07 September 2007

Bearish times ahead - be cautious

Usually I try to come up with some analyses of undervalued stocks every now and then. I haven't posted anything during the past few weeks and I must admit that my perception of the market has recently changed. Before much of the subprime woes were dominating the news, I was still of the opinion that the major US indices would go up much further than 14,000 based on the simple fact that the Fed would keep printing more and more money. This would not specifically be good news for stocks, but it would certainly lead money to lose its value and that usually helps share prices to appreciate. I think there is no better example of this than the Zimbabwe stock exchange. But as I mentioned, my perception changed. I am not very bullish anymore, in fact, I am bearish. The subprime problems have certainly put the train in motion. Mortgage lenders are to a great extent responsible for the situation we're in now. They are directly or indirectly responsible for making lending more difficult, for rising interbank rates, for falling housing prices and to some extent for the (coming) drop in consumer spending. The same goes for credit card companies. I have always had my thoughts about capitalist countries where possessions are bought on credit. The only thing I will ever buy on credit is a house and I will never pay more for a house than five times my household income. American home owners now face situations that will wake them up. The American Dream was never meant to be bought with borrowed money, was it? Taking your borrowed money to the stock market is asking for trouble as well. This is where the Yen carry trade kicks in. We already saw this year that at times when the Dollar/Yen dropped, so did stock markets and so did for instance precious metals. This situation is slightly different now. The Yen has strengthened again since its June peak and this has certainly not helped the American and European indices, but precious metals prices are suddenly flourishing. Gold broke out of its sideways range and seems to be starting a new bull run. Silver may be behind, but gold's little brother will probably catch up in the coming months. From this point in time, I expect risk to be priced into stocks again. I have to admit that it continues to surprise me when I watch CNBC and hear analysts say that Apple is a steal at 37 times earnings. It continues to surprise me that analysts are advising to buy 'tech', since 'tech' is where the growth will be in the coming years. I strongly disagree. If you ask me, the only potential growth sectors will be mining, energy and base materials. Not because demand for oil, gold or steel will go up, but because both the Euro and the US Dollar are losing value. The Central Banks' capital injections haven't helped in this respect and they will soon be caught in a stagflation spiral (i.e. a stagnating economy in combination with high inflation rates). Add to this the recent 'Al Qaeda trades', where unknown parties have been buying huge quantities of out-the-money put options, both in Europe and on Wall Street, and we have a very dark and cloudy scenario. As if that's not enough, we are also in a Puetz Window (the days in between a full moon and a solar eclipse), which has historically been the likeliest time for stock market crashes. Last Friday, we could already see that all this uncertainty has led investors to buy precious metals as well as the Japanese Yen. These are also the positions that I am in today: I am short EUR/JPY, long silver, long mining companies and I hold puts and put spreads on major indices. Not because I am convinced that we will get a crash like we had in 1987, but because I am convinced that there are very weak times ahead of us. I am also convinced that stock valuations today are not what they were one year ago. With a possible recession coming up, the potential end of the carry trade period, the increased difficulty to attract money and the consequential drop in M&A activity, a stock valued at 37 times earnings is really not that cheap anymore.

16 August 2007

Time to start shopping again...?

I am sure that the past weeks have been disastrous for many investors as very few had seen this drop (and its timing) in the stock markets coming. Even those who did saw it coming may not have expected it to be this fierce. I think I may include myself in that last category. With the lion share of my portfolio invested in American stocks and a long gold position, this week has certainly been one that I do not wish to experience a second time. My long position in gold has been liquidated and I was too early to close my short position on the Dutch AEX index, which generally follows the US indices.
Now is the time to sit and think about what steps to take. Do I sell my shares, waiting for further drops? Do I move extra money into my trading account? Do I sit and wait until the bottom is there, knowing that current valuations are ludicrously low? This is probably a choice that many private investors are now thinking of and their decision partly determines the future course of the markets.
Let's have a look at the signs that we're getting. The move that we've seen since the year-highs was fiercely downward, then sideways, then fiercely downward again. Corrections like these are never ended with a sideways move. They always end after a last fierce sell-off, followed by a quick rise. The first downward move was mainly caused by financials that were (or were not) affected by the subprime woes. The second downward move, the one that we're in now, is not caused by financials - even though all newspapers, television stations and websites will tell you that investors are selling on subprime fears. And the financial sector is the only one that is going up again! The main sectors that are now hit are services, basic materials and to a lesser extent the energy sector. These are the sectors that had not yet had serious sell-offs and investors are now simply taking profits, based on fear or emotions if you like. In addition to that, the carry trade has its effect as well, which has affected precious metals prices as well.
All this means that you're now able to buy dividend cannons like Southern Copper at a p/e below 10, a growth company like Companhia Vale at a p/e of 9 and Freeport-McMoran at a p/e of 8.4. And these are not companies that have performed badly so far this year! This Thursday's sell-offs also mean that telecom stocks are reasonably priced again, even though this is not one of my favourite sectors. It means you can buy Apple at $112, where hardly anything's changed since everyone wanted the stock at $140. (I personally continue to think that it's crazy to pay over 30 x earnings for any company, unless it's a junior company with great prospects, but I seem to be the only one)
All I can say is that today we are one step closer to a turnaround, which doesn't necessarily mean that 12500 was the bottom for the Dow. There may be a further drop, but I am pretty confident that we will not see a drop as fierce as the one we've seen this Thursday. Profit has now been taken in the sectors that are fundamentally the strongest sectors and these best-performing sectors are the last ones to get hit.
From this I can conclude that the bottom is near. I will therefore not sell any of my stocks and wait for better times to come, however painful this may be. The only thing one can do is write some calls or buy some puts, just in case we haven't seen the bottom yet. I still think the precious metals are the sector to be in and especially gold. I will therefore look for a new long position in gold, once again with a stoploss. To all investors who felt the way I felt this week, hold on tight, start shopping again, but whatever you do, don't be the last one selling. After all the economy can't be that bad, because my fiancee's still out there shopping for shoes as if nothing changed this week...
Disclaimer: The author has no position in any of the above-mentioned stocks.

