phosphorus/potassium fertilizers) that Yara International was able to keep ahead of a 38% increase in its cost of natural gas and oil. EBITDA margin increased to 16.8% in the quarter from 11.7% in the third quarter of 2010. It also doesn't hurt that Yara International thinks that the slight weakness in third quarter volume resulted from farmers deferring purchases and that the company believes it will capture these deferred sales in the fourth quarter of 2011 or the first quarter of 2012 as farmers prepare for the spring planting season. Cash flow at Yara International was strong enough that the company was able to reduce its net debt by about 40%. Yara International doesn’t look like it will quite hit my previous target price of $53 by November 2011 (although today’s $48.02 isn’t that far off). But looking at the strength of Yara’s quarter and the trends, I get a new target price of $63 a share by October 2012. The ADR also pays a 2% dividend yield. 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 Cummins and Yara International 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 DuPont (DD)

January 30, 2012

DuPont’s fourth quarter earnings results, announced on January 24, shouldn’t have come as any surprise. (The stock is a member of my Jubak’s Picks 12-18 month portfolio http://jubakam.com/portfolios/ ) Back on the chemical company’s investment day in mid-December, DuPont had said that it saw the next few quarters as tough but that it saw a bright longer-term future thanks to its “new” businesses of nutrition and industrial bioscience. And that’s the story that fourth quarter earnings told too. Fourth quarter earnings came in a 35 cents a share (excluding one-time items), beating Wall Street estimates by two cents a share. Revenue grew by 14% from the fourth quarter of 2010—if you count a big boost from acquisitions and currency. Excluding those two factors revenue grew by just 4%. At $8.43 billion for the quarter, revenue came in just below the Wall Street estimate of $8.53 billion. As you might expect in the current global economy, DuPont’s sales in its consumer electronics and construction businesses were weak in the quarter. Electronics sales, for example, were down 18% year-to-year. But the company’s newer and non-traditional (for DuPont anyway) businesses continued to do well. Sales in the agriculture unit, for example, were up 8% year-to-year on higher prices (five percentage points of the eight percentage point increase in total growth) and increased volume. Nutrition and health grew sales 138% year-to-year thanks to the acquisition of Danisco, which contributed $468 million of the unit’s $806 million in sales. For 2012 as a whole, the company guided to earnings of $4.20 to $4.40 a share. That would    amount to 7% to 12% earnings growth. The company added that it didn’t expect to see growth rebound until the second quarter. A good part of DuPont’s earnings picture over the next few quarters depends on how deep the EuroZone recession is—the International Monetary Fund is projecting a mild recession with GDP falling by 0.5%—since DuPont gets about 65% of its sales outside the United States. At the level of the company’s guidance for 2012 this isn’t an expensive stock—with a forward price-to-earnings ratio on 2012 earnings of 12 or so. By mid-way through 2012 I expect the stock to look even cheaper with the company looking ahead to a modest recovery in the U.S. and emerging market economies that should promise improved revenue in both its traditional and “new” businesses. As of January 30 I’m keeping my target price at $58 by November 2012. At the January 30 price, the stock paid a 3.3% 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 own shares of DuPont 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 Mead Johnson Nutrition (MJN)

January 4, 2012

The Centers for Disease Control and the Food and Drug Administration have concluded that there is no evidence of Cronobacter contamination during the manufacture or shipping of Mead Johnson Nutrition’s (MJN) Enfamil baby formula. Shortly before Christmas a baby in Missouri that had consumed the formula had died from the bacteria. The two agencies also concluded that the formula involved in the illness of another baby in Illinois was from a different batch than in Missouri. “Based on the test results to date, there is no need for a recall of the infant formula,” the agencies said in the joint statement. Wal-Mart (WMT), Supervalue (SVU) and other retailers had pulled the product from their shelves on December 22 after reports of the infant’s death. The tests by the Centers for Disease Control and the Food and Drug Administration found traces of the bacteria in the bottled water used to prepare the formula and in an opened container of the Enfamil product, but not in the sealed containers from the factory. This is about as good an outcome as possible for Mead Johnson Nutrition. The stock fell 14.6% on the news of the infant’s death and on reports that Wal-Mart and other retailers had pulled the product. Shares have since recovered but they’re still down 6.4% from the closing price on December 21 before the news. The question for investors is Now what happens to the shares? (Mead Johnson Nutrition is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/.) Mead Johnson has rightly decided to launch a marketing campaign to restore consumer confidence in the brand. That’s a necessity given the understandable tendency by parents to play safe and switch brands even if the government has decided that the formula is safe. Marketing campaigns cost money, however, and that will put a small dent in earnings over the next few quarters. The company is still likely to see sales drop, however. Credit Suisse estimates that sales will fall by 1.1% in 2012 and that earnings per share will decline by the same amount. That amounts, Credit Suisse calculates, to about 3 cents a share off the top of its forecast of $3.21 a share in earnings for 2012. Three cents doesn’t seem like much, but this is a forecast based on comparison with market share and sales losses in similar incidents and with the recall last year of Abbott Laboratories (ABT) Similac formula. In other words, it's a good projection but it is by no means guaranteed. And the increase in expenses for additional marketing comes at a critical time since one of the arguments for owning Mead Johnson Nutrition now was projections that showed the company raising margins in 2012. That's less likely if the company has to pay for increased marketing. I don’t think you need to rush out and sell these shares—they should continue to recover some of the ground lost after December 22 over the next week or so. But the stock isn’t priced for much error—the consensus Wall Street estimate calls for $3.20 a share in 2012 and not the $3.18 projected by Credit Suisse—and the shares trade at better than 25 times trailing 12-month earnings. And that makes me worried about the company’s next earnings report on January 26—not so much for what the company might say about the fourth quarter of 2011 but about what it might forecast for the next quarter or two in 2012. Guidance might disappoint quite a few investors in the short-term. As of January 4, I’m cutting my target price to $74 a share from the prior $79 and I’d be looking for an exit if the stock recovers the majority of the ground between that target price and the $70.61 price as of 1:30 p.m. New York time today. 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 in Mead Johnson Nutrition 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/