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Sunday, November 30, 2008

Graincorp - at support - a good buy

Graincorp continues to look like good buying given that the Australian Wheat Board just reported a good profit, and the industry had a good season. Of course with the Aust currency so weak most of the profit will go to growers, which is why I recommended food producers some time ago. AAC was another one. I will take a look at some NZ food producers in coming weeks.
Andrew Sheldon

Sunday, October 26, 2008

Graincorp - at support - a good buy

Looking for a great stock in the rural sector. How about a stock that does well no matter how the economy is fairing? Well consider that companies make money in different ways. Some pay a price for meat or metal which is subject to volatility. Others make money from commissions. Well think of Graincorp because in bad times you and foreigners dont stop eating. Better still, when you are a starving peasant in Asia, you first eat your own food, then you eat cereals because they are cheaper than meat. Rice is the staple in Asia, but other cereals are growing, such as bread, pasta, etc. Pasta and noodles are cheap and easy to store. Bread gets mouldy.
Graincorp makes a profit margin for transporting wheat (dry bulk cargo) to the ports. Its a good season this Spring so expect a good return from this company. There has been good rains across Eastern Australia. The stock has of course fallen with other equities turmoil.
The stock is a technical buy as well, having fallen to support. See the attached chart.
Andrew Sheldon

Stock picks for dad's in a chilly market

So what am I recommending to my dad today?
Really the only things you should be buying are
1. Food - Australian Agriculttural Company, Qld Cotton Co (taken over I think), Namoi Cotton. they are getting good rains in Nth NSW so should be a good reason. Agric commodities will recover with gold because demand outlook good. Hmmm.. will those ethanol refining plants close at $65/barrel for oil, so avoid corn, sugar. Better wheat, eg, Graincorp, and AAC
2. Gold - Lihir, and I can find you other stocks over the next couple of days.

Phil lost money on platinum because he doesn't listen. I said buy at $3.80 support, it reached that, then rallied to almost $5, but its such a volatile stock. He accepted your buy & hold. Worse that that - he likely said oh, Andrew's right, I better jump on at $4.50-$5.00, not wanting to miss out, and not talking to me, and he probably paid the highest price of the rally. It will recover though, so he should hold. Its not the first stock I would buy for platinum because its black empowerment in Africa, explosure to Zimbabwe, but its kind of the only one..... I think Platinum will out-perform silver, which will out-perform gold, but gold stocks will do very well, and its hard to get exposure to the others. You suggested PLA - which is also Sth Africa. Medium to long term you will be hurt on a strong RSA currency. That will be a big problem. So better to stay with gold in Australia. Because the collapse of industrial metals and energy will make gold better because they will keep the $A weak, so earnings in Australia gold prices exceptional. Only gold and food will strengthen the export revenues. Sugar & corn will be weak I guess because of energy-related sectors since the oil boom.

I say buy LGL (Lihir) because gold has found support I believe if you look at the charts, But watch as the market falls today, see if gold goes up as stocks go down. Gold is very stable, but strong in $A terms, so the gold producer stocks will eventually respond to that. Its just they are being dragged down, so you need to accumulate this week. Best buying mid to late-week (end Oct'08).
Dad, just looking at some stocks. Mincor has $120mil in cash. the company is currently valued at $140mil. Lower nickel prices but offset by weaker $A, so earnings still good. But long term gold will do better because stronger food and gold prices will push up $A, but not nickel because there will be slack demand for a while, but MCR are over-sold, so you can trade them.
See my blue chips blog I have chart for GNC. Food & gold, and MCR because its special. Has cash & high grade nickel.
Andrew Sheldon

Sunday, September 07, 2008

Alumina Ltd (AWC.ASX) - good buy

The bulk materials like coal, iron ore, alumina have faired a lot better than the base metals like nickel, copper, lead and zinc, so one might consider Alumina Ltd (AWC.ASX) a good buy because its going to benefit from a weaker AUD, but its been dragged down by other commodity stocks. China does not have bauxite to my knowledge, so given the opportunity for Chinese (govt) owned corporations to launch takeovers, this might be expected to be a compelling takeover target. I'm a little outdated, but if you check Google Finance, I think you will find Rio Tinto and Alcoa each own a good portion of this corporation. The question is whether it would be up for sale. Interestingly Alcoa is helping the Chinese government block the BHP Billiton takeover of Rio Tinto, so maybe they are is a 'kickback' in terms of giving the Chinese a stake in Alumina.
You are going to see a lot more Chinese investment in the Australian resources sector. Its been on the cards for a long time. This slack market provides the perfect conditions for a takeover. This is the time to start learning how to pick mining stocks. Do you know the types of companies that the Chinese are going to buy? This stock is at technical support.
Andrew Sheldon