07 August 2007

North American Galvanizing: buy 'on the dip'

Earlier this year, in March to be more precise, a company called North American Galvanizing and Coatings (NGA) caught my eye. NGA is a company that uses zinc for its galvanizing processes. As a result of the growing zinc prices, the company had booked impressive revenue growth as well as earnings growth. I added NGA to my list of stock picks at a price of $5.18 and closed that position at $12.06 in May. After that, the stock went up a bit further and then had a 3:2 reverse stock split before it fell down all the way to its current price of $5.75. I can imagine this stock has been quite a pain for those that have held this stock all the way from its peak in May. But the fundamentals don't lie: NGA saw its sales double in two years and its EPS increase tenfold in two years. And the story continues as the first halfyear results showed net earnings that were 80% higher than last year at $0.36 per share. Fact is that NGA trades at a P/E of 10.7 with, I repeat 80% EPS growth over the first halfyear! Technically, the stock shows a bearish picture. I would expect the RSI to bottom out anywhere around 40 in the weekchart in order for the stock to stay in its bull range. Keeping in mind the long term uptrend that zinc prices show, I will add NGA to my list of stock picks at a price of $5.75 with a $10.00 price target for mid 2008, based on the earnings growth reported in the first halfyear and the company's continued impressive growth.
The author had no position in NGA at the time of writing.

30 July 2007

Long gold again with $700 coming close?

After this month's changes in my mining portfolio, I have now decided that it's the right time to invest in precious metals again. I already bought (speculatively) DRDGold at $0.78 and after the 10:1 reverse split, the stock kept going down. I consider $6.50 a critical level and decided to sell once that level was broken. At $6.42 my sell order was executed, while the stock ended above $6.50 again. I am still quite convinced that DRDGold will manage to get its act together, but I am also certain that it is not the best stock for short term profits. Instead, I took a long position in gold at $662, knowing that there should be some support at $660 (being 61.8% retracement level), which was successfully tested and spot gold moved up to $665 today. Should gold move below $660, there is a high likelihood of a full retracement to $640 which for me would be a very bearish sign and possibly a reason to liquidate all my positions in precious metals and certainly a reason to reduce the mining share in my portfolio. But, being the positive-minded chap that I am, I added a position in Taseko Mines Limited (TGB). I actually bought back shares in TGB. Previously, I bought TGB at $2.30 and sold at minor profits as there was little news to move the stock up. Now the situation is a lot more fruitful. The company is one of the very few AMEX-listed precious metals miners that actually makes money. Taseko has successfully positioned itself as a copper & gold miner and has a good cash position with a positive cashflow. Taseko's Prosperity and Harmony mines alone should account for some 7.5 mio ounces of proven & probable gold reserves, which already makes the company's USD 600M market capitalisation look reasonable. Add to that the company's young & producing Gibraltar copper mine and you have a clearly undervalued stock, despite its recent rise. This stock will go through the roofs in two or three years from now as the Prosperity mine will get closer to production. I think we have a winner.
The author bought TGB at $4.60 and closed his position in DROOD at $6.42.

24 July 2007

Portfolio shake-up

The past months I have been busy trying to diversify to a certain degree. This was highly necessary as a great part of my portfolio was in mining stocks. I usually do not buy the very risky junior miners - which does lower my risk profile - but having to great a share in mining makes your portfolio very volatile. I sold Yamana Gold earlier this month at USD 12.65 as the technical picture started to become a bit more cloudy. This was followed by the announcement of a proposed threeway deal with Northern Orion and Meridian Gold, which made the stock drop to the lowest close of this year at USD 11.12. Among my current mining favourites are still Endeavour Silver Corp and uranium miner Uranerz. These will stay in my portfolio, whilst other miners I may sell off in the coming months. Aurizon Mines (AZK) may be added to this. I sold AZK last week at $3.90 as I expected there to be some resistance around that level. I might buy back at a later stage. I sold EGO last week at $4.80. To replace these miners, I am specifically looking out for alternative energy stocks. One of my favourites is still the slugglishly moving Evergreen Solar, which I believe is suffering from a temporary correction in a multi-year uptrend to be followed by a higher peak - well past the previous high of USD 17.50. I bought this stock in February of this year around current levels. Before that, I benefited of the 2005/2006 uptrend from USD 8.60 to USD 15.00. Even though this month I sold Beacon Power Corp at USD 1.50 (bought at USD 0.89), it is certainly not my idea to all of a sudden neglect this stock. I was purely safeguarding some profits and plan to get on the Beacon train again at lower levels. The excitement surrounding Beacon Power Corp is triggered by growing interest for the company's flywheel technology, which I believe will further grow from this point. However, the current hype cannot be argumented by numbers. Beacon Power is still not making any money and therefore any gains are purely based on prophecies. I do believe in this company, but it will take some time until earnings reports can justify a USD 1.50 share price. I will continue to keep an eye on the technical picture and will buy when much of the excitement has evaporated. At the same time, I am looking at Fuelcell; a company that produces fuel cell power plants that are ideal for the replacement of 'dirty energy' and thereby help reduce emissions. With a number of customers ranging from hospitals and universities to utility companies and manufacturing plants, the fuelcell technology is gaining popularity across industries. To come back to the mining industry, I added DRD Gold (now changed into ticker code DROOD) at $0.78 because of improving technical indicators. DRD Gold remains a very uncertain share to invest in. I see it purely as a speculative buy and I watch the technical indicators very closely to determine whether to buy or to sell. Investors seem to be a bit cautious because of the management change. Looking at the first quarter, the main issue for DRD is that the reserves are there, but the production is not. There have been too many hiccups in the past few years and even this first quarter showed a drop in production, both in Australasian and South African mining operations. On the positive side, I consider the Argonaut project to certainly have very high potential. A positive response to the Prospecting Right Application of the company's Argonaut project may be applauded. Once again, I still consider this stock a speculative one. Not a good basis for a stable portfolio but like my earlier purchases of GRZ and KRY, speculative buys are not always bad buys! Finally, with regard to the indices, I am currently short AEX and short S&P. 1520 will be a critical level for the S&P as will 550 for the AEX. Later this year, I plan to move some of my investments from North America to Europe as I see better growth prospects for European companies. The author holds long positions in EXK, URZ, ESLR and DROOD at the time of writing.

