Jubak’s Picks Portfolio

Buy and hold? Not really. Short-term trading? Not by a long shot. So what is the stock-picking style of The Jubak’s Picks portfolio? I try to go with the market’s momentum when the trend is strong and the risk isn’t too high, and I go against the herd when the bulls have turned piggy and the bears have lost all perspective. What are the results of this moderately active—the holding period is 12 to 18 months—all-stock portfolio since inception in May 1997? A total return of 334% as of December 31, 2012. That compares to a total return on the S&P 500 stock index of 125% during the same period.

View Sells

Symbol	Date Picked	Price Then	Target Price	Price Now	Today's Change	Jubak's Gain/Loss
Chicago Bridge & Iron
CBI	05/20/2013	$63.41	$74.00
On Friday, May 17, the U.S. Department of Energy approved what is only the second permit to export liquefied natural gas from the United States. The permit went to the... more
eBay
EBAY	04/22/2013	$51.63	$65.00
I’m going to use the big post-earnings report drop to pick up shares of my favorite financial stock, eBay (EBAY). The stock fell  5.5% on the day after it announced... more
Citigroup
C	04/17/2013	$45.57	$55.00
Update April 25, 2013: Nothing surprising in today’s announcement from Citigroup (C). After all one reason I added the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on April 17 was the expectation that... more  |  Read Jim's Original Buy
DaVita Healthcare Partners
DVA	04/05/2013	$125.38	$149.00
Update May 8, 2013: DaVita HealthCare Partners’ (DVA) solid beat on first quarter earnings last night was over-shadowed this morning by reports of a standstill agreement with Warren Buffett’s Berkshire Hathaway (BRK/A) that traders... more  |  Read Jim's Original Buy
Lindsay
LNN	04/02/2013	$82.35	$96.00
And speaking of infrastructure. (See my post from this morning http://jubakpicks.com/2013/04/02/ive-been-walking-on-the-railroad-and-thinking-about-investing-in-infrastructure/) I’ve held off on buying shares of irrigation equipment (almost) pure play Lindsay (LNN) because of worries about the continued... more
Mitsubishi UFJ
MTU	03/26/2013	$5.92	$7.10
It’s more accurate to think of Mitsubishi UFJ Financial Group (MTU in New York) as a securities portfolio rather than as a bank right now. And from that perspective, Mitsubishi... more
Toyota Motor
TM	02/05/2013	$98.86	$151.00
Update May 17, 2013: Toyota Motor (TM in New York and 7203.JP in Tokyo) blew through my $120 target price on May 10 and kept going. The New York traded ADRs (American Depositary Receipts)... more  |  Read Jim's Original Buy
Targa Resources Partners
NGLS	11/23/2012	$36.97	$45.00
Update February 21, 2013: Not surprisingly Targa Resources Partners (NGLS) has show a little weakness recently after the February 14 date (record date January 28) for paying the master limited partnership’s fourth quarter dividend. What’s... more  |  Read Jim's Original Buy
Qualcomm
QCOM	10/12/2012	$58.89	$82.00
Update March 6, 2013: Yesterday Qualcomm (QCOM) announced that it would increase its dividend by 40%--to 35 cents a share from 25 cents—and start a new $5 billion share repurchase program. (That program will... more  |  Read Jim's Original Buy
Stillwater Mining
SWC	09/25/2012	$11.43	$18.00
Update May 21, 2013: The dust has settled at Stillwater Mining (SWC) with the election of four new board members backed by the Clinton Group, an activist investor that wants the company to focus... more  |  Read Jim's Original Buy
Xylem
XYL	09/04/2012	$24.08	$31.00
Update September 25, 2012: I added Xylem (XYL) to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on September 4 with a target price of $30 a share by September 2013. Time for a quick update on... more  |  Read Jim's Original Buy
McDonald's
MCD	05/18/2012	$89.85	$106.00
Update March 8, 2013: Today’s announcement of February same store sales from McDonald’s (MCD) shows what the company has been up against in the last few months. Same store sales fell 1.5% in the... more  |  Read Jim's Original Buy
Schlumberger
SLB	05/18/2012	$64.49	$88.00
Thanks to the euro debt crisis and worries that a slowing China will reduce global demand for oil, I’ve finally got my buying target for Schlumberger (SLB). (How’s that for... more
Apple
AAPL	05/18/2012	$533.50	$600.00
Update April 18, 2013: Apple (AAPL) doesn’t report earnings until April 23—which has put Wall Street analysts and investors deep into reading the tealeaves mode. Yesterday’s leaves come from Cirrus Logic (CRUS), a supplier of... more  |  Read Jim's Original Buy
Statoil
STO	05/10/2012	$25.92	$27.50
Update May 6, 2013: Norway’s Statoil (STL.NO in Oslo and STO in New York) reported a brutal first quarter on May 2. Net income adjusted for one-time items fell to NKr 12 billion in... more  |  Read Jim's Original Buy
MGM Resorts International
MGM	05/04/2012	$12.43	$18.00
Update May 2, 2013: MGM Resorts International’s (MGM) China unit reported record performance for the first quarter of 2013, the company announced this morning before the New York markets opened. But the big surprise... more  |  Read Jim's Original Buy
Nokia
NOK	03/30/2012	$5.49	$7.80
Update January 24, 2013: Investors weren’t happy to be reminded of how long a slog Nokia (NOK) still faces. The company reported earnings of 0.06 euros this morning, before the open in New York.... more  |  Read Jim's Original Buy
OncoGenex
OGXI	03/14/2012	$15.71	$22.00
Update May 3, 2013: I know it looks like OncoGenex Pharmaceuticals (OGXI) has popped today—the shares were up almost 7% as of 1:45 p.m. New York time—on the company’s first quarter earnings surprise. The... more  |  Read Jim's Original Buy
Home Inns and Hotels Management
HMIN	03/13/2012	$27.29	$37.00
Update May 13, 2013: Home Inns and Hotels Management (HMIN) announced first quarter earnings today, May 13, of 4 cents a share (excluding one-time items). That was 9 cents a share better than the... more  |  Read Jim's Original Buy
SeaDrill
SDRL	03/02/2012	$40.05	$49.00
Update February 28, 2013: The rigs are coming. The rigs are coming. And in yet more of SeaDrill’s (SDRL) aggressive use of its balance sheet, the company will fund its purchase of new higher margin... more  |  Read Jim's Original Buy
Yamana Gold
AUY	02/29/2012	$17.25	$21.00
Update May 1, 2013: Yamana Gold (AUY) has been hit hard today after the company announced first quarter earnings of 16 cents a share—3 cents a share below the Wall Street consensus—and revenue of... more  |  Read Jim's Original Buy
Precision Castparts
PCP	02/01/2011	$144.17	$238.00
Update May 10, 2013: Growth investors who never lost faith in Precision Castparts (PP) finally got their reward. Growth is back, the company said in its May 9 earnings report for the quarter that... more  |  Read Jim's Original Buy
Yingli Green Energy
YGE	11/22/2010	$10.76	$6.00
Update December 1, 2011: Yingli Green Energy Holding (YGE) announced ugly third quarter results on November 23—and then topped them with even uglier forecasts for the fourth quarter. Shipments will be down 20% in... more  |  Read Jim's Original Buy
Abbott Laboratories
ABT	09/24/2010	$25.80	$36.00
Update : I can’t say that I’m a big fan of Abbott Laboratories (ABT)—mostly because I’m not a big fan of big drug companies in general. Because these companies are seeing a... more  |  Read Jim's Original Buy
US Bancorp
USB	03/26/2010	$26.00	$37.00
Update April 17, 2012: Now that’s what strong bank earnings look like. This morning before the open in New York U.S. Bancorp (USB) reported earnings of 67 cents a share (or 70 cents a share... more  |  Read Jim's Original Buy
Goldcorp
GG	11/05/2009	$40.44	$55.00
Update April 26, 2012: Goldcorp (GG) reported first quarter 2012 earnings of 50 cents a share on April 25 after the close of New York markets. That was 5 cents a share below the... more  |  Read Jim's Original Buy
Johnson Controls
JCI	09/08/2009	$25.26	$42.40
Update May 22, 2013: Shares of Johnson Controls (JCI) hit a new 52-week high yesterday on anticipation of a better than expected second half for calendar 2013. They also hit my $37 target price... more  |  Read Jim's Original Buy

A second LNG plant gets a U.S. export license–the best stock pick on that news is Chicago Bridge and Iron

May 20th, 2013

On Friday, May 17, the U.S. Department of Energy approved what is only the second permit to export liquefied natural gas from the United States. The permit went to the Freeport LNG project in Texas, a joint project of Freeport LNG Investments, ZHA FLNG Purchaser, Dow Chemical subsidiary Texas LNG Holdings and Turbo LNG, a subsidiary of Japan’s Osaka Gas. The permit will allow Freeport to export up to 1.4 billion cubic feet to gas a day. Subject to environmental review and final regulatory approval, Freeport plans to begin exports in 2017.