Mincor Resources (MCR.ASX) wait for $1.00 entry

The broader market I think is near its bottom, but since I have a fetish for mining stocks I wanted to draw these particular mining stocks to you. Mincor has been a great performer over the last few years. It has sunk considerably as a result of falling nickel prices. In this market it seems destined to fall to its support level of $1.00. Its well off that currently, so some patience is required. You might question why I think its going to get there. The reasons:
1. The broader market will strengthen
2. Commodity prices are going to weaken
3. Mincor is destined to release some poor profit results and projections based on the current weak prices.
These factors are destined to cause the worst possible sentiments towards the stock, thus providing the best possible conditions to buy. You just need to wait for the bottom. As you can see the stock has broken its $1.50 support. There is another support around $1.25, but I think this stock might be going down to $1.00 since that is the strongest support. This is a long term chart, so give it time. It might only got down to that level during intra-day trading, but such strong supports tend to be reached. It was of course once a fairly strong resistance.
Andrew Sheldon

Tuesday, July 29, 2008

Cuil - Google has a new rival

Competition to Google has emerged in recent years, yet none seems to have made a dent in its market share. Though there are good reasons for thinking this could change. My belief that a competitor will emerge rests on two issues:
1. Success is a threat to Google. If Google is overwhelmed with so many customers it is likely to struggle in 2 respects: Preserving the quality of its service as well as its capacity to improve services. The good news is that it’s currently making so much money now that it does not have a problem providing resources. But that financial support will disappear if 2 things happen:
a. Better search tool: A competitor offering a better search experience is one thing. But Google has been smart by developing stickiness to its brand. People like me rely on Google for search and a quality online ISP. It has very low downtime. For this reason I think a competing search engine technology is likely to face a merger.
b. Merger: I actually expect a better search engine tool to emerge and Yahoo is likely to emerge as the buyer. Why? It’s the only Google competitor with the cash and market presence to make search a value, given the value added services involved.
2. Bureaucratic cultures tend to engross most large companies. Google has just 20,000 employees, but the more it grows, its likely to face similar cultural problems.
3. Tide change: There is also the prospect of a significant change in the way we do business and communicate with friends that Google does not anticipate.
There is currently a number of competitors vying to displace Google. One of them is ‘Cuil’, a start-up set up by former Google employees led by Anna Patterson. Cuil claims to have developed a more comprehensive and efficient way of scouring the Internet. They claim that their search engine indexes 120 billion Web pages a day, that’s three times more than Google's index. These former ex-Google employees claim that Google has done precious little to improve its search engine in the last decade. Google stopped publicly quantifying its indexing capacity 3 years ago when the catalogue clocked 8.2 billion Web pages. Could it be that Google is avoiding such benchmarking to avoid unfavourable comparisons. I would suggest so, as this would also suggest its the reason why they diversified into add-on solutions. Not a bad solutions, but it ignores the fact that Yahoo + Cuil are potentially a dangerous alliance for Google. It would also explain why Google licensed its technology to Yahoo. We might actually see Cuil licence its search algorithm to both companies. This would of course be best for Cuil, but bad for Yahoo since it would still be way behind in terms of packaging user features. Mind you there are a lot of Google user features that are of little interest. Yahoo by comparison offers better finance services, though Google is quickly catching up.
Google stated that it regularly scans through 1 trillion unique Web links, but I guess that could be ‘camouflage’ unless you define just how frequent is ‘regularly’. Google also stated it doesn't index all pages because a lot of pages are redundant or similar in content, and inclusion would only diminish the quality of its search results. That too seems like ‘camouflage’ since such pages would just get a lower ranking according to the algorithm.
Cuil believes it will out-perform Google in search for several reasons:
1. Cuil's algorithm analyses the actual content of a page rather than mimicking Google's method of ranking the quantity and quality of links to the Web site.
2. Cuil might provide users with a more visually attractive interface than Google by offering a magazine-like format instead of just a listing of Web links. Cuil's results will be displayed with photos spread horizontally across the page and sidebars that can be clicked on to learn more about topics related to the original search request.
3. Cuil is promising not to retain information about its users' search histories or search patterns.