12 July 2007

Eldorado Gold sees Turkish mine shut down

It came to me as a complete shock, seeing one of my favourite mines down 30% on Thursday. A Turkish court had apparently ordered the shut down of Eldorado Gold's cash cow, the Kisladag mine, responsible for 60% of the company's gold production in 2006. According to Eldorado, the final decision by the court is still pending "on the appeal of a lower court order in favour of the company confirming the legality and validity of the Mine's Environmental Impact Assessment". The closure will be implemented in about 30 days. To clarify things, the company planned a conference call on Thursday evening and I was all ears. During the conference call, CEO Paul Wright was talking of a group of people whose only interest was to discourage mining in the country. He did not know the name of that group and he did not go into details on the specificalities of the court case. Last year, there was a problem with cyanide poisoning of villagers, which means that high levels of cyanide were found in villagers' blood. This was a result of the sodium cyanide heap leach method that was used by Eldorado during trial production and that presumably has been used until now. From what I found, the Environment Impact Assessment was initially accepted in 2003, but was later found incorrect by doctors and scientists and challenged in court by villagers, combined through a group called "Elele" (hand in hand). In addition to the cyanide poisoning, there were also reports of levels of arsenic in local drinking water. I can imagine if this all has been proven correct, that there are serious issues. Unfortunately, nothing was said about all this during the call. Problems with people opposing to the use of cyanide in the Kisladag region have been known since 1999, at the company did exploratory work. The first mining company that used cyanide in Turkey was Newmont Mining at its Ovacik mine in 2001. The mine was sold in 2005 to Turkish printing and mining company Koza Davetiye. The reason then given for the sale was the divestment of non-core assets. However, the Ovacik mine was - like the Kisladag mine - given bad publicity by Greenpeace and fought by locals in court, despite the company's approvals from Turkish Government. It sounds to me that this may be the start of something bad. According to Eldorado Gold's CEO, the decision that has been made was not supported by legal proof. But opposition against the use of cyanide in the local mining industry is clearly nothing new in Turkey. Maybe Newmont was not to keen on bad publicity either? I am however forced to review my position in Eldorado as the bad publicity is certainly not going to do the company any good and these environmental issues are usually not solved overnight.
At the time of writing, the author had a long position in the above-mentioned stock.

04 June 2007

An early June update...

My "stockpicks fund" showed only minor gains the past month as mining companies had a difficult time. The gold price struggled and fell 6% to 652, while only Capitalia benefited from M&A news. June should be a better month for mining companies (GRZ, KRY, DROOY, CVRD, ORM.L), which should help my virtual fund to further outpace most global stock markets.
DateFundPurchaseCurrentROI%Target
18Dec2006Aareal Bank35.50 38.50 +8.5% 44.40
13Dec2006 ABN Amro* 24.10 28.00 +16.2% 28.00
16Feb2007 Ahold 7.97 9.21 +15.6% 10.00
16Nov2006 Banco Pastor* 14.15 18.00 +27.2% 18.00
27Nov2006 Capitalia 7.00 7.60 +8.6% 8.50
19Feb2007 Companhia Vale $35.90 $47.02 +31.0% $55.00
12Jan2007 Crystallex $3.12 $4.55 +45.8% $6.00
24Jan2007 DRDGold $0.83 $0.85 +2.4% $1.10
21Dec2006 Fiat Group 14.50 21.47 +48.1% 19.33
12Jan2007 Gold Reserve $3.94 $5.70 +44.7% $12.00
10Dec2006 Hagemeyer 3.64 3.63 -0.3% 5.00
16Dec2006 Iberia* 2.81 3.30 +17.4% 3.30
10Mar2007 North Am. Galvanising* 5.18 12.06 +132.8% 8.00
28Nov2006 Ormonde Mining 0.24 0.16 -33.3% 0.40
7Dec2006 Rhodia 2.60 3.07 +18.1% 3.20
30Nov2006 SolarWorld 46.10 65.65 +42.4% 69.12
25May2007 Tsakos Energy Nav. $63.50 $64.23 +1.1% $90.00
2Dec2006 Vallourec 204.00 234.89 +15.1% 250.00
+25.5%
All stocks in euro unless mentioned otherwise. Stocks marked (*) have been sold as target price has been reached.

25 May 2007

Tsakos: An undervalued shipping giant

The maritime sector is hot. It's been hot for a couple of years now, but as world trade continues to grow, profits continue to grow. Greek shipping giant Tsakos Energy Navigation Ltd (NYSE:TNP) now has 53 tankers, out of which 23 ice-class tankers. True, there might not be much ice in Greek waters, but there certainly is a growing demand for ice-class tankers in Northern waters. Especially North and East of Russia at least for the coming ten years the demand for ships to transport oil & oil products will grow substantially. With an average vessel age of five years and a bit, Tsakos Energy Navigation (TEN) certainly is well-equipped for this period of growth. With a fleet that's more than doubled in five years and with net income having increased fifty times, one might argue that TEN is already too far in its growth cycle. But the opposite is true. Let's have a look at the stock's valuation. At a current share price of USD 63.50, TEN trades at a little over six times last year's earnings. This is already very low compared to the industry average of 16, but especially when considering that its 5-year EPS growth rate is almost double that of the industry, one has to come to the conclusion that this is a chance of a lifetime. Critics are sceptical as ice class tonnage has increased rapidly during the past five years and some are afraid of overtonnage. Charter rates are therefore expected to be somewhat lower in the coming years until supply and demand are in balance again. It must be said though that TEN has built up a reputation of being one of the leaders in ice-class and also of knowing how to keep costs under control. I think that the fears are overrated and that at the current valuation, the potential rewards outweigh the company's risk profile and I therefore consider this stock a very attractive one. I add Tsakos Energy Navigation to my list of stock picks at a price of USD 63.50 with a one-year price target of USD 90.
At the time of writing, the author did not have a position in the above-mentioned stock.

