US Stocks

[Intrinsic_Value]

Put on an order today for NVS (Novartis) using an ADR
as well as ABT (Abbott Laboratories).

Using just a half allocation (ie just half the allocation i want, so if necessary can dollar average).

I like Colgate but not at these levels. Price relative to growth is not right yet.

 

[steveadl]

Agree with your on CL's current valuation. They have a decently higher PE than their household goods peers. Perhaps due to their decent margins and dominant position in oral? Keeping it on the watch list for now but I think my next move will be RB.

Back in the day I liked PG, but in recent years after seeing how they operate from a semi-insider position, I wouldn't touch them. Not to say they won't perform well, but I don't like how they conduct product development and it's resulting effect on sales.

Of course RB will have to wait for my brokers to work out what the hell they're doing with my US account first! *sigh*

Little tip, never let your W8BEN lapse - big headache!

 

[steveadl]

Speaking of drug stocks IV, what's your take on them?

I haven't paid much attention to them as I remember reading a while back about the industry. Correct me if I'm wrong as it was a while back now - but basically the drug industry is finding it hard to achieve growth, no blockbuster new drugs, gobbling each other up to sustain growth, and a lot of profit growth in recent years has been the result of cost cutting as opposed to new development which is damaging the businesses long term etc.

Perhaps this is no longer the case?

 

[Intrinsic_Value]

Speaking of drug stocks IV, what's your take on them?

I haven't paid much attention to them as I remember reading a while back about the industry. Correct me if I'm wrong as it was a while back now - but basically the drug industry is finding it hard to achieve growth, no blockbuster new drugs, gobbling each other up to sustain growth, and a lot of profit growth in recent years has been the result of cost cutting as opposed to new development which is damaging the businesses long term etc.

Perhaps this is no longer the case?

hard to get a real grip on drug stocks, i think one needs to be a bit of expert in this field to really understand underlying intrinsic values.

A lot of potential value traps out there, where a drug stock looks 'cheap' on current valuations, but thats because future earnings are declining.

I bought both ABT and NVS but hopefully both of these stocks are more diversified than just a pure drug play.

Consider also Walgreen (a drug store chain), ie own the front end distribution channel rather than the drug company itself, who ever makes the drug, still needs the 'shop' to sell it to the consumer.

Unfortunately Walgreen has run quite hard and i only recently picked up on it.
Hence havent acquired a position in it yet.

 

[Intrinsic_Value]

Speaking of drug stocks IV, what's your take on them?

I haven't paid much attention to them as I remember reading a while back about the industry. Correct me if I'm wrong as it was a while back now - but basically the drug industry is finding it hard to achieve growth, no blockbuster new drugs, gobbling each other up to sustain growth, and a lot of profit growth in recent years has been the result of cost cutting as opposed to new development which is damaging the businesses long term etc.

Perhaps this is no longer the case?

Jim Cramer answers this exact issue:
Expained in a much better maner than i could.

http://www.cnbc.com/id/15840232/?video=1802096768&play=1

 

[steveadl]

Good link IV, that's pretty much the opinion I've read in the past. You still like the industry though for future growth?

Meanwhile, here's a chart that illustrates what I was talking about earlier with RB:
http://www.google.com/finance?q=PINK:RBGPF,LON:RB

Same stock, same spikes and troughs but because of the US$'s weakness - the result over 3 & 1/2 years is UK stock up 20%, US stock down 5%. Granted it may reverse in the future when US$ heads back up, but I'm leaning toward buying the UK stock as it's a purer exposure to RB for me in Australia than going via 3rd currency in between. But I don't really have any strong views of the GBP and where it's heading, whilst I do believe the US$ will recover - so that would pose an argument for getting in via the US route.

Too many options and variables.

 

[Intrinsic_Value]

Good link IV, that's pretty much the opinion I've read in the past. You still like the industry though for future growth?

.

Personally i prefer an industry that is not undergoing rapid growth.
Rapid growth attracts numerous new players, and because its growing rapidly the market tends to receive alot of focus and alot of hot money.

 

[Intrinsic_Value]

Took a position in cisco on friday, $17.10 entry price.
But only a half allocation in case i need to dollar average.

Cisco is going to start paying a dividend now finally. Also holds around $7 per share in cash. Given the share price is $17 this is a hell of a lot of cash.

However concerns i have with the company are:
(a) traditionally high margin business which constantly attracts competition.
(b) lots of stock issued to employees. To prevent overall increases in shares outstanding the company spends money doing share buy backs. So we have a bit of a merry go round: issue shares to employees then buy them back on market.

