(I’m ratcheting up my vacation a notch next week for my annual summer recharge of my batteries and taking Jubak Picks completely dark for a week or so until August 24. I will resume my regular posting schedule when I return.)
What was most interesting about Vale’s (VALE) second quarter (July 29) earnings report wasn’t how much money the mining company made—although it made a metric ton—but what it’s doing with it.
For the quarter, net income surged to $3.71 billion or 70 cents a share from $790 million or 15 cents a share in the second quarter of 2009. That really wasn’t any surprise. Wall Street analysts had pegged earnings at 70 cents a share for the quarter on a doubling in iron ore prices from the second quarter of 2009 and an increase in production at the company. Vale sold 670 million tons of ore and ore pellets in the second quarter, a 29% increase from the second quarter of 2009. (Vale is the world’s largest producer of iron ore.)
In the last two years the iron ore industry (happily) and its customers (grudgingly) have moved away from a system of annual contracts with long-term guaranteed prices to one based on often rapidly fluctuating spot prices.
The future looks solid for Vale and its industry too. Global shipments of iron ore will rise 6% to a record 961 million tons in 2010, according to Clarkson, the world’s largest shipping broker.
So where’s Vale putting its profits?
First, into a fleet of ships and new distribution centers that will enable Vale to close some of the cost gap with Australian rival BHP Billiton (BHP) in shipping ore to China. BHP Billiton and Rio Tinto (RTP) have picked up share in the market for seaborne ore because of reduced demand in Europe and the shorter distances from Australian mines to China’s steel mills.
Second, Vale continues to invest in becoming a diversified mining company rather than just an iron ore mining company. Vale announced plans to buy Brazilian copper producer Paranapanema for $1.2 billion.
And third, Vale continues to build up speed in the race to secure a share of Africa’s iron ore deposits, the last really big undeveloped deposits of ore in the world. At the end of April Vale reached agreement to pay $2.5 billion for a 51% stake in BSG Resources to gain access to iron ore deposits in Guinea.
Not all this capital investment will come from profits or the capital markets. Vale will sell aluminum assets to Norsk Hydro for $4.9 billion in order to redeploy capital to faster growing businesses.
Vale is a member of my Jubak Picks 50 long-term portfolio (https://jubakpicks.com/jubak-picks-50/
Full disclosure: I don’t own shares of any company mentioned in this post.
I think the criticisms of Ed are a little unfair. The guy has the balls to post his picks, win lose or draw, and share his insights. He should be applauded, not criticised. If anyone wants to take him on, and point out the error of his logic so we’re all the better for it, have at it. But I’d rather the guy speak and be wrong than be shouted down into silence by those with different perspectives. That goes for anyone else too.
I don’t want to load up on poor Eddie (like you groupies are going to become) but I second ryanpatrik’s sentiments (and not for political reasons as others do). Here’s the secret: Eddie’s Analysis can be boiled down to a quick google search combined with sticking the ticker in at forbes.com and knee-jerking a “call” on the stock from the metrics Forbes spits out (that may be completely wrong/unrepresentative). That’s it folks! The amazing secret to his oh so in depth balance sheet mining.
If you want an example then look up his LUK = Tyco post. Yeah, that was a copy of an article written long ago by someone who wasn’t smart enough or was too lazy to understand LUK’s accounting. LUK’s good enough for the #1 investor in the world to work with, Warren Buffett, and many other highly respected investors to purchase (Monish Pabrai, Bruce Berkowitz), but your amazingly insightful Eddie will warn you they’re a ponzi scheme.
So now you’re warned and understand the quality of advice you’re praising.
Disclaimer: Long LUK.
Southof8–My first instincts were that a POT purchased by BHP would shed all POT’s security holding that they could. $40+ bln. is a lot of money to raise or spend out of working capital. I’d bet the $7 bln. of other company paper that POT holds (likely bumped up higher today) would go fairly quickly to help pay for what BHP would control. They’re best at mining.
A reason they wouldn’t sell would be due to a lack of buyers in bulk, or suppressed market values as people expect them to dump. Or maybe they want to become investors instead of miners.
Pony, congrats on a nice profit. southof8 was right though and I was not the other side of your trade!
I’ll be with southof8 hanging on to some of my position because POT will not go easily or cheaply. This is a long term strategic asset and I don’t think China for one will let it go to BHP without a fight. Of course the whole thing could fall through, but something of a floor price has been established now and $85 is likely a distant memory.