08 May 2007

Target price reached for Banco Pastor

As mentioned in one of my earlier postings, Spanish banking group Banco Pastor is a small yet ambitious one. In November 2006, I decided to add Banco Pastor to my list of stock picks at the price of EUR 14.15, with a target price of EUR 18. This target has now been reached less than six months later, though I continue to be impressed with the bank's results. In the first quarter of 2007, the group's earnings went up 31% whilst the amount of new clients went up 20%. The company's progress has to be admired and even though I still consider Banco Pastor a takeover target amidst the European banking consolidation, I must admit that the Spanish banking group is everything but cheap. After all, ABN Amro is currently for sale at 14x earnings, whereas Banco Pastor is valued at 30x earnings. Hence, I think it is wise to close this position at exactly the price targeted, leaving us with a gross ROI of some 27%.
The author had no position in Banco Pastor at the time of writing.

03 May 2007

An early May update...

It's really going somewhere now. I must admit that I am quite pleased with my stock pick performance so far this year. Obviously a record high for many stock exchanges helps, so we have to wait and see how these stocks perform during worse times. For the time being, I plan to hold Fiat as mentioned in my April posting, but I consider NGA 'sold' at 12.06.
DateFundPurchaseCurrentROI%Target
18Dec2006Aareal Bank35.50 39.01 +9.9% 44.40
13Dec2006 ABN Amro 24.10 28.00 +16.2% 28.00
16Feb2007 Ahold 7.97 9.88 +24.0% 10.00
16Nov2006 Banco Pastor 14.15 17.54 +24.0% 18.00
27Nov2006 Capitalia 7.00 6.94 -0.9% 8.50
19Feb2007 Companhia Vale $35.90 $42.61 +18.7% $55.00
12Jan2007 Crystallex $3.12 $3.98 +27.6% $6.00
24Jan2007 DRDGold $0.83 $0.86 +3.6% $1.10
21Dec2006 Fiat Group 14.50 21.77 +50.1% 19.33
12Jan2007 Gold Reserve $3.94 $7.25 +84.0% $12.00
10Dec2006 Hagemeyer 3.64 3.49 -4.1% 5.00
16Dec2006 Iberia 2.81 3.30 +17.4% 3.30
10Mar2007 North Am. Galvanising 5.18 12.06 +132.8% 8.00
28Nov2006 Ormonde Mining 0.24 0.16 -33.3% 0.40
7Dec2006 Rhodia 2.60 3.00 +15.4% 3.20
30Nov2006 SolarWorld 46.10 58.65 +27.2% 69.12
2Dec2006 Vallourec 204.00 204.28 +0.1% 250.00
+24.3%
All stocks in euro unless mentioned otherwise. Stocks in bold have been sold as target price has been reached.

Something not so financial, or is it?

It's been a while again, but I hope these long periods of absence won't happen too often anymore this year. I had a three-week holiday in Indonesia, which ended up being everything but a holiday. It was a period of family visits, my fiancee being from Indonesia, and a period of preparations for our wedding due early 2008 on Java. Usually, this site is a place for financial blogs and everything linked to the financial world, but there really is more in life than finance. Hence, I am sharing with you our findings in earthquake stricken Yogyakarta. The quake took place in May 2006, almost a year ago as we took our handycam and some money from ourselves, my family and some really great friends to the epicentre in Bantul. This was one of the villages around Yogyakarta where many of my fiancee's relatives live or lived. Upon arrival, we were shocked to see in what state the houses where. Most houses had not been rebuilt or only partly. The people living in these villages are generally humble people with little materialistic desire. All they need is a house, food and clothing to be happy. All home owners were informed by their Local Government that they were entitled to 45 mio rupiah (EUR 3,600). Yet most people haven't received a penny up until this day. That by itself is quite shocking, having to live without a roof or without any help of your Government, even medical help, for eleven months. But what is more shocking was that there were actually beautiful houses rebuilt in those villages. More beautiful than ever before. We couldn't help but ask around who these people were that built those beautiful houses there. The answer shocked us even more than the sights when we arrived that day. We were told that these houses were owned by Muslim villagers who lost their houses as well. These houses had apparently been funded by local Government aid and by donations from certain Muslim countries. Unfortunately, my fiancee's family happens to be Catholic. May I just say that when we in the Netherlands donate money, we do not discriminate on religion, skin colour, age or gender. We give money to victims in general. Shocking, but certainly an eye opener.

04 April 2007

Fiat target price reached for the year, but holding on...

Just a short post to say that Fiat's one year target price of EUR 19.33 has been reached, but since this is a stock that - as mentioned in my previous post on the company - is supposed to double in three years, I will not cash in on this one. Still too much upward potential, in my opinion. Keep following this one! As I write, gold has broken through the 667 resistance and the picture for the miners looks much brighter now as well. All & all, it sounds like a good time to take a holiday.

02 April 2007

An early April update...

It's been a volatile month with crashes here and there, followed by serious gains. As described in my previous posting, there's also a lot of M&A activity going on among my stock picks. Time for another update on my favourite stocks. One month ago, my stock picks were only up 3.5%, but now the gains are more colourful.
DateFundPurchaseCurrentROI%Target
18Dec2006Aareal Bank35.50 36.34 +2.4% 44.40
13Dec2006 ABN Amro 24.10 28.00 +16.2% 28.00
16Feb2007 Ahold 7.97 8.80 +10.4% 10.00
16Nov2006 Banco Pastor 14.15 17.10 +20.8% 18.00
27Nov2006 Capitalia 7.00 6.78 -3.1% 8.50
19Feb2007 Companhia Vale $35.90 $37.15 +3.5% $55.00
12Jan2007 Crystallex $3.12 $3.92 +25.6% $6.00
24Jan2007 DRDGold $0.83 $0.70 -15.7% $1.10
21Dec2006 Fiat Group 14.50 18.87 +30.1% 19.33
12Jan2007 Gold Reserve $3.94 $6.57 +66.8% $12.00
10Dec2006 Hagemeyer 3.64 3.58 -1.6% 5.00
16Dec2006 Iberia 2.81 3.30 +17.4% 3.30
10Mar2007 North Am. Galvanising 5.18 5.36 +3.5% 8.00
28Nov2006 Ormonde Mining 0.24 0.18 -25.0% 0.40
7Dec2006 Rhodia 2.60 2.83 +8.8% 3.20
30Nov2006 SolarWorld 46.10 58.06 +25.9% 69.12
2Dec2006 Vallourec 204.00 195.48 -4.2% 250.00
+10.7%
All stocks in euro unless mentioned otherwise. Stocks in bold have been sold as target price has been reached.