The problem with Cuil is that its not a very good search tool. I performed a search on my website name 'sheldonthinks' and' does not even rank despite a very specific search. By comparison, Google places my we portal first and my shopping cart 2nd. I dont think a writer could ask for more, and I would think the same is true for users. Cuil instead showed a lot of forums I have signed up as a member. The implication is that people only strike my website indirectly. This is bad for users, but I'm sure advertisers would like this if they dont mind not having many users. I guess if the advertising costs are appropriate, does it not make a powerful new way to reach new customers. In this sense I actually see Cuil as a niche player for advertisers trying to generate marginal increases in sales. Now this is not a bad thing if you are looking for some of the web pages that Google gives low ranking to. Same deal for advertisers. There is also the potential for Cuil to tweak their algorithm, though I dare say its not that easy.

Other start-ups that have sought to challenge Google include Teoma (the technology drivers behind, Vivisimo, Snap, Mahalo and Powerset (acquired by Microsoft Corp in July 2008). Clearly Yahoo must be interested in acquiring Cuil, or at least in licensing its algorithm. Google has steadily been increasing its share of the search market, such that in May’08, Google held a 62% share of the U.S. search market, followed by Yahoo (21%) and Microsoft (8.5%) according to comScore Inc. As long as Google can claim or have users believe its search is better or comparative it seems unlikely that Google will lose market share. It has developed very good brand recognition, but it has also done a very good job to develop ‘sticky’ customer features, though there is room for improvement.
Andrew Sheldon

Wednesday, July 09, 2008

Alumina Ltd (AWC.ASX) compelling buy

Some blue chip resources have pulled back considerably, so they become worthy candidates for buying. The one that comes to mind are Alumina Ltd (AWC.ASX). Looking at the chart we can see that the stock has fallen to a record low - reaching it for the third time in 10 years. This stock looks like a great counter-cyclical investment.
Alumina is the only bulk commodity which is traded on the LME. Iron ore and manganese are not, so its useful to check out the price action and Al stocks on the LME. Wow, that's weird. LME prices for aluminium are at 5-year highs. This seems to be compelling reasons to buy this stock, though more research might be prudent. It gets even weirder because Aluminium stocks on the LME are falling, so there is strong and persistent demand for aluminium.
Andrew Sheldon

Friday, May 09, 2008

Bank welfare reaches its zenith

Ever wondered why CEOs of the major companies are paid so much. Yeh, I don’t have any answers as well. Well it goes like this. The central bankers and politicians conspire to artificially increase money supply by stimulating debt creation. Initially everyone is happy because everyone is making money. They of course make alot more because they control a lot more. Asset prices soar, and the silly bastards that were too slow to buy lose their houses when interest rates or low yields finally deliver the ‘credit crunch’ or the ‘big squeeze’ as I affectionately call it. The CEOs are paid well for delivering years of huge profits. But were they ever really any good? Well you would never know in a bull market because its so easy to make money. It would be nice to think if they are going to get bonuses for performance, those bonuses should be tied to average industry performance. But these ‘smart bankers’ are too good for such measures of performance, they like to be tied to nominal, absolute dollar performance, even though relative performance is far more pertinent in assessing the worth of a CEO against other CEOs. I guess directors want the same deal so they don’t complain.

Are you following the logic so far? Well this is the time to swallow a few ‘magic mushrooms’ because these CEOs are just about to concede that they are not the best CEOs in the world, and that they misjudged the market. Did they really? No, its just that they had a vested interest in not caring if they were serving the long term interest of shareholders.

These bank CEOs are asking the Reserve Bank of Australia to bail them out of their non-performing debts. The Commonwealth Bank of Australia (CBA) is creating a $15.6 billion residential mortgage backed securities (RMBS) which can be used for repurchase agreements with the RBA to generate up to an additional $12.25 billion of liquidity should the bank experience liquidity difficulties. This follows similar transactions in the USA since last September. As with repurchase agreement (repo), the institution promises to reverse that swap in a year. It is effectively secured lending by the central bank. At least to the credit of the RBA and Australian government there is some semblance of rationality to the current RBA interest rates. The US Fed Reserve meantime is dealing with worse credit market conditions, but its Fed rate is a subdued 2%.