Don’t get me wrong, I am not suggesting adding shares unless you are a real nimble risk taker. Options would be a decent way to go if you are such a person. I’m just saying it doesn’t make sense to take the first offer with your whole position since, as south0f8 points out $200 is not without precedent and the current price of $142 is really not that high when you consider that POT traded at $128 on its own less than six months ago.
Eddie McGon was actually right for a change about one thing. POT management rejected the bid and rightly so since it is far too low. The rest of his post was poorly thought out drivel as usual. Does he really write a blog that people read???
Pony, if you’ve been reading Ryanpatrik from early on, you’d know he was in Potash at around 85. Read the man’s posts- he’s not a momentum buyer.
In June 2008 POT was trading at 228 a share. Probably a little bubblicious but it gives you an idea where the top could be if BHP and the other big miners (Vale and RTP) are really interested in diversifying away from metals. But Hogs get slaughtered so I’ll be happy with my piggish gain and sell 25% of my holdings and let the rest ride.
If POT gets taken out, any guesses on whether its acquirer unloads POT’s stake in SQM, which is my second favorite miner? It would seem an easy asset to sell off to pay down some of the acquisition related debt that will inevitably get piled on.
ryanpatrik
from the sound of things you may be the proud owner of the POT I just sold out of. Good luck to you. She’s a fine company. She was even finer when I picked her up around 105 last time..
I’ve done a number of round trips on POT. I still believe she’ll come back to me someday… when the price is right. If I’m wrong. Hope you get 200.
Sold a majority of my POT at $142.87. Keeping a little in case BHP raises their bid, which many seem to expect.
I am and I will be long on Potash Corp. ‘nff said!
EdMcGon,
I’m long POT. While my first impulse is exactly what you said – SELL NOW, take this outsized gain and ask questions later, do you think POT management is just trying to get BHP to raise their offer price (by rejecting first offer)?
Still, I probably shouldn’t be too greedy when I get a 26% up move.
wow…no sooner did I mention bad advice on blogs and we get two pieces! Eddie have you ever heard of negotiating, or competitive bids? Look at the Dofasco record and learn. As for the stop loss that is just a great way to get whipsawed. By all means if you have a decent position take a little off the table and enjoy it but do keep some as well. Any takeout of Potash will be closer to $200 than $100. Maybe I should start a blog………..
Could there be more bidders for POT? http://blogs.wsj.com/deals/2010/08/17/analysts-react-bhp-makes-a-move-for-potash/
If so, this would argue for a stop limit and not an outright sell. This would allow more upside gain if another bidder emerges or the current bid is increased.
TLA
Having blathered all that blither, yeah I would rather talk investing too-
I don’t have any insights about investing in China mins or cyclicals, so I am looking at a newish ETF- CHXX for that purpose, altho it is supposed to be more “infrastructure” [which is OK by me, close enough. Mining companies scare me- and they have been my life-long career!]. Just waiting for that big bust in Shanghai…
I looked around a little for SID- there is a lot of company info, history etc. on Wikipedia, but not much for financials [and they don’t seem to have a website, at first glance]. I’ll keep digging; anything solid with a div like that interests me, even after the 15% w/holding. I just want to make sure it is relatively solid…then I will take Jim’s word for it on Brazil in general. What do you know of it?
Back to China- and Jim: I’ve noted that a lot of Jim’s ideas work out really well, but maybe not quite at the time he suggest them, especially not for the day traders. One of his ideas that keeps plummeting is DGW. It is a new[ish] issue, started at 20, peaked above 40- as IPOs do- and has been under 17 recently. Jim liked it at the time, and I can’t see that it has changed much except that the price is a whole lot better… if it goes much lower I will try a bit because I agree with Jim about water [I own some VE].
I also agree with Jim- to a certain extent- about batteries. His idea AONE was not bad at the time, but again- an IPO high-flyer flameout [I learned years ago that if you cannot get in at nearly the issue price it is better just to wait a few months and get the screaming deal.] In this case, it seems the company is also struggling a bit- so maybe better to wait until it goes down another 3 points or so, and try it as a longer-term speculation [unless there is more bad news].
I would agree with Ed on POT, either sell or put in a stop limit order… as I kick myself for not buying a few months ago when it was in the low 90s…
I think maybe a bunch of the peanuts followed over with Ed McG- thus the refreshing silence, or at least lower volume. I agee that Jim has been very generous over the years, and other than his vacation I have not seen much of a slowing in his gratis output. I also don’t begrudge him making a dime off his work…
The Picks and Portfolios are all still there, with his original insights; the fund and the newsletter are there for those who would rather Let Jim do It [I’ll let do Jim do some of it, anywyay…], and as the man said, you can put in a bit of time, and work, and thinking for yourself and take whatever of Jim’s [or of the peanut gallery] that works for you.