28 March 2007

Mergers, acquisitions & rumours

It's good to be back after having travelled for business for more than two weeks. During my absence, a lot has happened to certain funds that I discussed some time ago. Especially news on ABN Amro, Iberia, Gold Reserve Inc, Crystallex, Beacon Power Corp and Ahold is worth mentioning. First of all, I indicated last year that ABN Amro would certainly be subject of takeover talks as the banking industry consolidation in Europe would start to take off. Earlier this year, it was rumoured (on advice of certain shareholders) that ABN Amro could be split up, unlocking value for the shareholders themselves. This was later denied by CEO Rijkman Groenink, who stated that this would certainly not be the preferred option. Then came rumours of a merger with Barclay's Bank, possibly creating Europe's second largest bank after HSBC. This rumour actually seems more than just a rumour and has a reasonable chance of success. The share price went up quickly from EUR 27 to EUR 32 and might even go a bit higher as a deal gets closer. This jump will however not influence the performance of my list of stock picks I had cashed ABN Amro at EUR 28. Then there were takeover talks regarding Spanish airline company Iberia. It was rumoured that Lufthansa was willing to pay EUR 3.90 and that several other groups were interested in buying Iberia, including British Airways and Texas Pacific Group. Iberia was on my list of stock picks but was taken off when its price target of EUR 3.30 had been reached. In January this year, I wrote about Gold Reserve Inc and Crystallex having great potential based on the high likelihood of obtaining permits from the Venezuelan Government as well as the low valuations of both shares. On Wednesday, both shares jumped, but are still very far from reaching price targets set for this year. Now that the major risk of not being able to obtain permits has been eliminated, I see no reason for the low valuations of both shares and it should therefore be expected that both shares will rise further, supported by higher prices for precious metals. Beacon Power Corp rose from USD 0.82 to USD 1.02 last Thursday on news of a successful outcome of its flywheel technology field trial tests. This should be seen as a significant milestone towards further growth of the company's sales. In my opinion, this development stage company has some serious potential that most investors have yet to find out about. The stock has dropped back to USD 0.83 after its rise but has now continued its upward move and may be expected to come up with further good news on its technology in the near future. Finally, Ahold has moved up from EUR 7.50 to EUR 8.50 this month on the expected sale of US Foodservice and Tops Supermarkets in combination with the grocer's low valuation. In addition to that, there were some rumours of Ahold being a potential acquisition target. So I am happy to see that most of my predictions seem to be coming true sooner or later. My list of stock picks may not be as successful as my 'mining fund', but 10% ROI in three months (on average) isn't bad at all, is it?

10 March 2007

Bullish on zinc? Mining stocks aren't the only option.

I hadn't expected to get the opportunity to post during my absence, but I had some spare time in the morning here in Kuala Lumpur and decided to go online in my hotel room. Upon checking the performance of the basic materials sector, I came across a remarkable company this morning. North American Galvanizing Company (AMEX:NGA) caught my eye as it is not a mining company (which I would typically be looking for). It is a company that use zinc for its galvanisation processes. As a result of growing zinc prices, the company has booked tremendous growth in the past years. Its sales more than doubled in two years and EPS are ten times what they were two years ago. And all this is down to higher prices for zinc. Even though this may not be your most logical stock pick, zinc bulls might want to think again. NGA trades at a P/E of 8.9 and is therefore much cheaper and a lower-risk option than most mining companies, whilst the effects of rising zinc prices on sales are quite similar. Technically, the stock also shows a positive outlook. The downward trend of the RSI in the weekly chart has been broken with support around 40, which means that the stock might be bottoming now in a longer-term bull trend. Considering the company's growth in the past four years, this is a very affordable stock. Keeping in mind the bright outlook for zinc prices, I will add NGA t my list of stock picks at a price of $5.18 with an $8.00 price target for end 2007.

08 March 2007

Two weeks of absence...

Tonight I will be travelling to Asia for business and I will be away for two weeks. Chances that I will be able to find the time to post some words are minimal and therefore you are likely to see two weeks of silence. However, I will be back in time to provide you with an end of March update on my favourite stock picks, my 'green picks' and my 'mining picks'. Knowing that I might not always be able to trade in the coming two weeks, I had to rearrange my portfolio a little bit. As such, I sold Euro Ressources at a loss (1.05 (1.23)) and Yamana Gold at a profit (14.35 (9.78)). I bought BCON at $0.89, URZ at $4.48, ELR at $9.73, ORM.IE at EUR 0.185 and RNO at $3.27. I kept all my other mines in my portfolio as well as my long position in gold with an automated stoploss at $624. This might seem somewhat risky, but I am confident that gold has bottomed and that from here the direction will be upward. One thing you might have noticed is that I am adding alternative energy stocks to my portfolio. I was a previous holder of ESLR and I am still a great fan of this solar energy company. Thankfully, I sold at $15 previously and had the chance to get in at a much lower price. I expect the previous high to be taken out in 2007, but more about this when I return. Till we meet again!