The permit went to Freeport, but I think the immediate profits will go to Chicago Bridge and Iron, the engineering company most likely to win the bulk of work on Freeport.

Like Cheniere Energy’s (LNG) Sabine Pass project in Louisiana, the first project to get an export permit, Freeport began its life back in 2005 as a terminal to import liquefied natural gas into the United States. With the U.S. boom in natural gas from shale, the flow has reversed. A total of 19 other projects are waiting for permits. Without a permit companies can export liquefied natural gas only to a short list of countries with which the U.S. has signed free trade agreements. That list doesn’t include big markets such as Japan. Two Japanese companies Osaka Gas and Chubu Electric had signed agreements in 2012 to acquire production from the first train at Freeport beginning in 2017. Freeport’s current plans call for spending $10 billion to build three production trains with a capacity of 1.9 billion cubic feet a day.

I don’t think this approval has a negative effect on Cheniere Energy. If anything it puts a time line on how long a lead Cheniere has in this market. Right now it looks like Cheniere will have two years when it has the U.S. LNG export market pretty much to itself and then an even longer period before enough U.S. competitors get their capacity on line and begin to depress LNG prices in overseas markets. Right now natural gas sells for $4 per million BTUs (British Thermal Units) in the United States, $10 per million BTUs in Europe, and $15 per million BTUs in Japan.

The big winners in the Freeport announcement—for investors anyway since they can’t invest in Freeport itself—are the engineering and construction companies, Chicago Bridge and Iron (CBI), Jacobs Engineering (JEC), and Fluor (FLR), for example, that will build these LNG plants.

The company in that group that benefits most from Freeport itself is Chicago Bridge and Iron, which worked on the front-end engineering and design for the plant and is a front-runner for a big share of additional contract work. (About $4 billion in total, I’d estimate.) Chicago Bridge and Iron has one of the sector’s biggest weightings toward LNG—the source of about 33% of the company’s profits now. Estimates put total capital spending on LNG in North America at about $30 billion from 2015-2020. The company has also formed joint ventures to work on liquefied natural gas projects in Australia and Papua New Guinea.

As of May 20, I’m adding shares of Chicago Bridge & Iron to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ with a December 2013 target price of $74 a share.

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/

 

Time to buy my favorite financial–eBAY

April 22nd, 2013

I’m going to use the big post-earnings report drop to pick up shares of my favorite financial stock, eBay (EBAY). The stock fell  5.5% on the day after it announced earnings that beat Wall Street projections by a penny. But the company then guided second quarter and 2013 revenue below consensus expectations.

The lower guidance doesn’t bother me much. EBay’s revenue from its online marketplace and from its PayPal transaction service is sensitive to economic growth. In lowering its guidance the company pointed to the slowdown in the U.K. and EuroZone economies. That seems like a reasonable explanation, especially since the new revenue guidance is only a drop from the Wall Street consensus of $3.96 billion in second quarter to $3.8 billion to $3.9 billion.

What attracts me to the stock—and what makes eBay a financial stock–is the growth in the PayPal transaction service and eBay’s ability to grow PayPal on mobile platforms. As recent results from Yahoo (YHOO) and Google (GOOG) show, the transition to a mobile-centric world from the older desktop model isn’t easy. PayPal seems to have a real chance to be one of the companies to actually profit from the shift.

PayPal processed $145 billion transactions in 2012—that’s about 15% of the total $1 trillion in electronic commerce. (Total net payment volume grew by 21% in the first quarter.) But PayPal’s goal isn’t just to gain a bigger share of that growing stream of electronic commerce, but also to build a platform for transactions in the larger $1 trillion retail transaction market. With its 128 million users—up 5 million in the first quarter of 2013–and its reputation for safety and security I think PayPal has the potential to capture a big chunk of the next big market for financial transactions—those conducted over smartphones. The company has forecast annual revenue growth at PayPal of better than 20% a year.

None of this would matter much if eBay’s marketplace, the company’s original business, were still foundering. But eBay has turned that around and is in the process of building it from a bidding site for stuff from the attic into a competitor to Amazon.com. Competing with Amazon is a huge challenge, obviously, but eBay does have the advantage that many retailers would like to do their electronic business on a site that doesn’t compete with them. What eBay calls its marketplace business saw revenue climb 13% in the quarter and the addition of 3.9 million active users, a 13% increase. Gross merchandise volume, excluding vehicles, grew by 13% to $18 billion.

I’m adding shares of eBay to Jubak’s Picks today http://jubakpicks.com/the-jubak-picks/ I’d calculate a one-year target price of $65 a share for eBay. The shares closed at $51.63 on April 22.

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 eBay 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/

Citigroup does the expected and announced a small buyback

April 25, 2013

Nothing surprising in today’s announcement from Citigroup (C). After all one reason I added the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on April 17 was the expectation that the company would announce a significant share buyback program relatively soon. Today the company’s board of directors voted to continue, as expected, the company’s token 1 cent a share quarterly dividend (payable to shareholders of record as of May 6) and approved the purchase of $1.2 billion in stock through the first quarter of 2014. The stock repurchase became possible after Citigroup passed the Federal Reserve’s last Comprehensive Capital Analysis and Review (CCAR.) The size of the purchase is roughly enough to offset the dilution created by the company’s annual stock grants so it’s not a major support for the share price. Instead it’s significant as a milestone on the bank’s post-financial crisis journey back to the status of an average bank. 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 Citigroup 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/

Is Warren Buffett out to buy DaVita? The odds just went up

May 8, 2013

DaVita HealthCare Partners’ (DVA) solid beat on first quarter earnings last night was over-shadowed this morning by reports of a standstill agreement with Warren Buffett’s Berkshire Hathaway (BRK/A) that traders see as raising the odds of an acquisition. DaVita, a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  , is up 8% as of 1:30 p.m. New York time on the combined news. I had calculated a $149 a share target price for DaVita when I added it to the portfolio on April 5. As of May 8, I’m leaving the target price at that level. First, earnings. The company reported earnings of $1.84 a share (excluding one-time items) versus Wall Street expectations for $1.80 a share. Revenue climbed to $2.83 billion against the $2.79 billion analyst consensus. The company raised its guidance for 2013 operating income to $1.8 billion to $1.90 billion from prior guidance of $1.75 billion to $1.9 billion. Second, the standstill. DaVita said that Berkshire Hathaway, which already owns 14% of DaVita’s shares, had approached the company about increasing its holdings. Berkshire has agreed that, if its position exceeds 15%, it would not propose an acquisition without consent from DaVita. That would prevent an unsolicited, hostile takeover attempt by Berkshire Hathaway, but since Berkshire’s deals are typically friendly, the agreement strikes traders not as preventing an acquisition but as laying out a framework for a future deal. Buttressing that logic are the names on the standstill agreement. On DaVita’s side the paper was signed by president Javier Rodriguez. For Berkshire the signatory was Ted Weschler, a former hedge fund manager recently hired by Berkshire to help oversee investments. DaVita was among the biggest holdings in Weschler’s hedge fund before he joined Berkshire. 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 in DaVita HealthCare Partners 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 irrigation equipment maker Lindsay on the drip (I mean dip)

April 2nd, 2013

And speaking of infrastructure. (See my post from this morning http://jubakpicks.com/2013/04/02/ive-been-walking-on-the-railroad-and-thinking-about-investing-in-infrastructure/)

I’ve held off on buying shares of irrigation equipment (almost) pure play Lindsay (LNN) because of worries about the continued drop in revenue at the company’s unit that sells traffic and construction barriers.

Certainly there were no signs of a turnaround for that business in the results of the fiscal second quarter that the company reported on March 27. Infrastructure revenue was down 15% from the fiscal quarter a year ago. In its outlook for the rest of calendar 2013 the company called the infrastructure business “challenging.”

But infrastructure is a diminishing part of Lindsay’s business—revenue from that unit in the quarter came to $12.9 million versus $162 million for the irrigation business—and the 22 states that have passed measures in the last year to raise more money for highway spending do argue for a bottom sometime in 2013.

The stock has sold off heavily since March 26. Most of that, though, hasn’t been disappointment with Lindsay’s results—revenue from irrigation equipment climbed 39% in the quarter a year earlier (and operating margins climbed to 16.8% in the quarter from 14.3% in the year-earlier quarter.)

Instead the problem has been a report last week from the U.S. Department of Agriculture that said corn stockpiles would be above analyst estimates at the maximum drawn down before this year’s harvest. That produced a 5% drop in corn futures on Thursday of last week and a 6% drop on Monday. Prices of agricultural stocks such as Deere (DE), Potash of Saskatchewan (POT), Monsanto (MON), and Lindsay have followed corn futures downward.