The problem as I see it is the whole structure of the market. Politicians and business push the economy or their respective business to the point of failure, collect all the credit, political power and bonuses, and then through the central bank, they are allowed to pass responsibility for their failures to the taxpayer. Any proud taxpayers out there? Any law abiding citizens who think the organised criminals have higher standards of ethics. I say that because criminals have a sense of reality. They don’t pretend to be upstanding citizens. The hide their business activities, they don’t disclose it as normal practice. How is this different from the corporate welfare we abolished in the 1980s – the tariff protection for textile and car industries. I think this is far worse.

Maybe you should interpret this as a recommendation for banking stocks. The market is no longer behaving as a market. Nothing makes any sense any more. This is fascism at its worst. Just the colours have changed. It used to be red, but the colour of today is pink.


Andrew Sheldon

Tuesday, May 06, 2008

Qantas (QAN.ASX)

Qantas (QAN.ASX) has fallen like a plane in distress of late. Looking at this monthly chart, you could be thinking that around $3.20 is support. I would suggest however that the stock will be pushed down to $3.00, if only during intra-day trading, so I'd be placing orders around $3.05.
Why are they so weak? I'm not certain, but I suspect its because of:
1. Slump in business activity
2. Slump in inbound tourism due to strong $AU
3. Higher fuel prices - though I understood Qantas had a good hedge problem. Maybe its turned awry.
4. Growing domestic competition, lower occupancy rates
5. Higher terminal charges
6. End of takeover speculation. I actually dont know the reason it ended, but I think it failed.
7. Higher interest rates - airlines carry a lot of debt and Qantas bought a lot of planes in recent years.
The stock is a great trade. If you are interested in it as a long term investment, you might consider reading a recent broker report or company-sponsored presentation on the stock. Do research them because there are a lot of negatives above. Its quite possible they will go back to $2.30. What a trade its been! I remember some bad pubicity about James Strong - the CEO.
Andrew Sheldon

Tuesday, April 29, 2008

Google - the price of success

I am one of Google's greatest supporters, but in the realm of the web, there is a huge price to pay for success. Looking back on a number of service providers, it makes for an interesting growth model. First there was MSN offering free Hotmail accounts. I used to love their site until they became too successful. Their site was so popular that everyone wanted a Hotmail account. The consequence was that their service became really slow.
I see the same thing happening with Google. It adds more features making Google an even more compelling service to use, but the service is starting to deteriorate. The signs I see are these:
1. Requests to close mail accounts I am not using
2. Congestion or service down on weekends
3. Service down for Google Chat function

This is a problem for Google shareholders because if the market is pricing the Google stock at a premium because they have a history of surprising the market on the upside. When they show a performance below expectations, I think you can expect them to collapse in value. It will be interesting to see if they can re-invent themselves.

Actually I think the greater threat to Google is on the revenue side. I think people are starting to loose interest in the adverts its clients place on their sites. I've noticed that I don't get as many clicks as before despite my web traffic growing.
Andrew Sheldon

Sunday, April 13, 2008

Pan Australian Res update (PNA.ASX)

Pan Australian Resources (PNA.ASX) surprised me today by not only breaking its downtrend line, but rising 10c to break its previous high. I expected this to happen, just not in the near-term. I was expected the stock to retrace back to a 85c support based on weakness in copper prices. Maybe the market is telling me something? Might that be:
1. Earnings outlook: That it sees that its trading at just a PER of 4x earnings compared to 14x for its nemisis Oxiana Resources.
2. Metal prices: That copper prices are not going to weaken because of weakness in the USD. It makes sense that copper will be attractive if the USD is weak. I frankly think the USD is falling back to 85Yen, so thats about a 15% move, worth about 40c/lb to copper prices. As expected copper prices have retraced from their $4.00/lb level. I'm still thinking its not going to break $4.00, but I think it might just hold the higher end of its range. If something proves me wrong its going to be the extent to which the market has new supply coming on-stream, and the extent to which strikes are undermining capacity. Supply issues matching weaker demand.
The next issue is - where to from here. Well its encouraging that PNA rallied 10c, that it broke support, and then closed at its high. On that basis I think its going to take off. Looking at the chart, we see that PNA has a weak 'flag structure' or pendant, which suggests that the stock is going to rally another 45c, which would take it to $1.60. That makes for a nice trade. I think you can then some weakness, then consolidation around that level.
PNA is starting to justify its status as a blue chip - which is just as well because I would have little other place to stick it.
Andrew Sheldon