02 March 2007

A new virtual alternative energy fund is born

Everyone always aims to find the hypes in the global stock markets. In the eighties, Japan was hot. In the nineties, you had to have tech stocks. Then came metals & mining and several others have passed that may have not been as significant, but were certainly worth the money. When reading financial websites, there's one sector that keeps coming back: alternative energy. It's no secret to anyone on this planet that something needs to happen about the way we pollute the environment and our atmosphere by consuming more and more energy per capita. Emissions are a big issue, ethanol is so hot that there are actually fears of grain, corn, soy & sugar becoming too expensive for third world countries. Friends and family members might already start selling you fuel savings pills and even your little village grocer starts selling LED bulbs. Clean & green is hot and it wil remain hot for years to come, if the stock market experts are right. Well, I'm gonna take that challenge and give you five alternative energy stocks. Let's see if they can outperform my stock pick portfolio or even my mining portfolio. Here's the first five (I might add more in a while) : Evergreen Solar (ESLR - US$9.46), Beacon Power (BCON - US$0.90), Pacific Ethanol (PEIX - US$15.40), Distributed Energy Systems (DESC - US$2.89) and SolarWorld (SWV.DE - EUR 57.57). Now let's see how sunny the future is for these green stocks. Investing in these companies almost makes you feel as if you're doing something good for Mother Earth!

28 February 2007

An early March update...

Another month closed and it is therefore time for another update on my favourite stocks. Even though my stock picks are only up 3.5%, so far they do outperform pretty much every index around the world!
DateFundPurchaseCurrentROI%Target
18Dec2006Aareal Bank35.50 35.40 -0.3% 44.40
13Dec2006 ABN Amro 24.10 28.00 +16.2% 28.00
16Feb2007 Ahold 7.97 7.56 -5.1% 10.00
16Nov2006 Banco Pastor 14.15 16.85 +19.1% 18.00
27Nov2006 Capitalia 7.00 6.62 -5.4% 8.50
19Feb2007 Companhia Vale $35.90 $34.10 -5.6% $55.00
12Jan2007 Crystallex $3.12 $3.04 -2.6% $6.00
24Jan2007 DRDGold $0.83 $0.80 -6.0% $1.10
21Dec2006 Fiat Group 14.50 17.79 +22.7% 19.33
12Jan2007 Gold Reserve $3.94 $4.46 +13.5% $12.00
10Dec2006 Hagemeyer 3.64 3.58 -1.6% 5.00
16Dec2006 Iberia 2.81 3.30 +17.4% 3.30
28Nov2006 Ormonde Mining 0.24 0.19 -20.8% 0.40
7Dec2006 Rhodia 2.60 2.65 +1.9% 3.20
30Nov2006 SolarWorld 46.10 54.58 +18.4% 69.12
2Dec2006 Vallourec 204.00 187.33 -8.2% 250.00
+3.5%
All stocks in euro unless mentioned otherwise. Stocks in bold have been sold as target price has been reached.

27 February 2007

Markets plunge; metals join in on the fun

It is now 11pm Amsterdam time and what we have whitnessed today is not something we see every day. I bought two puts on the Dutch AEX index on Friday and sold them today, after which I bought one single put 490 (March series) later on the day at a lower price: Eur 1.85. Certainy not a big investment, but then I do not hold an impressive track record with options. I therefore tend to be very careful when trading with options. Closing price of my put was Eur 3.40 with an AEX some ten points below yesterday's close. After European equity markets closed, we whitnessed the American indices being slaughtered, taking commodities along. I got worried about my mining stocks as the mining sector is among the hardest hit of all sectors today. Thankfully, someone posted some comments by Jim Sinclair, who had already said the following - one day before this slaughterfest: "At first the equity market breaks would bring in temporary sellers of gold. However, quite quickly thereafter and most certainly when the US Dollar also gets hit, gold will steady and start its move to all the Angels." Thanks for those words of hope and wisdom, Mr Jim Sinclair. As for tomorrow, I will watch the indices closely and I will specifically watch the RSI level of the AEX, which will be critical. If the RSI in the daychart breaks through 40, we are seeing a bull market turn into a bear market. Good luck to all and don't panic.

26 February 2007

Enter DRDGold, Exit Gold Reserve

The past few months have been very good for my portfolio. With a ROI of 62% since September, it's certainly been the best five months ever. But the months from April until September were not particularly good, which has once again taught me a lesson about the importance of timing - even in a secular bull market. Today, I decided to sell GRZ at $4.87 (purchased at $4.05; it is still in my list of stock picks for the long run) and use the money to benefit from the improved technical picture of DROOY. In addition to the technical picture, the fudamental picture looks brighter, too. DRDGold subsidiary Emperor Mines announced on Friday that it saw a significant increase in its mineral reserves at its Porgera Mine. A statement on the update of DRD Gold's reserves can be expected in the near future. As far as I can see, this is the first significantly positive news in years after having seen the stock plummet to a price below one Dollar. I added DROOY todat at $0.87. Price target remains $1.10 for 2007, which I hope to see in the first quarter of 2007 on rising metals prices.

23 February 2007

Target price reached for ABN Amro

I am pleased to report that ABN Amro reached its price target of EUR 28 yesterday on rumours of the company being split up, followed on earlier rumours of the company being merged or even taken over by Italy's Unicredito. As mentioned in my posting on 13th of December, there's a lot going on in the European banking industry and it needs to be watched very closely. For now, I think ABN Amro has limited upside potential and is sufficiently valued, knowing that the rise is mainly caused by speculations about the company's future. I would certainly wait for a correction until buying this fund again. On my list of stock picks, ABN Amro will be 'clicked' at EUR 28.

19 February 2007

Brazilian mining giant CVRD still undervalued

Companhia Vale do Rio Doce (CVRD) is one of the big three in iron ore and, together with BHP Biliton and Rio Tinto, makes up about 70% of global iron ore exports. The Brazilian mining giant is a little less diversified than its counterparts, but through last year's takeover of Canadian nickel miner Inco the company has actually become a more attractive player in the sector. Not much needs to be said about this company: turnover rose from 225% from 2001 to 2005, whilst net income went op 276%. EPS growth has been really impressive until today and this is not expected to change with metals prices currently booming. Being a firm believer in a metals boom, I expect prices for all metals to go higher and earnings growth should therefore continue to be admirable. A further diversification won't hurt either. Part of the company's strategy is to invest in aluminium, copper, nickel & coal, whilst at the same time aiming to grow its logistics business. With expected 2007 earnings per share of around US$3.60, CVRD now trades at a fwd p/e of 10. Keeping in mind that the mining craze will add fuel to the valuations of companies throughout the global mining sector, p/e ratios of 15 would still be modest for 2007. This means that a price target for 2007 of US$55 is -in my humble opinion- certainly realistic. This leaves a 50% upside potential for CVRD from its current price of US$35.90. CVRD will therefore be added to my list of stock picks.