I’m going to use this sell off—which seems overdone since while stockpiles may be above estimates, the U.S. Department of Agriculture is also predicting a record or near record number of acres will be planted to corn—and what I think is the likely stabilization of the infrastructure business to buy shares of Lindsay. I think irrigation is a profitable long-term play on increased global demand for food, on decreased global supplies of water (and certainly of water in the right places), and of increased volatility in global weather. And there just aren’t very many pure plays (or almost pure plays) on water.

I’d set a six-month target price for the shares of $96. (Thanks to those readers who asked about Lindsay after my earlier infrastructure post.)

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 Lindsay 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/

Mitsubishi UJF–it’s not a bank but a portfolio of stocks that will rise with a falling yen

March 26th, 2013

It’s more accurate to think of Mitsubishi UFJ Financial Group (MTU in New York) as a securities portfolio rather than as a bank right now. And from that perspective, Mitsubishi UFJ is likely to be one of the biggest beneficiaries of the downward trend in the yen that I expect to resume as soon as the financial markets move past the chaos that is Cyprus.

For an indication of what the weak yen does to the income statement at Japan’s biggest bank just take a look at the February 1 report of third quarter earnings. Third quarter profit doubled as the rally in the Tokyo stock market based on a falling yen led to higher fee income and smaller stock portfolio losses. That doubling in earnings came even though as a bank Mitsubishi’s business continued to lag. Income from lending—a core bank business, no?—fell by 7.8%, for example.  Making up for that weakness was a big reduction in impairment charges on the bank’s equity portfolio—Japanese banks typically take big equity positions in the companies they lend to—and an increase in earnings from the bank’s brokerage unit.

Impairment charges from the bank’s shareholdings dropped to 90.9 billion yen in the nine months that ended on December 3. That was a 41% drop from the same period a year earlier and was down from 174 billion yen in the first six months of 2012.

Earnings at the company’s brokerage business, Mitsubishi UFJ Securities Holdings, rebounded to a 10 billion yen profit from a loss of 12 billion yen in the year-earlier quarter.

With the Bank of Japan signaling that it will announce aggressive moves to weaken the yen at its April 3 to 4 meeting, I think we’re likely to see a resumption of the rally in Japanese stocks that has stalled as turmoil in the EuroZone has led to a flight to safety in the yen that stopped the decline of that currency.

Japan’s big banks give you broad-based exposure to any upward move in Japanese equities. Any of Japan’s Big 3 banks can do the job in your portfolio. I prefer Mitsubishi UFJ because the ADRs trade with a 1.2 million unit average daily volume in New York. That gives them better liquidity—easier entrances and exists—than ADRs of Sumitomo Mitsui (SMFG in New York with 670,000 unit volume) or Mizuhi (MFG in New York with 530,000 unit volume.)

I’m not looking to hold Mitsubishi UFJ for any longer than the yen decline continues. I’m adding the ADRs to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ today with an initial target price of $7.10, about 22% above the $5.92 New York close today, March 26, on the ADRs. I’d re-evaluate policy at the Bank of Japan if the ADRs get to that level—or if it looks like the yen’s downward trend has stalled to see how much life there is left in a falling yen.

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 any stock mentioned in this post 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/

Moving to a higher target price on my stock pick Toyota Motor

May 17, 2013

Toyota Motor (TM in New York and 7203.JP in Tokyo) blew through my $120 target price on May 10 and kept going. The New York traded ADRs (American Depositary Receipts) traded at $127.26 just before the close on May 17. As of May 17, I’m increasing my target price to $151 for the ADR. Toyota Motor is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ . This stock pick is up 28.7% since I added it to the portfolio on February 5, 2013. I added Toyota Motor to this portfolio as a way to play the decline in the Japanese yen being engineering by the Bank of Japan and the Abe government in Tokyo. My reason for holding onto this position and increasing the target price is my belief that the yen at today’s close of 103.24 to the dollar isn’t the near the end of the drop in the yen. The consensus on Wall Street is that we’re headed through 105 to 110 by the end of the year. I think that’s conservative and that we’re likely to see 120 or so by the end of 2013. But whatever your exact year-end target, a falling yen moves Toyota Motor higher in three ways. First, the depreciation in the yen will lead to increased profits as Toyota sells more cars to customers in non-yen economies and then brings those stronger currency sales receipts home for translation back into yen. In its March 2013 quarter, the fourth quarter of the company’s 2013 fiscal year, Toyota reported a 159% increase in net profit. For the 2014 fiscal year that ends in March 2014, the company projects that net income will climb 42%. Second, Wall Street and Toyota Motor itself will push the share prices higher as they move the assumptions for the yen from the current neighborhood of 90 to 95 to the dollar to 100 or higher. Toyota’s projections for fiscal 2014, for example, assume that the yen will trade at 90 to the dollar. Of the 1394 companies that had reported for the March quarter as of early May, the average assumption was for the yen to trade at 90. If instead, you assume 100 yen to the dollar and not 95 in your model—a reasonable assumption since the yen now trades at 102—then Toyota will add another 150 billion yen (or $1.5 billion) to the profit from overseas operations, Credit Suisse projects. When Wall Street analysts lag like this, they wind up gradually raising target prices, which does indeed push stock prices higher. The third reason to hold onto Toyota Motor at this point is that it looks like sometime in calendar 2013 the company will exceed its target cash position of 5 trillion or 6 trillion yen. Toyota Motor’s cash position was already at 4.6 trillion yen at the end of March. If the company accumulates more cash than the target, as seems likely, shareholders could well get a bump up in the current 1.9% dividend. 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 Toyota Motor 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/

Targa looks particularly well-matched with an uncertain economy in 2013

February 21, 2013

Not surprisingly Targa Resources Partners (NGLS) has show a little weakness recently after the February 14 date (record date January 28) for paying the master limited partnership’s fourth quarter dividend. What’s surprising is how small the retreat has been. I suspect that this strength in a dividend-paying stock after the dividend payout is a sign that investors are feeling a little less aggressive and a little more conservative at current high. The retreat wasn’t very large—from $41.88 on February 14 to $41.04 on February 20—but decline pattern is normal for stocks and master limited partnerships (MLPs) that pay hefty dividends. (Targa showed a projected dividend yield of 6.5% at the February 14 price.) Some holders of the stock, having collected the quarterly dividend, sell with the idea of buying something else about to pay a dividend and maybe returning to hold Targa closer to its next dividend payout. The dividend for the fourth quarter of 68 cents per unit ($2.72 per unit on an annual basis) is a 3% increase from the third quarter and a 13% increase from the dividend in the fourth quarter of 2011. The partnership continues to project a 10% to 12% increase in distributions for 2013. If you believe those projections, and I think they’re reasonable, then that $2.72 in dividends turns into $2.99 to $3.05 a share at the end of 2013. And that would equate to a $45 a unit price and at a 6.8% yield at end of the year. (Which is--$45 by December 2013—what I’m going to set as my new target price for Targa in my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ .) On February 14 Targa Resources Partners reported financial results for the fourth quarter of 2012 and for the full 2012 year. (The results of the acquisition of assets in the Bakken oil shale play aren’t included in these numbers since that deal didn’t close until December 31, 2012.) EBITDA (earning before interest taxes, depreciation, and amortization) came to $131 million in the quarter against $146 million in the fourth quarter of 2011. Transaction costs for the Bakken deal came to about $6 million in the period. The partnership also wrote off $15.4 million in damage from Hurricane Isaac and recorded a $12.8 million loss on debt redemption. For the fourth quarter the partnership had distributable cash flow of $86.4 million or roughly equal to the $90.9 million in distributions paid on February 14, 2013. In a period when money is cheap one of the most important things to look for, in my opinion, in a master limited partnership is a pipeline of attractive investment opportunities. (An MLP borrows money to invest in new projects and makes it money on the spread between the cost of money and the returns on new investments.) Targa’s pipeline of organic investment opportunities adds up to $1.7 billion in announced projects scheduled to come on line in 2013 and 2014 with $1.1 billion of that front-end loaded to go into service in 2013. In addition the Bakken acquisition opens up new opportunities for the company in a new production area that is more weighted to oil than to the company’s current focus on natural gas liquids. The company expects the Bakken acquisition to be accretive to EBITDA in 2014. But the size of a partnership’s project pipeline isn’t the only important criteria for judging an MLP in an era of cheap money. There’s also the question of how a partnership’s revenue stream is structured. Targa transports, mostly, natural gas liquids. Where its revenues are linked to commodity prices, weak prices for natural gas liquids (because of fast growing supply) hurt Targa’s revenues. Where its revenues come from fee-based services such as logistics, then Targa’s revenues hold up rather well even if commodity prices are under pressure. On this front Targa has been moving in the right direction. Revenue over the last 12 months was only 37% fee-based, but the partnership’s newer projects have been fee-based. That should result in 55% of Targa’s revenues coming from fee-based projects by the end of 2013 and 60% by the end of 2014. That gives Targa’s cash flow and distribution growth good predictability in an uncertain commodity market. My December 2013 target price of $45 and the current yield of 6.5% add up to a projected total return of 18.9% from the February 20 closing 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 not own shares of any company mentioned in this post 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 Qualcomm: Thanks for the 40% dividend hike