No worries GeneD..another one will come around!
Commodity stock rules (hard to follow) buy when they are hated but average into the position because they often go lower than you think they should and take some profits on the way up but never sell it all because they often go up a heck of a lot more than you think they should. Take a look at CNQ for another shot at glory! Oh…and don’t listen to “savvy experts” on blogs………… 🙂
If any of you still have POT, I’d sell it now. Potash turned down the takeover bid, and the stock has already started dropping. Sell now, take your profits, and buy it back when it’s $30 cheaper than now.
daamn, i sold mine at 100…..guess cant complain too much due to picking up a nice chunk of STD, but this still stings
Congrats southof8!! 🙂
To find out why it is important to think for yourself perhaps a revisit to the recent sections on Potash, POT is in order. Premarket today POT is up $31 on a takeover bid. I don’t have a website like JIm or a blog like savvy Eddie McGon and I don’t run a mutual fund but who made you money? lol…I’m kidding a bit of course because even a blind man with a dart board is right sometimes but my point holds. Sometimes people over analyze (Jim) and sometimes people just baffle with intelligent sounding b.s. (EdMcGon) but in the end it is your money and if you are smart and don’t follow the herd you have a decent advantage in this market dominated by hedge funds, pension plans and mutual funds who have to dress up every quarter.
Nothing wrong with charging for his time and talent instead of giving it away. Reminds me of what my mom said to my sister about the cow. we’ve all been a little spoiled by Jim’s generosity over the years.
But his posts haven’t really slowed down save for his vacation. What seems to have slowed down is the participation from the peanut gallery. Maybe it’s just the dog days of august and comments section will pick up again come September.
I feel like Jim is letting this website go dormant. This has been happening over the past couple of months. I think that we now need to pay to play.
I AM considering to “Let Jim Do It” . . . so, any of you have notes comparing the JAM Newsletter, JUBAX and the plain JubakPicks?
What about a few stock insights? Anyone thinking about investing in minerals or cyclicals based on the a supposed slow down in China? Contrarian thoughts, please.
The easiest way to find out which stocks are owned in Jim’s new fund is to invest some money into it.
I think people are confusing Jim’s personal portfolio with the theoretical portfolios he maintains on this blog/MSN.
His personal portfolios are where his money is and could be completely different then the ones he maintains for this blog/MSN because even if he recommends a stock as being a good buy, that doesn’t mean it is a good buy for him, given his other investments or point in life. Just as not all the portfolios are good for everyone. You might have too much invested to take on another tech stock he recommends, or you might be retired or whatever.
Actually when I think about this whole “disclosure” idea I realize that even with honest people like Jim you have to take it with a grain of salt and maybe just rely on if you can trust the person instead.
The whole idea of the disclosure is to give you heads up that the person may or may not have money in the recommendation, and as such might be biased by it.
But what does that really mean?
For instance Jim is now heavily invested in his fund. His fund invests in X stock. So on one hand Jim might not “own” X stock, but the fund he owns/maintains does. So in truth he has money in X stock and theoretically could be just as biased as if he owned X stock directly.
Of course it isn’t really practical to announce that you own stock X when you own it through a fund, just imagine if you had an index fund of the S&P 500, you can’t possibly list all the stocks it owns everytime.
Jim,
you did not mentioned that Vale also wants to become a major fertilizer producer of potash and phosphate rock
Have a great relaxing time! We Shall miss you; but look forward to your return!
DJBarber, I think Jim explained it here: https://jubakpicks.com/2010/07/28/finally-the-launch-of-my-new-subscription-newsletter/
“I’ve sold most of my portfolio of individual stocks and put the money into Jubak Global Equtiy Fund. That’s why in updates to picks that I once owned, I’m now saying that I don’t own shares anymore. I now own very few stocks–some stuff that doesn’t fit the global focus of the fund such as small bank stocks.”
Though I do hope Jim is on an excellent vacation!
Jim, You said:
“Vale is a member of my Jubak Picks 50 long-term portfolio (https://jubakpicks.com/jubak-picks-50/”
Then you said:
“Full disclosure: I don’t own shares of any company mentioned in this post.”
That must be one hell of a vacation your on!!!
Does anyone have an opinion on the Brazillian company SID? They are vertically integrated and are the second largest steel maker in Brazil. They have a good dividend to boot. Where can we find more information on this company?