15 February 2007

Dutch grocer Ahold poised for better times

Now and then, you run into these shares that many investors tend to stay away from. Ahold is certainly one of those. After the creative bookkeeping scandal that came to light in 2003, it's taken the grocer some years to shake off the general lack of confidence. And in fact, Ahold is still trying to gain confidence. In the past three years, Ahold has underformed the AEX by a whopping 20% and this is not purely due to poor earnings growth. It cannot be denied that sales in the United States are staying behind. But it becomes more and more likely for Ahold to dispose of its North-American operations and this might offer shareholders some extra pennies. In spite of the poorly performing US operations, the figures don't lie. Ahold trades at a p/e half that of its industry peers. Earnings for 2008 are expected to grow significantly, despite of overseas operations staying behind. Worst case scenario, Ahold trades at a forward p/e of 10 (assuming EPS of 0.80 in 2008) and is thereby still undervalued. Add to that the earlier-mentioned increasing likelihood of Ahold disposing of its overseas operations rather quickly and there you have your 'buy-advice'. OK, I am not Moberg, but maybe one day he will read this and take my advice into account. Divest your American operations and focus on growing countries. Focus on Central and Eastern Europe, invest in new EU countries and try to gain some experience in Asia by acquiring small operations in a country like India. It should be no rocket science that a company needs to invest in growing countries, not in mature markets. Once this underperforming asset is lost, investors will start to regain there faith in the stock. Mr Moberg, I am at your disposal if you need my advice. For now, I assume a price target of EUR 10 for end 2007, based on the likely disposal of US operations in combination with the current low p/e ratio. Ahold currently trades at EUR 7.97.

Iberia target price reached

Two months ago, I mentioned that Iberia Lineas de Aereas de EspaƱa SA, Iberia in short, was undervalued and that the company's turnaround would be rewarded shortly. The price target of EUR 3.30 has now been reached and I think the stock is sufficiently valued at a forward p/e of 18 (assuming the median estimate EPS of 0.18, which I think should be feasible). Iberia presented a significantly improved load factor over 2006 and shows good results on long haul flights whilst domestic flights have been reduced substantially. Iberia expects the more profitable long haul flights to make up 42% of total revenues, versus 32% in 2004. This will happen at the cost of domestic flights, with medium haul flights expecting to be stable. Impressively, the gap with Air France on long haul flights from Europe to Latin America widens and it is more and more likely that its target of a 23% market share is going to be met. Considering all the above and especially keeping in mind the forward p/e of 18 based on current estimates, I would advise to hold the stock with the previous price target of EUR 3.30 as a stoploss.

11 February 2007

Venezuela miners up as gold gains momentum

The column I wrote last month on GRZ and KRY seems well-timed. Both mining companies with a great exposure to Venezuelan political influences, have seen their share prices drop very rapidly in 2006, after having performed relatively well in the first four months of 2006. Now that gold is busy breaking through its old resistance at $660, cheap mining companies seem to attract some interested investors again. Gold Reserve Inc (GRZ) has gained more than 50% since its low on 29 January. Not surprisingly, Crystallex International Corp (KRY) took a bit longer to get moving. In the end, GRZ was much cheaper than KRY at the time of my previous writing and as expected, the gains that GRZ has booked are much more substantial. However, it needs to be mentioned that there is still no update on the Government of Venezuela regarding the issuance of mining permits to foreign companies. This means that the recent gains in both stock prices are mostly due to a rising gold price and can partly be attributed to the stocks simply being undervalued. The permits are still pending, but fact is that the Government of Venezuela does not have enough know-how to completely take over operations from foreign mining companies. Knowing this and knowing that the permits are said to be in the administrative phase (and therefore the last phase), investors shouldn't have to wait too long until gains start to reach triple digit figures.
Disclosure: Joey Keasberry currently holds a long position in GRZ.

02 February 2007

Early February update on stock tips

DateFundPurchaseCurrentROI%Target
18Dec2006Aareal Bank35.50 36.62 +3.2% 44.40
13Dec2006 ABN Amro 24.10 24.66 +2.3% 28.00
16Nov2006 Banco Pastor 14.15 16.11 +13.9% 18.00
27Nov2006 Capitalia 7.00 6.90 -1.4% 8.50
12Jan2007 Crystallex $3.12 $2.92 -6.4% $6.00
24Jan2007 DRDGold $0.83 $0.85 +2.4% $1.10
21Dec2006 Fiat Group 14.50 17.00 +17.2% 19.33
12Jan2007 Gold Reserve $3.94 $4.58 +16.2% $12.00
10Dec2006 Hagemeyer 3.64 3.71 +1.9% 5.00
16Dec2006 Iberia 2.81 3.12 +11.0% 3.30
28Nov2006 Ormonde Mining 0.24 0.19 -20.8% 0.40
7Dec2006 Rhodia 2.60 2.88 +10.8% 3.20
30Nov2006 SolarWorld 46.10 61.75 +33.9% 69.12
2Dec2006 Vallourec 204.00 201.80 -1.1% 250.00
+5.9%
All stocks in euro unless mentioned otherwise.

24 January 2007

DRDGold: Time to take a chance

A little while ago, I wrote a column on DRDGold and mentioned that I put DRDGold on my watchlist. Main reason for this was that the South African mining company had seen so much going wrong in one year, that it had to turn at a certain moment. All production halts and small disasters should now be priced into the stock and I am therefore writing a couple more lines now. Basically, I feel that DRDGold has almost bottomed out now and a chance can be taken to buy at the current prince of USD 0.83. There is quite a lot of support around USD 0.75 and stoplosses can therefore be placed below that level. In my opinion, it is just a matter of time until better news arrives and the technical picture looks sound enough to buy. Speculative buy with a price target of USD 1.10 in the first half of 2007.