March 6, 2013

Yesterday Qualcomm (QCOM) announced that it would increase its dividend by 40%--to 35 cents a share from 25 cents—and start a new $5 billion share repurchase program. (That program will replace an older $4 billion plan that still had $2.5 billion in purchasing power left.) I see this as, first, a move to keep up with the Apples of the world by hiking the yield on the shares—about 2% after today’s move—to a roughly level roughly comparable to the 2.65% yield on Apple (AAPL) or the 2.65% yield on shares of Cisco Systems (CSCO.) Certainly Qualcomm has the cash flow and the cash balances to keep up. Second, the dividend increase is a strong vote of confidence by the company’s board that Qualcomm will be able to keep up the pace of recent quarters. Unlike a share buy-back, which can be announced and then never completely executed, a dividend is a major commitment of company cash, and company boards know that the company’s share price will get pummeled if they have to cut the payout. As of December 30 Qualcomm had cash and cash equivalents of $10.1 billion onshore and $18 billion offshore. Qualcomm is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ . On January 31 I raised my 12-month target price on the shares to $82 from $77. The dividend and the buyback are transfers of cash from the company to shareholders; and while an increase to a 2% yield is appreciated, I don’t see the move as a reason to raise my target price at this point. 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 Qualcomm the end of September. For a full list of the fund’s holdings as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Palladium isn’t gold–thank goodness; tweaking my target price for stock pick Stillwater Mining

May 21, 2013

The dust has settled at Stillwater Mining (SWC) with the election of four new board members backed by the Clinton Group, an activist investor that wants the company to focus on the profitability of its U.S. platinum and palladium mines and cut back or end plans to expand into copper mining after a 2011 acquisition of copper reserves in Argentina. That removes a major distraction hanging over the company’ stock and should leave the shares free to reflect Stillwater’s unique position as the only U.S. producer of platinum and palladium at a time when mines in South Africa are cutting production due to strikes. (Stillwater Mining is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ ) Palladium and platinum are two of the very few commodities that remain in a supply deficit in 2013 and that are likely, Barclays projects, to remain in deficit in 2014. Because of strikes in South Africa, global platinum production fell 10% in 2013 and palladium production fell 11%. And unlike gold, where a bare 10% of consumption goes for industrial production, 60% of platinum consumption and 91% of palladium consumption goes to industrial production. That’s been especially good for palladium as demand rose 16% to a record 9.9 million ounces in 2013 as the global auto industry continued a recovery. (At least outside of Europe.) Palladium and platinum are key ingredients in automobile catalytic converters. You can see the platinum/palladium story very quickly by comparing the performance of ETFs for those metals with that of a gold ETF. While a gold ETF such as the SPDR Gold Shares (GLD) is down 16.6% year to date and down 12.57% over the last year, the ETFS Physical Palladium Shares (PALL) is up 6.23% year to date and up 23.46% over the last year. The ETFS Physical Platinum Shares (PPLT) is down 3.28% year to date but up 2.08% over the last year. Shares of Stillwater Mining are up 63.9% over the last year, but have climbed just 1.7% in 2013 to date. For the company’s first quarter, reported on April 29, the company announced production of 127,100 ounces of palladium and platinum, a 5.2% increase from the first quarter of 2012. Realized prices for palladium rose to $725 an ounce in the quarter from $671 in the first quarter of 2012 and for platinum to $1628 an ounce from $1598 in the first quarter of 2012. One of the things that I especially like about Stillwater is that its production is very heavily slanted toward palladium, my preference between these two metals in 2013. Of the company’s first quarter production 98,000 ounces were palladium and 29,000 were platinum. As of May 21, 2013, I calculate a target price of $18 a share, a slight tweak upward from my previous target of $17 a share. That’s 39.8% above the price of $12.87 at noon on May 21. 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 Stillwater Mining 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 Xylem (XYL)

September 25, 2012

First, on September 6 Xylem affirmed its prior targets for fiscal 2012. The company projected revenue for $3.8 billion (against the Wall Street consensus of $3.8 billion) and year over year earnings per share growth of 4% to 10%. Second, on September 19, Xylem announced that it was doubling its target for acquisitions this year to $300 million to $500 million. That fits with the trajectory of the consolidating water treatment sector and with the company’s comments that it sees acquisitions adding one to two percentage points of growth in the long term. And, third, on September 25, Xylem reported that it had been awarded a contract to supply systems for a new wastewater treatment plant in Campo Grande in Brazil. This is important confirmation of Xylem’s ability to reach its goal of growing emerging markets to better than 20% of company revenue. On these three items, I’m going to nudge my target price for Xylem to $31 a share by September 2013. 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 Xylem 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/

McDonald’s looks to be leaving same store comparison pain behind

March 8, 2013

Today’s announcement of February same store sales from McDonald’s (MCD) shows what the company has been up against in the last few months. Same store sales fell 1.5% in the month from February 2012. That compares to a 7.5% year over year gain in same store sales back in February 2012. But today’s news also signals the coming end of the McDonald’s year-to-year comparison problem after March or so. That’s when year-to-year growth rates from 2012 stop looking impossible to beat. And today’s market reaction to the news—McDonald’s shares finished up 1.67% on the day—shows that analysts have swung from too optimistic about McDonald’s revenues to a tad on the conservative side of just right.  Analysts had been expecting global same store sales to fall by 1.6% so the 15% decline actually looked pretty good. And the year-to-year comparisons look even better when you note that last year February had an extra day thanks to leap year. Excluding that leap year effect, global same store sales actually climbed by 1.7%. (Don’t compare that 1.7% increase to the analyst consensus of a 1.6% drop and get too excited. The analysts know that February 2012 had an extra day.) U.S. same store sales were down 3.3%--or flat correcting for 2012’s leap day. European sales were down 0.5%--or up 2.7% correcting for 2012’s leap day. The Asia/Pacific, Middle East, and Africa grouping showed a drop of 1.6%--or an increase of 1.5% after correcting for leap day. Japan was especially weak but China showed positive year-to-year comparisons. As of March 8 I’m raising my target price to $106 from $104. The shares closed at $98.60 on March 8. 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 McDonalds as of the end of September. For a full list of the fund’s holdings as of the end of September see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Buy Schlumberger (SLB) in my Jubak’s Picks portfolio

May 18th, 2012

Thanks to the euro debt crisis and worries that a slowing China will reduce global demand for oil, I’ve finally got my buying target for Schlumberger (SLB). (How’s that for positive thinking? Lemons into lemonade, I hope.)

I wrote in an April 20 post http://jubakpicks.com/2012/04/23/very-solid-earnings-from-schlumberger-slb-but-im-still-waiting-for-my-price/that at a price of $64 to $65 the stock would be discounting the current weakness in North American oil and gas exploration and drilling. Yesterday, May 17, the stock closed at $64.75. Today, as of 2:30 New York time, shares are trading at $64.49. Seems like a good price to me. So I’m adding the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  today.

Back on April 20 Schlumberger reported earnings of 98 cents a share. Revenue climbed by 21.7% from the first quarter of 2011.  International margins climbed to 19.1%, well above the 18% that Wall Street had expected. International margins are extremely important to Schlumberger. The most internationally oriented of all the oil service companies, Schlumberger gets two-thirds of its revenue from outside North America.

Which isn’t to say that North America isn’t important—33% of revenue is still a lot of revenue. And that’s where the problem lies for Schlumberger and all oil service companies at the moment. The continued low, low prices for U.S. natural gas has led North American producers to cut back on exploration and drilling. North American producers of oil and natural gas liquids are picking up a good bit of the slack, but switching rigs and activity from natural gas fields in places like the eastern Marcellus shale formations to liquid-rich areas in the West takes time and has resulted in a slump in activity as companies move rigs and gear. For 2012 Schlumberger’s North American land revenue might see growth as low as 3% before picking up to a 10% growth rate in 2013.

It’s that slowdown and the possibility that it could last a quarter or two longer than current projections of a bottom in the June quarter that have led me to wait for a lower entry price. But at $64 to $65 I think I’ve got solid protection against that fundamental risk. (The macroeconomic risk in this market is another matter, but I think it would take an unlikely drop in oil prices to $85 a barrel or less to significantly reduce oil company capital budgets. With Russia and Saudi Arabia both needing oil prices of $95 to $105 a barrel to balance their government budgets that kind of price drop seems unlikely.)