Sunday, April 06, 2008

Pan Australian Resources (PNA.ASX)

This company is more of a 'spec' than a 'blue chip' stock. It has a large resource base, offers large scale production and low unit costs. Whilst it has yet to start large scale production, it is a major project.
This stock makes for a great trade. It is constrained on the upside by a downstrend, and on the downside by a support level at 85c. The support is coming from the strong copper and gold prices, but since most of this strength is arising from a weak USD, there is some basis for weakness in this stock.
I see the stock falling back to 85c in coming months. But in the short term it will likely climb back to $1.05 per share. The outlook for this stock in the long term remains positive.
Andrew Sheldon

Australian Agricultural Company (AAC.ASX)

I have watched with interest as Australian Agricultural Company (AAC.ASX) has fallen from $3.50 to $2.50. At that level the stock is at an important support. But before recommending this stock, there is reason for thinking it will fall back to $2.00.
1. Drought: Although there has been drought relief across Australia, and AAC's areas received good relief rains last year, according to the following map a great number of the company's farmlands remain in severe drought - that is they have experienced a severe deficiency of rain over the last 6 months.
2. Stronger AUD: I am expecting a stronger AUD because of rising interest rates in Australia, but stable rates in the USA.
3. Rising costs: The high price of oil is likely to greatly impact on this company's profitability, as well as more general increases in the cost of living.

Drought relief and stronger beef prices offer alot of upside from the $2.00 support, particularly as I expect that after the Nov'08 US presidential elections we will see a return to the 'strong USD' policy, or perhaps better stated 'stronger'. I think there are some austerity measures ahead for the USA. That means - higher taxes (or a return of the taxes previously lowered) and higher interest rates to encourage greater savings in the USA.
Andrew Sheldon

Wednesday, March 12, 2008

Lycopodium Ltd (LYL.ASX)

Anyone who knows the mining industry will tell you that Lycopodium is synonymous with mining feasibility, design and technical studies that need to performed before a project can secure a mining licence or financing. There is no question that during a commodities boom like the present one, there are likely to be a lot of staff leaving your business to set up their own consultancies. I know its happening because I see all these new names in the industry compared to 5 years ago when there were only a hand-full. The implication is that companies like Lycopodium are having to pay more to retain staff, or needing to outsource to pay more to outsource to staff that previously worked for them, as well as paying the price for the higher staff turnover that these disruptions cause. The flipside is that the problem is industry-wide, so these engineering consultants are able to pass on the costs to their customers whom are earning record prices for commodities, or are well supported by equity markets for capital. These large companies are also tending to pick up the larger more lucrative contracts, whilst the recently departed fight over the scraps, and maybe do a bad job besides.
There is no shortage of work for mining consultants, and companies are always going to sign up those that have a good reputation and can do a good job. Thus I think buying into a mining consultant like Lycopodium makes good sense when they fall back to trend support (see chart). See Google Finance and my discussion forum for more information.
Andrew Sheldon

Sunday, March 09, 2008

Takeovers – for whose benefit?

Have you ever wondered for whose benefit takeovers serve? You could be forgiven for being cynical, but it would be worth a look at the terms of such agreements. There are few synergies to be gained from merging mining operations since head office/admin is a relatively small expense. There could be said to be value in merging Rio Tinto and BHP Billiton, because the merged entity would have greater market pricing power. But that will be a short term benefit since consumers will just increase support for smaller emerging producers at the expense of these 'majors'. For that reason there are benefits in the short term, but in the long run I think such mergers & acquisitions are just aiding short term interests, which include directors with options. Its good for fund managers because they can cash out at a good price along with directors. But then I guess who is to say that companies should be run for short or long term gain. I guess you could argue that institutions get the greater vote. On the basis we should not embrace the 'buy & hold' strategy.
Consider the latest merger between Australian miners Zinifex Ltd and Oxiana Ltd. Currently shareholders in each company have the choice of investing in either Zinifex (a zinc-lead miner & refiner) or Oxiana Ltd, a copper-gold-nickel miner. Its true that the $US12billion merged entity would command a bigger Price-Earnings rating in the market, but what does it say about these company’s anticipated commodity price outlook? They must consider the outlook to be fairly similar or have opposite views since they are prepared to buy each other. Or perhaps that was not even a consideration. The company intends to acquire further interests in copper and zinc, so clearly that is why they support the merger. They also like nickel, so the merged entity is intending to go on the acquisition trail. Already Zinifex has made a $A852 million takeover bid for nickel miner Allegiance Mining NL. Knowing the commodities they are interested in, we might guess their future targets:
1. Marengo Mining – copper-gold play in PNG
2. Alloy Resources – If the project proves attractive
3. Metals X Ltd – It controls one of the world’s largest undeveloped nickel resources