12 January 2007

Two speculative gold plays

Within the mining industry as well as in the oil & gas industry, geopolitical risks are becoming more and more influential on share prices. This became quite clear this week when Chavez mentioned in a speech that all that was once privatised should be nationalised again. He specifically mentioned his desire to re-nationalise CANTV (CompaƱia Anonima Nacional Telefonos de Venezuela). The share price (NYSE:VNT) plunged as a result and took many other funds with it. Among these were certain mining funds that have at least part of their operations in Venezuela, including Crystallex International Corp (AMEX:KRY) and Gold Reserve Inc. (AMEX:GRZ). The risk in the mining sector was already priced into these two companies' shares last year when GRZ dropped from its April peak of USD 9.58 to USD 3.96 two months later. The same happened with KRY, which fell from USD 6.07 to USD 2.84, also in two months' time. Not helped by gold moving sideways for a period of eight months since its April peak, both stocks are now not far from where they were in June last year. The problem is clearly not their reserves. Both companies share prices are way too low if you take all proven & probable reserves into account. For only one reason: geopolitical fears. Crystallex issuing a press release to eliminate investor fears after Chavez' speech this week did not help the share price and was completely ignored. The Government of Venezuela has previously even confirmed that the present contract will be honoured by both parties, i.e. Chavez & Crystallex. The financial world now seems to neglect the 13.6 mio ounces of proven & probable reserves that Crystallex holds. With a market capitalisation of USD 785 mio, the market cap per ounce ration lies at USD 58. For comparison's sake, this is less than one tenth of that of Kinross Gold (NYSE:KGC) and Bema (NYSE:BGO). Gold Reserve has an estimated 10.1 mio ounces of gold and 1,290 mio ounces of copper at its major project Las Brisas in Venezuela, which means that it has an even more ridiculous market capitalisation per ounce of USD 11.30! And even though GRZ has a similar agreement with the Venezuelan Government, this too was ignored by investors. Then there is also a bilateral treaty that offers some protection to Canadian companies in case of nationalisations. So all and all, we can say that the risks are to a great extent priced into the stocks and there is a great possibility that the stocks moved down too much on the news and that fears have been overrated. Would, in my humble opinion, these companies have had all their operations in politically stable countries, both share prices would have been at least 300% higher based on their reserves. It's a simple calculation. The only thing to rate is the risk and will always be a subjective rating. But the potential rewards certainly outweigh the risks and I therefore recommend both stocks as buy candidates. My preference however goes to Gold Reserve Inc for a number of reasons, of which the market capitalisation per ounce is the most obvious one. Do however still keep the risk in mind and therefore consider this a speculative buy. I would set price targets for this year at USD 6 for Crystallex and at USD 12 for Gold Reserve Inc.

08 January 2007

Silver: the chance of a lifetime

Lately, we've seen precious metals take a serious dive. The start of the year has certainly not been good for those who have put their money in mining companies, including the undersigned. Gold looked destined to surpass its previous peak at USD 650, but failed to do so and lost 6%. Its usually more volatile 'little brother' silver had showed a sluggish performance since early December and has now lost another 9% since the start of 2007. Knowing that silver is widely expected to be the best performing metal in the coming years -simply based on the laws of supply & demand- I myself have been looking to diversify and invest part of my money in this metal. Let's have a look at the below chart: This chart is the price of one oz of gold divided by the price of one oz of silver. What the chart shows is that around 1 December at USD 150 and with the RSI showing that silver was overbought compared to gold, the latter was the better option to buy. However, now we are at a stage where the RSI has fallen below 40, showing a good chance to buy silver. The same happened early October, when silver started to move up from USD 10.80 to USD 14! Silver itself looks quite good as well with the RSI showing a slight oversold status in the March 07 future chart. To summarise: silver has stayed behind gold since early December and silver itself currently shows an oversold status. Hence, enough reasons for me to take a long position in silver today at USD 12.05.

02 January 2007

Predictions...

First of all a very happy New Year to all readers. I have taken a short holiday to do some work in the house and will be following the exchanges a bit more closely again as of today. At the end of each year, there are usually quite a couple of stock competitions online, of which I would like to mention my picks. The first one is the annual mining competition at golddrivers, where you choose ten junior mining stocks that will make up your portfolio for the year to come. I've selected ten interesting mines, some of which are currently in my 'real' portfolio, too. These are the following:
  1. Franklin Mining Inc (FMNJ.PK)
  2. Canadian Arrow Mines Ltd (CRO.V)
  3. Odin Mining & Exploration Ltd (ODN.V)
  4. Consolidated Gold Win Ventures (CGW.V)
  5. Canasil Resources Ltd (CLZ.V)
  6. Noront Resources Ltd (NOT.V)
  7. Silver Wheaton Corp (SLW.TO)
  8. Yamana Gold Inc (AUY)
  9. Searchgold Resources Inc (RSG.V)
  10. Exeter Resource Corp (XRC.V)
There is a second mining competition that is very interesting two follow, which you can find at www.edelmetaal-info.nl. In this competition, five mines must be selected. Hence, I selected from the above top 10 numbers 3, 4, 5, 6 and 9 (in bold). The third competition is one that I've set up end 2005, but which has now been taken over by Dr Money. This is a competition where you are to select your favourite five Dutch stocks. I'm very thankful that Philippe helped me last year, as it was simply too time consuming to keep the competition up-to-date. Now of course I would like to thank DrMoney for organising the DFT Top5 Competition 2007. My top five Dutch stocks for 2007 are the following:
  1. ABN Amro
  2. Aegon
  3. Hagemeyer
  4. Qurius
  5. TNT Post
The first two I have selected based on their potential roles in the consolidation of European financials. I selected Hagemeyer based on my previous posting, Qurius based on a successful turnaround towards profitability (I might cover this pennystock shortly) and TNT Post based on its attractive p/e. Last year, I ended in the top five. Now I am going for the big price! Finally, I would like to wish everyone a lot of luck & wisdom for 2007. May all your wishes come true and may your trading account grow substantially! Update: In my top 10 list for golddrivers.com, I changed Taseko and Rubicon into Silver Wheaton and Exeter Resource Corp. The competition will commence on January 15th.