I’m setting a 12-month target price of $88 a share. The stock pays a 1.7% dividend and trades at 16.5 times trailing 12-month earnings per share and 15 times projected 2012 earnings per share. The PEG (PE to earnings growth rate) is a very reasonable 0.84.

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 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/

Apple yes, but not quite yet

April 18, 2013

Apple (AAPL) doesn’t report earnings until April 23—which has put Wall Street analysts and investors deep into reading the tealeaves mode. Yesterday’s leaves come from Cirrus Logic (CRUS), a supplier of audio chips for the iPhone and iPad. On Tuesday, Cirrus Logic reported that it would take an inventory reserve charge of $23.3 million in its fiscal fourth quarter, which ended in March. The bulk of that--$20.7 million—comes from a single, unnamed, high-volume customer. Since Apple accounts for 90% of revenue at Cirrus, everyone on Wall Street assumes that the customer in question is Apple. It looks like Apple switched to a newer product from Cirrus during the quarter and that Cirrus got stuck with extra inventory But what’s it all mean? All the interpretations I’ve seen today are negative. For example, some analysts have argued that Cirrus got stuck with extra inventory of the older chip after the switch because sales of iPhones and iPads had fallen below projections. Another set of comments has argued that the timing of this announcement from Cirrus Logic suggests that Apple’s next refresh of its iPad product line is behind schedule. In 2012 Apple refreshed the iPad in April. And I should probably add a leaf or two from China where a relatively low-visibility story in the People’s Daily criticized Apple for selling pornographic applications among the applications for the iPhone. As far as I can determine the charge isn’t true, but it is a haunting echo of the charges leveled at Google (GOOG) when it was driven out of the Chinese market. The upshot is that Apple, which closed Tuesday at $426.24, closed yesterday at $402.80, down another 5.5%, as the shares broke below important technical support and challenging the psychologically important $400 level, and then broke through that level to $390.89 today as of 3:30 p.m. New York time. The consensus on Wall Street is that Apple will report a disappointing quarter on April 23. Credit Suisse, for example, forecasts that Apple revenue will fall by 21% from the December quarter and climb just 10% year over year. Margins are expected to tumble and iPhone sales will be weak since it doesn’t look like Apple will refresh its phone lineup until the middle of the year. Frankly that seems to be about right—as far as it goes. Apple and Samsung are engaged in a game of leapfrog with the company with the latest product release temporarily jumping ahead. Samsung’s Galaxy S4 is scheduled to go on sale next week and that will cut into Apple sales at the high end of the smart phone market. For me disappointment over Apple’s April 23 earnings will mark the start of a buying opportunity in what has become a stock tied to product cycles. The April results will mark the likely bottom of that cycle and I’d be happy to get the next refresh of the iPad and iPhone at current share prices. I’d just note that right now Apple trades at the same multiple as Dell. Apple’s forward price-to-earnings ratio is 9.18 (for the fiscal year that ends in September 2013) and Dell’s is 9.05 for the year that ends in January 2014. The PEG ratios (PE to earnings growth) are a bit different for the two stocks, however, with Apple selling at a PE that’s just 47% of its growth rate and Dell selling at 1.09 times its growth rate. 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 Apple 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/

Statoil is a great stock–for 2014–but how do you value it now?

May 6, 2013

Norway’s Statoil (STL.NO in Oslo and STO in New York) reported a brutal first quarter on May 2. Net income adjusted for one-time items fell to NKr 12 billion in the quarter from NKr 16.8 billion in the first quarter of 2012. Analysts had expected adjusted net income of NKr 13.7 billion for the quarter. Lower oil and natural gas prices in the quarter were certainly part of the problem. So too were temporary production disruptions in Algeria, Norway, and Brazil. Production in the quarter fell to 1.998 million barrels of oil equivalent a day from 2.193 million barrels in the first quarter of last year. Statoil expects that production in 2013 as a whole will fall from 2012 levels because the company has sold some assets on the Norwegian outer continental shelf and because natural gas production from acquired U.S. shale assets has come on line more slowly than expected. Which leaves investors trying to value a projected rebound in production in 2014 and later. Statoil has high volume projects scheduled to come into production in Brazil, the Gulf of Mexico, Tanzania, Mozambique, the Barents Sea, Indonesia, and eastern Canada beginning in late 2013 and stretching into 2020. The company projects that production growth will climb from a compound annual 2% to 3% from 2012 through 2016 to an annual 3% to 4% from 2016 through 2020. (Statoil is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ ) The dangers are two-fold. First, expected production could be delayed. This is business as usual in the oil industry, of course, but it still hurts when cash flow gets pushed off. It has already happened with Statoil’s Brazil project where the company has cut expected additions to production from 900,000 barrels per day in 2013 through 2016 from a September 2012 projection of 1 million barrels a day. Second, costs will continue to climb—the only question is how fast. This isn’t a small matter at a company with the kind of big exploration and development program that Statoil has. Statoil plans a capital-spending budget of $19 billion this year. That’s up from $18 billion in 2012 and headed to $23 billion in 2016. According to projections by Credit Suisse that will leave Statoil with a funding gap until 2016—even if oil sells for $110 a barrel. It’s unlikely that the company will cut its dividend—right now the stock yields a little less than 4%. Companies that are two-thirds owned by their national governments—as Statoil is—don’t cut their dividends. So filling any funding gap is likely to mean more asset sales—probably of fields near Norway—and a visit to the financial markets for funding. Norway’s Conservative party has floated the idea of cutting the government’s stake back to 50%. That possibility, combined with the possibility that Statoil might have to tap the capital markets (although the odds say debt and not equity), does raise a risk that investors could see dilution of their equity stakes over the next few years—if costs in the oil industry continue to escalate. So Statoil buy/sell/hold right now? Looking at likely costs, production increases, and oil and natural gas prices, I get a 12-month target price of $27.50. That’s roughly a 15% gain from the May 6 close at $23.71 on the New York traded ADRs. Add in a dividend of 3.8% and you’re approaching a potential total return of almost 19%. Potential return. Remember all the worries that I’ve raised in this post. I’m willing to take a risk that Statoil will navigate them all safely—and I do think the company’s production schedule after 2014 is one of the best in the industry—but I’d like a little more potential return than 19%. If I owned the shares, I wouldn’t sell here—there is that 3.8% dividend—and I’m not looking for the stock to drop much lower on the worries I’ve outlined above. But I’d get a whole lot more interested in adding to positions if Statoil trades at $22 or lower. 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 Statoil 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/

MGM earnings surprise on faster than expected recovery in Las Vegas

May 2, 2013

MGM Resorts International’s (MGM) China unit reported record performance for the first quarter of 2013, the company announced this morning before the New York markets opened. But the big surprise in MGM Resorts International’s first quarter earnings report came from Las Vegas. EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed 12% year over year at the company’s U.S. operations to $361 million. For the quarter MGM reported earnings of $0.01 a share, which beat Wall Street projections of a 10 cents a share loss for the quarter. Revenue (less promotional allowances) climbed 2.8% year over year to $2.35 billion against the $2.34 billion consensus. MGM Resorts shares were up 6.3% to $14.67 as of 3:30 p.m. New York time. For MGM, the largest casino operator on the Las Vegas Strip, a return to growth in the domestic market is more than welcome news. Revenue at wholly owned domestic resorts increased 3% in the quarter from the first quarter of 2012. Revenue from table games climbed 16%. In the conference call the company said it sees the recovery in Las Vegas continuing into the second quarter. RevPAR (revenue per available room) would climb at a 2% rate in Las Vegas in the second quarter from a 1% growth rate in the first quarter of 2013. MGM China didn’t do too badly either. Revenue climbed to $748 million, a 6% year over year increase. EBITDA climbed 10%. In the conference call the company said its new Cotai Strip casino and hotel complex in Macao is on schedule for an opening in the first half of 2015. This is pretty much the performance that I was counting on when I added MGM Resorts to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on May 4, 2012 at $12.43 a share. I am going to adjust my one-year target price slightly to $18.00 a share from $17.50 since I think the turn in Las Vegas is happening a little faster than I expected. 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 MGM Resorts International 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/

Heavily shorted Nokia suspends dividend, lowers guidance–anybody surprised shares are down?