The merged group will be the world's second-largest producer of zinc and a substantial producer of copper, lead, gold and silver with the capacity for further acquisitions up to $US3.6 billion.
Another issue is - Why pay a premium for short term cash flow when you can buy under-valued developmental projects that need cash? Well I suggest the reason is that projects don’t generate cash flows that help short term earnings, and thus the stock prices to which senior executives remuneration is tied. Now that’s cynical. On the other hand, the "merger of equals" might make more sense in a market that is uncertain about the outlook for commodity prices. Well at least that is the impression from the values being placed on commodity producers. In these circumstances 'cashflow is king'.
Both Zinifex and Oxiana have been viewed as possible takeover targets by Xstrata, though I think that is unlikely given the takeover of Allegiance.

Tuesday, February 19, 2008

Healthscope (HSP.ASX)

Healthscope over the last 8 years have been a spectacular performer. I do however question whether they can continue this performance. The conventional wisdom is that everyone needs healthcare, even in recessions, and no one cares about costs when it comes to costs, but I want to offer a number of counter-arguments.
1. No one wants to be a nurse in a hospital, so its hard to find staff, and still harder to pay enough to keep them, particularly where there is higher wages overseas.
2. All costs are rising
3. Service outsourcing is becoming more common. We will see more patients going overseas for treatment.
4. Health remains a highly regulated area, and I think people are more likely to cut back on private insurance. Its true successive governments have shown their support by propping up the private system. But given the quality of public health, and the choice of overseas treatment, I suspect healthcare will seem less alluring than indicated.
I thus will be looking to see whether this stock will break the $5.00 support, or whether it continues its uptrend. More information at Google Finance and see my discussion forum.
Andrew Sheldon

Qantas (QAN.ASX) - what goes up must come down

Qantas has pulled back alot from $6.00 to $4.50, and people might be thinking this poses a great entry. I am however discouraged by several factors. The stock was pushed up by a failed leveraged takeover, the support has really not sufficiently tested the $4.20 support level, and whilst I suspect it will consolidate at that level, I dont see it holding it. I think the airline will struggle to fill seats in a contracting economy, and I think discount airlines will make a bigger impact, and regional airports will grab more market share. I think alot of cities are pricing themselves out of the tourist market and business travel will likewise contract. For this reason I can see them falling back to $3.00. More informationn at Google Finance, and see my discussion forum.
Andrew Sheldon

Monday, February 18, 2008

IAG Australia Group (IAG.ASX)

There was a good opportunity to trade IAG stock last week which I missed, though the stock is technically still in a downtrend, so there might be an opportunity to buy back in at $3.50. We can see in the charts to the left that $3.50 is an important technical support. I actually dont see alot of upside in this stock, instead I think we are likely to see consolidation. The first chart is weekly, the 2nd a weekly chart. For further information on IAG see Google Finance and my discussion forum.

Westpac Banking Corp (WBC.ASX)

Westpac is one of Australia's largest banks, and I would suggest one of the better bank investments because of their move into resource investment banking in recent years. I do however not think now is the time to buy because of the outlook for higher interest rates and inflation. I also expect they will follow the ANZ by reporting increased bad debt provsions. I therefore think they will break the $21.70 support level, and can see them falling back to the $20 support level. This level is far stronger.
For more information on Westpac look at Google Finance and see my discussion forum.

Sunday, February 17, 2008

BHP, RIO looking good, steel companies facing higher costs

Coincidentally, after suggesting selling steel companies Bluescope and OneSteel, I see a report out today that "Japanese agree to 65% Iron Ore Price Gain". Thats a big increase. I dont follow iron ore prices so closely, but I suggest this merely reflects the Japanese & Chinese conceding that they have to accept the annual price setting negotiation system that has been in place for decades. Until now they have avoided the system, resulting in an increasing amount of iron ore being sold into the spot market. Acceptance of the system seems to acknowledge the risks of not helping to finance new projects, as well as the risk of not securing the product they require.
Anyway, higher iron ore and coal prices is good for Rio Tinto and its takeover suitor BHP-Billiton. Both are huge producers of iron ore, though I prefer BHP at the time for its greater coking coal exposure, but there will come a time when thermal coal (Rio Tinto) makes more sense. The takeover might reflect that.
The flipside is that this news confirms my recommendation to sell off the steel companies because they will confront higher raw material costs.
Andrew Sheldon