Other good news, when the s**t hit the fan re Japan, the strategy of holding US$ denominated conservative stocks worked. Stocks dropped but so did AU$ providing me with a buffer.

 

[steveadl]

Would have been nice to top up on some of the dips last week or so during the Japan scare, though I guess with currently volatility (Japan, Libya etc) there's every chance market will be slapped lower.

Haven't been following stocks much anymore as I'm pretty much fully invested where I want to be now (set and forget to a degree) and am moving onto my next area of focus. I would however be interested in topping up on more RB if it gets whacked again like last week. Household products with a better margin than it's global competitors, higher growth rate and in my opinion better product development and marketing strategies. Let's face it - regardless of whether or not Japan melts down or Libya is torn to shreds, people are still going to want to kill cockroaches in their living room, have a nice smelling bathroom and wash their hands when they're done.

 

[myoung]

Took a position in cisco on friday, $17.10 entry price.
But only a half allocation in case i need to dollar average.

Cisco is going to start paying a dividend now finally. Also holds around $7 per share in cash. Given the share price is $17 this is a hell of a lot of cash.

However concerns i have with the company are:
(a) traditionally high margin business which constantly attracts competition.
(b) lots of stock issued to employees. To prevent overall increases in shares outstanding the company spends money doing share buy backs. So we have a bit of a merry go round: issue shares to employees then buy them back on market.

Other good news, when the s**t hit the fan re Japan, the strategy of holding US$ denominated conservative stocks worked. Stocks dropped but so did AU$ providing me with a buffer.

just bought CSCO yesterday @ $17.18 then saw this.

 

[Aaron Sice]

double bottom on CSCO still not promising. might only be another 3% in it.

 

[Intrinsic_Value]

double bottom on CSCO still not promising. might only be another 3% in it.

yeah you could well be correct Aaron, when the street thinks a company has gone ex grown or even worse will potentially go through a period of profit decline the street can absolutely hammer the stock.

Look at Microsoft got down to a PE of nearly 10 from memory, H&R Block got down to a PE of 9 when i picked it up.

So there is still significant downside risk to CSCO, on forecast earnings of say $1.5 and a PE of 10 thats $15. Still 20% downside from current prices and thats assuming they hit $1.50, if they don't the potential downside is greater.

Thats why i purchased a smaller allocation than usual. It gets me into the stock, but with plenty of breathing space to adjust in the future.

I will be running with potential stop losses as well on this position.
Why only potential? because if the price declines then i will need to focus on whether to activate the stop loss or hold/buy depending on the information at the time.

Re Cisco some good brief reading for anyone interested:
http://everythinggold.blogspot.com/2011/03/cisco-csco-at-crossroads-of-its-history.html

http://wallstcheatsheet.com/trading/corporate-profit-margins-are-about-to-look-like-this.html
(this link applies to the market as a whole and is a BIG RISK)

http://www.thestreet.com/story/11053636/1/cisco-chart-shows-broken-stock.html
This is a good post that i think Aaron is referring to.

 

[Intrinsic_Value]

Further more my results so far for the US portfolio are nothing to boast about.
Portfolio unrealised p&l positions (includes exchange rates P&L):
CSCO: - 2%
NVS: -2%
Oracle: +36%
Visa: +5%
ABT: +1%
Bank of America: -1%
H&R Block: +30%
General Electric: 30%
KMB: +3%
Microsoft: +1%

(doesnt include dividends but overall portfolio has a dividend yld of around 2.5%, so who really cares).

Overall portfolio returns are significantly higher, so the US portfolio to date is both dragging the results of the total portfolio and is chewing up capital.

Anyway early days yet.

 

[steveadl]

Further more my results so far for the US portfolio are nothing to boast about.
Portfolio unrealised p&l positions (includes exchange rates P&L):
CSCO: - 2%
NVS: -2%
Oracle: +36%
Visa: +5%
ABT: +1%
Bank of America: -1%
H&R Block: +30%
General Electric: 30%
KMB: +3%
Microsoft: +1%

(doesnt include dividends but overall portfolio has a dividend yld of around 2.5%, so who really cares).

Overall portfolio returns are significantly higher, so the US portfolio to date is both dragging the results of the total portfolio and is chewing up capital.

Anyway early days yet.

Similar to my US stocks. Worst performer -20% (after beating forecasts but lowering guidance ), best performer +37% (one with a high PE that most of the market says was too high when I bought).

Overall up 5%, but that fluctuates wildly on a daily basis. Enjoying watching the quarterly dividends roll in and get reinvested immediately with fractional shares added. Much better system than Australia. Overall yield a paltry 1.5%, aided by 30% of my stocks not paying dividends.