January 24, 2013

Investors weren’t happy to be reminded of how long a slog Nokia (NOK) still faces. The company reported earnings of 0.06 euros this morning, before the open in New York. That was a euro cent above Wall Street estimates. Revenue fell 19.6% from the fourth quarter of 2011 to 8.04 billion euros. That was just below the consensus of 8.06 billion euros. The big news, however was that the company was suspending its dividend for 2013 in order to conserve cash. (Dividends in 2012 came to 20 euro cents a share.) In the quarter Nokia’s cash position improved by 800 million euros to 4.36 billion euros on December 31. Yes, indeed management thinks the company has a tremendous amount of work ahead of it. In the quarter the company managed to scratch out a very tiny positive operating margin in its device business of 1.3% (if you include one-time royalty income. Otherwise the device business broke even.) In the fourth quarter Nokia shipped 15.9 million smart phones with 4.4 million of those being the company’s new Lumia phones, 2.2 million being Symbian legacy phones, and 9.3 million being low-priced Asha feature phones. The biggest problem for Nokia remains its lack of traction in the U.S. market. The company sold 700,000 phones in North America during the fourth quarter (out of global sales of 4.4 million.) That was ahead of the 300,000 phones sold in North America in the third quarter, but lagged analyst hopes for sales of 1 million to 1.2 million. (For context Apple’s (AAPL) global shipments of iPhones totaled 47.8 million in the fourth quarter.) What to do with your shares now? Nokia was heavily shorted going into today’s quarterly earnings announcement. (The shares were down 7.76% as of 2 p.m. in New York.) The company’s very positive January 10 preannouncement set up the actual earnings release to be a disappointment, especially because the company also lowered guidance for the first quarter of 2013. (I expect many of the shorts to cover in the next few days so if you’re looking to sell you might want to wait a bit.) If you’re swing trading this stock, I’d wait to see if it might pull back further as analysts work that lowered guidance into their estimates for the first quarter. And then I’d wait some more for the company to actually report a fairly gruesome first quarter. Nokia has told investors that it expects operating margins in the first quarter for its device business of between +2% and -6%. Cash burn in the quarter is likely to be enough to raise fears again about whether the company might run out of cash. If you are just holding the stock, patiently, for Nokia’s long-term recovery, I think your patience is going to be tried over the next few months. The stock was up 77% from November 8 through the January 23 close and it would only be reasonable to expect the shares to give some of that back in the next couple of months. I still expect Nokia to reach my target price of $7.80 a share but the shares won’t reach it without a pullback and consolidation—especially with the company’s guidance for the first quarter of 2013 as background. (Nokia is a member of my 12-18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ 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 Nokia 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/

OncoGenex pops but not on the earnings surprise

May 3, 2013

I know it looks like OncoGenex Pharmaceuticals (OGXI) has popped today—the shares were up almost 7% as of 1:45 p.m. New York time—on the company’s first quarter earnings surprise. The company reported a loss of 46 cents for the quarter instead of the loss of 72 cents a share expected by Wall Street analysts. But I don’t think the earnings news was especially important. OncoGenex is a development stage biotech—it’s supposed to lose money every quarter at this point and the “surprise” is an accounting issue involving a gain on warrants this quarter versus a loss of warrants in the first quarter of 2012. (It is important, however, that the company said current cash should be sufficient to fund operations into 2015.) The big positive news was actually the update on the status of the company’s clinical trials that the company released along with its financial report. The news on trials included:

• The completion of registration for a Phase 3 trial to evaluate the survival benefit of the company’s custirsen in combination with docetaxel chemotherapy in the treatment of metastatic prostate cancer. Results are projected for announcement in the first half of 2014.
• Continuing enrollment in additional Phase 3 custirsen trials to evaluate the survival benefit of custirsen in combination with Jevtana (cabazitaxel) in metastatic prostate cancer and in combination with docetaxel in the treatment of advanced or metastatic non-small cell lung cancer.
• The initiation of a Phase 2 trial of OGX-427 in combination with Abraxane and gemcitabine in metastatic pancreatic cancer. Other trials of OGX-427 are evaluating the compound for use in advanced bladder, lung, and prostate cancers. Positive OGX-427 results would be especially important to OncoGenex since the company has not yet sold partner rights to OGX-427.

I continue to recommend this stock (it’s a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  ) for patient—very patient investors—especially in its recent range of $10 to $13 a share. The driver here will be the results of the Phase 2 and Phase 3 trials. I wouldn’t expect significant positive news on that front until later in 2013. As of May 3, I’m keeping my target price at $22 a share. 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 in OncoGenex 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/

Turnaround continues at China stock pick Home Inns and Hotels

May 13, 2013

Home Inns and Hotels Management (HMIN) announced first quarter earnings today, May 13, of 4 cents a share (excluding one-time items). That was 9 cents a share better than the 5 cents a share loss projected by Wall Street analysts. Revenue climbed 11.7% year over year to $225.8 million, well above the $219.2 million consensus. The quarter continued the turnaround that was visible in the company’s fourth quarter results. The company saw a slight drop in RevPAR (revenue per available room) to $131 in the quarter from $132 in the first quarter of 2012. But revenue grew as occupancy rates climbed to 83.6% in the quarter from 80.7% in the first quarter of 2012. The big story, though, continues to be the improvement at the Motel 168 chain the company acquired in 2011. For the quarter RevPAR for Motel 168 improved 4.5% year over year and the occupancy rate climbed to 76.7% from 70.4%. In its guidance the company affirmed its target to open 360 to 380 new hotels in 2013, including 80 to 90 leased-and-operated hotels and 270 to 300 franchised-and-managed hotels. Total revenue in 2013, the company projected, would fall between 6.6 billion and 6.8 billion renminbi. That would be equal to growth of 14.4% to 17.9% for 2013 over 2012. As of May 13, I’m raising my target price on the New York traded shares of this Chinese hotel company to $37 a share from my current target of $34. Home Inns and Hotels Management is a member of my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ 12-18 month portfolio. 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 Home Inns and Hotels Management 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/

SeaDrill is expecting 10 new rigs in 2013 and another 8 over the next two years–no wonder market are willing to look past today’s earnings miss

February 28, 2013

The rigs are coming. The rigs are coming. And in yet more of SeaDrill’s (SDRL) aggressive use of its balance sheet, the company will fund its purchase of new higher margin ultra deepwater rigs by selling lower margin tender rigs in a deal that will close in April It’s that aggressive increase in assets—and its ability to find a low cash cost way to fund it—that has made today’s shortfall on fourth quarter earnings irrelevant to the market. Shares of SeaDrill were up 0.24% as of 1:30 p.m. New York time today. EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed just 5% for the quarter to $604 million. That missed analyst expectations—lowered in recent weeks on increased downtime for the company’s deepwater rigs—of $619 million in EBITDA. Total downtime for the company’s fleet came to 100 days in the fourth quarter. That resulted in a $60 million hit to revenue in the period. (The day rates that oil companies pay to hire SeaDrill’s fleet have stabilized at $580,000 to $620,000, SeaDrill reported.) And here’s why the market has been willing to look past these quarterly numbers. SeaDrill expects delivery of 10 new rigs in 2013 and 8 more in 2014 to 2015. That will push the annual EBITDA run to $3 billion by the fourth quarter of 2013—up from $2.4 billion in 2012—and then to $4 billion in 2015, the company projects. The company reported that downtime in the first two months of the new quarter had already totaled 117 days—but a key rig has been restored to service—and the company projects that it will be able to improve utilization rates for its deepwater rigs to 95% by the end of the first quarter. That would continue the improvement that the company has seen from the low 82% utilization rate in the third quarter to 86% in the fourth quarter. The stock hasn't gone much of anywhere (well, actually, it’s gone down almost 8%) since I added it to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  on March 2, 2012. That’s not surprising given the difficulties the company has had with downtime in the second half of the year. As of February 28, 2013, I’m lowering my 12-month target price slightly to $49 a share from the prior $51. The stock now trades below my March 2012 purchase price of $40.05 so even with the lower target I’m still looking for a potential gain of 32.8%. The shares also pay a 9.2% dividend—based on payouts during the last 12 months. That yield is probably somewhat inflated by the special dividend paid at the end of 2012, but I think it’s reasonable to expect a yield of 7% to 8% or better on these shares if you buy them at the current 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 SeaDrill 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/

Yamana Gold gets hit on earning miss–but provides benchmark for gold mining stocks