Futuris Corporation (FCL.ASX)

Futuris Corp is looking good with its exposure to the Australian agricultural commodity/rural sector. Futuris holds a stake in Elders Finance & stock agency, as well as fertiliser to my 'limited' knowledge. Given the outlook for commodities, this is a great stock to hold. In fact now is a perfect entry given that the stock has fallen back to a solid support at $2.00. I have no hesitation recommending this stock. Join my Google Finance FCL Forum!
Andrew Sheldon

Mincor Resources (MCR.ASX) at technical lows

Mincor Resources has reached a technical buy point judging from the following chart. The fundamentals are looking good as well since nickel prices have consolidated and stockpiles have stabilised. Might the next move in stockpiles be down? I think so. See my latest post on nickel prices and stocks at
The support level for Mincor Res is $2.70, and the stock is currently trading at $2.92. Based on the positive outlook for nickel, I do believe this stock is about to rally. It fell off its high very quickly, and I suggest it will provide traders with a good rally.
Join my Google Finance MCR Forum!
Andrew Sheldon

OneSteel Ltd (OST.ASX)

Onesteel like Bluescope looks like another candidate for short-selling, only more so if the attached chart is anything to go by. This will be the 3rd attempt by this stock to break the $7.30 level. In fact the hang-man candlestick is already giving us a sign of weakness. Great for a short sell!
If you want to join my discussion on this stock, go to Google Finance.
Andrew Sheldon

Bluescope Steel (BSL.ASX)

Bluescope has provided a good rally since Xmas. I would suggest however its time to take profits as its margins will be squeezed by higher costs and weaker demand. A stronger AUD will also not help. I think this stock will resume its downtrend. There is upside to $11.50, but I dont think I would be waiting to sell until then, unless you are short selling. I would be playing a sell order now. Join my forum at Google Finance.
Andrew Sheldon

Brambles (BXB.ASX)

Looking for a trade in Brambles? The stock I suggest is going to fall back to previous support at $9.50. There is scope for a rally up to $10.75. I dont know much about this stock anymore since I recall talk of selling their pellets business, so this is purely a trade note. One should be mindful of a stronger AUD if they still have overseas investments. If they are sitting on cash, I suspect they will consolidate until the market knows where it is going.
If anyone can suggest more, I have set up a discussion forum at Google Finance.
Andrew Sheldon

Sunday, February 03, 2008

Gunns Ltd (GNS.ASX)

Gunns is Australia's leading timber company. The company has lost alot of its gloss as timber prices have come off, but that appears destined to change if the indicated timber prices are any gauge. If we look at the leading lumber futures contract prices, they are close to a low, providing a great cyclical re-entry into the sector. See the lumber price chart in my Commodities Trading Blog.
As for Gunns, we can see that the stock is on a long term uptrend, but is currently undergoing short term selling, so that will provide a better opportunity to enter this stock around $2.80-2.90. Participate in a Google Finance forum on Gunns Ltd.

Andrew Sheldon


On the topic of food, CSR strikes me as close to a buy. The stock is destined for a technical breakout. Sugar prices are trading - are just commencing a rally after a significant pullback. Apart from a food additive, sugar is increasingly being used for ethanol production. Australia is not the lowest cost producer, all the more reason why CSR should rally hard, because its tight margins from sugar milling should benefit from higher prices. It seems probable that CSR will find support above $3.00, but there is downside to $2.80 given the current financial strife. Without doing more research I wouldn't be surprised to see them fall to $2.50, another stronger support.