 

[Ridin-High]

Hi Steve + IV,

quickie

I presume they have similar thing to listed investment companys (LICS) on the US stock exchange. Could you give us some ticker codes for some of the major ones if you know them. Also EFT which would be similar to the one that tracks the ASX 200. Eg which ETFs track top 200 companys on one of the US stock exchanges

Probably would be good to measure your performance against those investment vehicles

 

[steveadl]

Hi RH, sorry I don't know any LIC's over there - my strategy has been buying big global co's directly. Longer term I believe they will offer a better return than the market average.

There are plenty of ETF's over there, one issuer off hand is iShares (also listed here in Aus) - eg. AIA, EFA, OEF, IVE, .INX, .DJI etc. There are hundreds of them both with iShares and other issuers, do a search in Google Finance.

Remember though, if it's a straight forward ETF you want such as S&P500 - you're probably better off buying it here on the ASX rather than having to go to the trouble of opening a US acc. Unless you specifically want the added exposure of US$ too.

 

[Intrinsic_Value]

best performer +37% (one with a high PE that most of the market says was too high when I bought).

i would be careful here, not careful because of the underlying company, but careful in that you understand 'why' your stock is moving.

At the moment 'growth' is in favour. This means that the growth funds are the ones attracting the money, and where do they invest it: in growth stocks.

So what happens to those growth stocks: momentum is applied to momentum.
In traders terms: strength begets strength.

So going back to our fund managers: they show good performance, so where does the new money flow to: growth style fund managers, what do the fund managers do: add to their growth positions, what happens to the underlying stocks: their share price grows.

So the key for those with growth stocks:
(a) either treat it as a trading position and go with the flow with stop losses
(b) focus on the underlying growth in intrinsic value, the growth in intrinsic value will be the 'protection' in the event that the market pyschology changes course. ie one will have a good estimate of what the real underlying worth of the growth stock is.

Just a heads up.

 

[Intrinsic_Value]

Hi Steve + IV,

quickie

I presume they have similar thing to listed investment companys (LICS) on the US stock exchange. Could you give us some ticker codes for some of the major ones if you know them. Also EFT which would be similar to the one that tracks the ASX 200. Eg which ETFs track top 200 companys on one of the US stock exchanges

Probably would be good to measure your performance against those investment vehicles

No idea i just use the Dow and S&P, and even then i dont measure myself over shorter periods of time.

The other factor that an australian investor needs to keep in mind are the exchange rates. These wont be reflected in the ETF performance unless an australian based ETF with hedging in place (and even then hedging is good on the way up, but will work in reverse on the way down (for currency exposure).)

I am looking for international diversification without hopefully deworsification. The currency is my insurance play.

 

[Intrinsic_Value]

I would add to the above that 'shorting' is still very much in style because of the success during the GFC.

Favour is still given to long/short positioning, which means that theoretically risk is hedged by going long on certain positions and 'hedging' that position by shorting something else. The logic being that the 'capital at risk' is less than a 100% long type investment, and stock 'alpha' provides the kicker.

Now remember that over the course of history, stocks overall go up 75% odd of the time and fall 25% of the time.

Therefore in my opinion the added impact of shorting, provides an interesting ability to create long term positions in stocks that are not currently the flavour of the street. (this is not the sole purpose of shorts though, they can also target 'hot stocks' that they believe are over bought, but i dont venture down this area as the stocks will be above my intrinsic values anyway)

 

[Intrinsic_Value]

), best performer +37% (one with a high PE that most of the market says was too high when I bought).
.

On another note i am building up a data base of potential companies to short in the future.
If the stock you are refering to is Amazon, this is one of the stocks in the data base.

I am not stupid enough to adopt valuation criteria to a decision to short whilst a stock has positive momentum. The key trading rule: the market can remain illogical longer than one can remain solvent, has to be applied, in my opinion, to the application of shorting.

But have a look at the PEG figures for amazon (also look at the future increase in expected earnings growth). Hopefully this baby will continue to skyrocket, it will make my future decision all the easier.

This is a new area for me (ie shorting), but its one that i believe all investors need to study. There are different seasons, and sometimes the best season is to short. Unfortunately during the last major down turn i didnt know about this stuff so i was just a 'long only investor'.

Just as overall investment returns can be enhanced if one can intelligently switch between asset classes, i believe that investment returns can be further enhanced if one can interact on different sides of the equation within a specific asset class with regards to a specific season.

My investment journey continues.