May 1, 2013

Yamana Gold (AUY) has been hit hard today after the company announced first quarter earnings of 16 cents a share—3 cents a share below the Wall Street consensus—and revenue of $535 million—4.4% drop year over year and short of the $559 million consensus. Worst, though, is a huge increase in cash costs of 31% year-to-year, due in good part to falling prices for the copper that Yamana produces as a “byproduct” of its gold mining activity. Shares are down 5.2% today on the news as of 2:30 New York time. (Yamana Gold is member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/) I’m not suggesting that you rush out to buy Yamana today. It remains hard to call the trend in gold prices and I doubt that we’ve seen a bottom. And it’s even more difficult to pick a bottom for the shares of gold mining companies. These stocks are caught in a vise of lower gold and copper prices and rising production costs. I think today’s price of $11.39 on Yamana Gold is a reasonable price for adding to positions, but I certainly would leave myself some room in any portfolio allocation to Yamana in case gold goes lower. Adding pluses and minus, I guess that makes me neutral on buying the stock here. One thing I’d like to see is the near-term results of Yamana’s efforts to cut production costs by $100 an ounce by mid-2013 and $150 an ounce by the end of the year. If I saw signs of success in that endeavor, I’d go from neutral to buy. But of equal—and perhaps greater—importance than buy/sell/hold on Yamana as an individual stock is the way that Yamana’s current results set a benchmark for judging the gold mining sector. In this tough environment for gold mining companies, I’d like any stock that I owned in the sector to meet what I’d call the Yamana benchmarks. What are those? Relatively low costs. The all in cost of $856 per ounce of gold gives Yamana a solid profit margin even at current gold prices. The by-product cash cost is a low $383 an ounce. Relatively low near-term capital spending plans and aggressive plans to study new spending in light of conditions in the market. The company announced plans today to evaluate its new Cerro Moro mine in Argentina and expansions at its Chapada mine. Increasing production even with capital spending restraints. Gold production in the first quarter was up 4% year over year. For 2013 Yamana projects production of 1.4 million ounces of gold, up from the record 1.2 million ounces produced in 2012. Solid positive cash flow so that the company won’t have to raise capital in 2013 or run the danger of making Wall Street nervous about any covenants on existing debt. First quarter cash flow for Yamana came to $214 million or 29 cents a share. Enough high-yield reserves so that the company can prioritize mining these higher margin deposits while going slow on reserves of lower ore grades—without jeopardizing production growth. Yamana looks to be able to do that at its Jacobina, Morro do Vento and Canavieiras mines. I’m not arguing that Yamana should be the only gold mining stock you own. Diversification in the sector remains important. But I do think investors should measure their gold holdings against this stock. If one falls markedly short, you do need to ask yourself why you own it and if there might be better candidates (even better candidates than Yamana) out there. 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 Yamana 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/  

Precision Castparts rewards growth investors who stuck with this stock pick

May 10, 2013

Growth investors who never lost faith in Precision Castparts (PP) finally got their reward. Growth is back, the company said in its May 9 earnings report for the quarter that ended in March. And those investors got their reward. The stock, which closed at $192.02 on May 8, jumped to $209.97 at the close on May 10. Precision Castparts is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/  As of today, May 10, I’m raising my target price to $238 a share from my prior target of $208. Growth investors have been so willing to stick with these shares because 1) the company’s long-term record is so good—earnings growth of 35% a year on average over the last 10 years—that the recent slump—4.22% a year over the last three years—is a clear aberration; and 2) because the slowdown in growth came as a result of key customers—Boeing (BA)—experiencing severe but temporary problems—and of key markets—the market for gas turbines in power production—going through severe cyclical slumps. The key to the stock’s bounce over the last two days wasn’t earnings for the March quarter—although reporting earnings of $2.82—7 cents a share better than Wall Street estimates—certainly does help. The key was the company’s description of a recovery in its end markets that let CEO Mark Donegan confidently say that Precision Castparts was on track to grow earnings per share to $15.50 to $16.50 by the year that ends in March 2016 from earnings of $9.76 for the fiscal year that ended in March 2013. That doesn’t seem very pie in the sky when one of your biggest customers for everything from fasteners to forged parts has been Boeing. Precision Castparts said that Boeing’s build rate on its 787 Dreamliner will move from five a month now to 10 a month by the end of 2013. In 2014 and 2015 Boeing’s build rate for its workhorse 737 will step up again and the company also expects growth from Airbus’s A350 program. In 2015 and 2016 growth should step up again as the Airbus continues to increase A350 production and Boeing ramps up new programs to add more fuel efficiency to revamped versions of it current aircraft. In the quarter just finished Precision Castparts saw aerospace revenue climb 32% year over year. Revenue growth in the company’s oil and gas, and general industrial segments lagged—but only in comparison to aerospace at 14% year over year and 25% year over year, respectively. Revenue growth like that in a market where growth has been so hard to find is likely to find a reception audience of investors. And it looks like the company is going to generate increasing margins for the remaining quarters in calendar 2013. EBITDA (earnings before interest, taxes, depreciation, and amortization) margin came in at 25.8% in the March quarter. That will improve, Credit Suisse projects, to 26.5% by the December 2013 quarter and then to 27.2% in the March 2014 quarter. 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 Precision Castparts 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 Yingli Green Energy (YGE)

December 1, 2011

Yingli Green Energy Holding (YGE) announced ugly third quarter results on November 23—and then topped them with even uglier forecasts for the fourth quarter. Shipments will be down 20% in the fourth quarter from those in the third quarter and average-selling prices will fall by 13% to 19%. But investors expected that. What they want to know about Yingli Green Energy-and about all of the world’s solar companies—is Do they have the cash to survive until the solar market turns? and “When is that turn likely? (To see my take on the solar sector as a whole see my 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/ ) Yingli looks like a survivor of the shakeout in the industry but that’s not guaranteed. The company has a big capital budget--$600 million spent through the third quarter and another $200 million scheduled for the fourth quarter—that has driven up debt to $2.17 billion in the third quarter from $1.89 billion in the second quarter and eaten into cash. The worst thing in the current environment is that the capital budget is enough to turn what would have been a modest cash burn in the fourth quarter into a significant cash burn in the quarter. Given that the company finished the third quarter with $929 million in cash, that red ink shouldn’t be an issue in 2011 but it certainly bears watching in 2012. The big disappointment that Yingli Green Energy will almost certainly have to deliver in 2012 is the write down of its polysilicon plant. The company decided that the best strategy—given the silicon shortages of a few years back—was to become a vertically integrated manufacturer that produced its own silicon. Now that silicon prices have collapsed that looks like a bad decision. Yingli Green Energy believes that its cost of producing its own silicon will fall to $45 a kilogram in the first quarter of 2012 and to $35 a kilogram in the second quarter. That would be wonderful except that current spot prices are around $25 a kilogram. At some point in the not so distant future Yingli will have to start writing down the $460 million or so that it has invested in its polysilicon plant to date. The demand side presents a much brighter story—and this story is a big reason to think that Yingli will survive the solar winter. About 80% of Yingli’s sales go to utility scale projects rather than roof top installations. That utility-scale market is relatively healthier and in that market Yingli thinks it is picking up share. On November 30 the company projected that thanks to new feed in tariffs designed to support wind and solar installations, it expects the market in China to grow to 3 gigawatts in 2012, up from 2 gigawatts in 2011. (Some of Yingli’s competitors think that’s very conservative and are projecting 5 gigawatts for 2012.) Because Yingli’s customers include the top five Chinese utilities, which have no problem raising cash for adding solar capacity, Yingli Green Energy projects that it will have about 30% of China’s market in 2012, up from 25% in 2011. That would represent 800 megawatts of shipments in China in 20112 versus just 350 megawatts in 2011. If you’re looking for a reason that shares of Yingli Green Energy have climbed 26.6% since November 21 to $4.48 at 3:15 p.m. New York time on December 1—despite the ugly report on November 23—I don’t think you need to look much further than that. (Although the rally in China’s stocks in general over the last few days certainly hasn’t hurt.) I don’t think that any sector that’s undergoing the kind of shakeout that the global solar industry is looking at currently presents a path to steady progress for the companies in the sector. As I advised on my column on the solar winter, this shakeout could take as long as two years to complete. So there’s no reason to rush out and buy shares of Yingli Green Energy on the recent rally. You can certainly wait until mid-2012 when I think China’s market stands a good chance of moving into a sustainable rally mode because of interest rate cuts from the People’s Bank. In the shorter run, I think the shares could continue to run into the end of the year with an uptrend in global stocks in general. If you already own them as I do, on this trend, I think the shares could climb to $6 or so by January and, as of December 1, that’s my new target price for these shares, down from a prior $16 target set when I first added the stock to my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ back in November 2010. (Not the best bit of timing I’ve ever done.) I wouldn’t automatically sell at $6, but instead I’d look around, sort of like a February groundhog, to see how much longer the solar winter looked likely to last. 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 in 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/  