There is reason for caution however based on the following report - see
Wondering if there is any unfavourable hedging in there as the CFO has resigned. One of the chief reasons for the fall in earnings was the drop in sugar prices and strong AUD. Sugar prices will rise again, but its unfortunate that building products - the other core division i s set to be a future drag on earnings. Having said that, with the current property boom over in Australia, people are likely to invest in home improvements. Anyway check out the latest thoughts and contributions from readers at
Andrew Sheldon

Australian Agricultural Company (AAC)

This is actually Australia's largest company, and its not the first time I have recommended this stock. Here is an updated chart after first recommending it on the 26th Sept 2007. In the wake of the sub-prime crisis, its held up very well like all commodities. What I like about this stock is:
1. Its a food commodity producer - beef - thats agricultural commodities, which are set to perform very well over the next 5-7 years. You have seen asset inflation, now watch as cost of living expenses like food go up whilst other 'asset' costs come down. Regardless of whether the Fed and other central banks attempt to keep asset prices high by further debasing their currencies, you can do no better than investing in such shares.
2. Recent rains: Farmers have just received some drought-relieving rains

3. Commodity prices are already going up - See
Looking at the chart we can see that AAC has consolidated above support at $3.00, but any buying above around this level is likely to pay off very handsomely. This is a good super fund stock. Buy heaps of them - why? They have 13 properties spread across NT-Qld-NSW, alot of them in areas where ABARE tells us that Australia has actually received higher amounts of rain than the rest. I drove from Darwin to Sydney (see trip) last Oct, and it was greener than Bathurst.
Looking at the map for "Rainfall comparisons for Australia - This year minus last year - 9 months" at and playing with the parameters, its evident that farm prices are going up at a time when drought relief is well underway. The map suggests that the AAC areas of Qld are getting 300-600mm of extra rainfall compared to the drought period - whether you look 1,2 or 3 years ago.

Strategically very valuable land holdings! Robert Holmes a Court's son runs this company from memory. I think you will be looking at $10/share within 5 years, if not sooner, as currencies continue to be debased by another cycle of interest rate cuts, and as food price rises correct the product-money supply imbalance.

The reality is that alot of farmers are not aware of the surge in food prices they are just about to experience. If you are single I would be out drinking this weekend in Inverell or Dubbo trying to pick up a 'sheila'. Armidale is my preference for a educated girl. Or if the pickings are slim, or they are a bit full of themselves, the girls in the Philippines have a far greater sense of reality. Most of their boyfriends are alcoholics, gamblers, so you'll make a great impression. The Philippines is another food producer, albeit mostly for domestic consumption. Anyone want to go farming in the Philippines. Land is the most under-utilised commodity in this country, and with high rates on unemployment, and its English speaking. Cant think of a better place to build a farm? You might also recall my positive sentiments for the NZ currency about 8mths ago, well it relates to the current outlook for food commodity prices. So if you are desperate go to NZ by all means! Just make sure you're a alco before you get there to impair your judgement. The sheep will love you more than the locals.
Hmmm...makes we want to investigate more NZ food producers. Why? Currency advantage and greater stock selection in food I suspect. Anyone want to farm in the Philippines. I'm keen to grow mitake mushrooms, soybeans and avocados.
Andrew Sheldon

Wednesday, January 09, 2008

Sumitomo Metal Mining (TSE.5713) Update

Having lived in Japan, I have some interest in the equity market there. Its not where I choose to buy gold stocks - I can't speak Japanese so I can't read market reports, and its not recognised as a gold (equity) market. Having said that, those factors are helping to push gold stocks here down, creating a good entry point in this correction phase. The only gold producer I know in Japan is Sumitomo Metal Mining (code 5713) on TSE. See They have a good stake in the large, high grade Pogo gold mine in Alaska, plus a small high grade mine in Kyushu. Its not the best entry because they also have alot of exposure to specialty metals refining, an area I know little about, as well as nickel, which is unlikely to fair so well in the long term. These businesses might be loss-making units based in Japan, or profitable units because of strong commodity prices (ie. margins), or based in low-cost China. No idea. I prefer Australia because alot of gold stocks, under-loved, so over-sold, you can buy company stock options in these companies, the nation has no public debt, but huge private sector debt, which will keep interest rates & AUD ($A) low, keeping gold price in $A terms high. Also as other metal prices come off (ie. interest rates rise), the $A will fall. Best entries in Australia,
Looking specifically at Sumitomo Metal Mining, the chart could not get much better. There is clear evidence that the stock is finding support at this level. People will ask why they are subdued, but in fact they are responding, its just that gold equities are being knocked down by the general equity market malaise. They were up 91yen yesterday. This is a good stock for Japanese to buy. Closing price today is Y1907.

PS: This blog entry is an update of a previous posting at in Jun'05. Since that posting the stock rallied from Y1400 to Y3200. It will be apparent that I previously recommended this stock at a higher price below. It now represents better buying. Gold stocks have been slow to respond to the bullion price increase, plus this is a stronger support level.

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