Keeping Abbott Laboratories (ABT) in Jubak’s Picks and increasing target price

I can’t say that I’m a big fan of Abbott Laboratories (ABT)—mostly because I’m not a big fan of big drug companies in general. Because these companies are seeing a steady stream of big moneymaking drugs go off patent, they’ve been aggressive buyers of small companies with new potential blockbuster products. And frankly when I have a choice between buyers and sellers in a sellers market, I’ll always go with the seller—an Amylin Pharmaceuticals (AMLN), for instance, recently purchased by Bristol-Myers Squibb (BMY). In fact, I’ve damned Abbott Laboratories with faint praise, even as I continued to own the shares in my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/. I once wrote, as I remember, Where else in this market can you think of to put your money? Abbott shares yield 3.08% today when the 10-year U.S. Treasury is yielding 1.48%. And last time I looked the drug company and the U.S. government had the same AA credit rating from Standard & Poor’s. I’d argue that if either credit rating is too generous, it’s not the one for the profit-making drug company. For the next few months, I’m going to be playing a lot of defense—and so are a lot of investors. I think that makes the shares of a 3% dividend yield, solid blue chip drug company even more valuable than it was way back in September 2010 when I first bought Abbott shares for the portfolio. So today, August 2, I’m keeping the stock in the portfolio, even though it has reached my $65 a share target price. And I'm increasing my target price to $72 a share by the time later this year when the company splits into two companies with the spinoff of the drug business into a new company to be called AbbVie. Investors who are still holding the stock at that date will get shares of both AbbVie, the drug company that will own Abbott’s blockbuster Humira, and the company that will continue to do business under the Abbott name and which will own the company’s current diagnostics, medical devices, and nutritionals businesses. When Abbott reported its second quarter earnings on July 18, it beat Wall Street earnings estimates by a penny as earnings climbed 9.8% from the second quarter of 2011. Revenue climbed 2% from that year-earlier period. Excluding the effects of the stronger dollar, revenue would have been up 6.7%. Gross margins climbed to 63.3% for the quarter, a big jump from the 60.2% gross margin in the second quarter of 2011. The big strength in the quarter was in sales of Humira, up 16%, and nutritionals up 11% year to year. I’ve got a 27.8% gain (plus dividends) in Abbott Laboratories since I added it to Jubak’s Picks on September 24, 2010. 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 Abbott Laboratories 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 U.S. Bancorp (USB)

April 17, 2012

Now that’s what strong bank earnings look like. This morning before the open in New York U.S. Bancorp (USB) reported earnings of 67 cents a share (or 70 cents a share including releases from loan-loss reserves.) Wall Street analysts had been projecting earnings of 64 cents a share. (U.S. Bancorp is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ ) Other banks have beaten estimates so far this quarter but none have shown quite the strength across all key metrics as U.S. Bancorp. Average loan growth came to 6.4% year-to-year as commercial loans rose by 17.3%. Residential mortgages rose 19% from the first quarter of 2011. Average deposits increased by $5 billion or 11% year-to-year. Credit quality continued to improve with non-performing assets falling 6% from the fourth quarter of 2011. That was a slowdown in the rate of improvement since non-performing assets fell by 15% in the fourth quarter from the third, but that’s only logical since credit quality has already shown so much improvement. Net charge-offs came to $571 million for the quarter, a drop of 8% from the fourth quarter of 2011. U.S. Bancorp released $90 million from its loan loss reserves and in the company’s conference call management told analysts to expect that reserve releases will continue to show a slower pace in 2012. The bank’s Tier 1 common equity ratio using the Basel III rules is now 8.4%, well above the 7% minimum. Return on equity climbed to 16%. The bank raised its quarterly dividend to 19.5 cents a share after the Federal Reserve’s stress test from a prior 12.5 cents. The items that I’d been worried about going into the quarter turned out not to be a problem. Net interest margin came in flat with the fourth quarter—I’d been worried about a decline. Operating expenses were also flat from the forth quarter. The stock isn’t especially cheap now—compared to other bank stocks you’re paying a premium for the bank’s premium performance—but the shares are still selling at just 10.9 times projected 2012 earnings per share. Since U.S. Bancorp continues to gain market share, and since the shares pay a 2.5% yield, I think this still a stock worth holding. As of today, April 17, I’m raising my I’d target price to $37 a share by October 20121 from the previous of $35 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 own shares of U.S. Bancorp 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 Goldcorp (GG)

April 26, 2012

Goldcorp (GG) reported first quarter 2012 earnings of 50 cents a share on April 25 after the close of New York markets. That was 5 cents a share below the Wall Street consensus. Revenue climbed 10.9% to $1.35 billion, below Wall Street expectations for revenue of $1.48 billion. Do I need to tell you that the stock has tumbled on the news? As of 2:40 p.m. New York time on April 26 Goldcorp is down 6.5% to $38.39. (Goldcorp is a member of my Jubak’s Picks 12-18 month http://jubakpicks.com/the-jubak-picks/ and Jubak Picks 50 long-term portfolios http://jubakpicks.com/jubak-picks-50/  ) The problem seems to be focused on the company’s Red Lake mine. Goldcorp reported that had it encountered high-stress areas in the High Grade Zone at the mine. That limited access to ore slopes with higher ore grades. In addition the Footwall Zone at the Red Lake mine continues to be nuggetty. That’s another ore-grade problem since it requires the company to move more earth than if the gold was more evenly distributed. Between the two problems, Red Lake produced only 114,000 ounces of gold in the quarter (instead of Wall Street estimates of more than 150,000 ounces) and at a higher cash cost of $523 an ounce versus Wall Street projections of $350 or so an ounce. Goldcorp’s CEO told Bloomberg yesterday that the ground problems at Red Lake probably aren’t very serious, although it is too early to tell for sure. The company will have a better idea of ore grades in the High Grade and Footwall zones at the end of the second quarter. In January Goldcorp projected that it would produce 2.6 million ounces of gold in 2012 at costs of $550 to $600 an ounce. There is a good likelihood that Goldcorp can make up lost first quarter (and any potentially lost second quarter) production in the second half of 2012. But the news out of Red Lake does make Goldcorp a second half of 2012 story. (Gold in general is a 2013 story, in my opinion. That’s when U.S. budget problems are likely to hit the fan. In other words Goldcorp is a long-term hedge that I’m looking to build at reasonable prices.) I’m keeping my target price of $55 a share but moving the date out to December 2012 from October 2011. The company does still look like it is on schedule to increase gold production by 70% by 2016 as new mines in the Dominican Republic, Argentina, and Canada come on line. None of those projects have experienced significant delays, the company said yesterday. 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 Goldcorp 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/

Hold stock pick Johnson Controls for delivery on second-half promises

May 22, 2013

Shares of Johnson Controls (JCI) hit a new 52-week high yesterday on anticipation of a better than expected second half for calendar 2013. They also hit my $37 target price in my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ What to do? Hold on for the anticipated improvement in earnings in the June and September quarters and into the 2014 fiscal year that begins with the December quarter. You can see the anticipated improvement earnings if you look at the quarterly breakdown in analyst projections. For the June 2013 quarter, Wall Street is expecting earnings growth of 17% and for the September quarter earnings growth of 18%. Despite that surge in the last two quarters of company’s 2013 fiscal year, growth for fiscal 2013 will be an anemic 0.4%. The shares aren’t terribly expensive even after climbing 26.4% in 2013 as of May 21. At today’s $37.42, they trade at just 14 times projected earnings per share for the fiscal year that ends in September 2013. That’s near the lower end of the historical price-to-earnings ratio on the shares, according to Standard & Poor’s. But to move up from here the company will need to deliver on Wall Street’s hopes for the second half of fiscal 2013 and for fiscal 2014, which begins with the December 2013 quarter. Wall Street right now is expecting 21% growth for fiscal 2014. I think the odds are in favor of the second-half promise coming true. The company’s building efficiency (temperature and energy management for non-residential buildings) and its battery units show strong seasonality with revenue and margins both picking up in the warmer months. I’d add in price increases in the company’s aftermarket battery segment of 3% to 4% that will kick in beginning n July. (Price increases for the building efficiency business that went into effect at the end of 2012 will show up in the second half of 2013.) And finally, $375 million or so in restructuring charges that the company took in the third and fourth quarters of fiscal 2012 and in the first quarter of fiscal 2013 should help margins in the second half of fiscal 2013. A weak European economy could be a problem if it leads to as steeper than now expected drop in auto sales in that market. Right now the North American market looks likely to continue its recovery with light vehicle sales on a path to 15.4 million units in 2013 from 14.4 million in 2012. April figures on new car registrations in Europe weren’t as positive as they first seemed. Registrations did climb in April 2013 by 1.7% from April 2012, the first year over year increase since September 2011, but the gain was almost entirely due to the way that Easter fell in 2013 versus 2012. The calendar change added two selling days to April 2013. The best that can be said about the April numbers, finally, is that they don’t show demand driving over a cliff. Everybody expects European auto sales to be down; as long as they’re not down way more than expected, bad news counts as good news. As of May 22 I’m raising my target price for these shares to $42.40 by December 2013. The shares carry a 2.1% dividend yield. The next quarterly dividend of 19 cents a share will be paid to shareholders of record as of June 7. 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 Johnson Controls 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/