Blue Chip Equities

Adamus Resources (ADU.ASX) & Endeavour Mining Corp (EDV.TSE) merger

2011-12-01T13:33:00.000-08:00

Its not really a blue-chip proposition, however the forthcoming merger of Adamus Resources (ADU.ASX) and Endeavour Mining Corp (EDV.TSE) strikes me as a good deal for all concerned because:

1. The merger will raise the ranking of two gold stocks - so more attractive to institutions

2. The two listed entities will be on two stock exchanges - at least

3. The two companies are a good fit - Endeavour is cashed up

4. They will be able to wipe out a hedge book

5. They have a lot of upside from project expansion and exploration

6. The gold price can be expected to rally in coming months as uncertainty arises over the recapitalisation or debasement of the EUR. I'm expecting gold to reach $2500/oz.

7. Benefits of a diversified mine operator

Anyway, this seemed like a compelling time to buy an emerging gold stock, even if I was a little late in doing so. I've been focused on other things lately with the election in NZ, and the preparation of a book. In any respect, this is my first stock investment in a few months.

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Andrew Sheldon www.sheldonthinks.com

Rio Tinto alumina spin-off a dog listing to retail investors

2011-10-19T13:47:00.000-07:00

The financial 'vultures' are circling. What type of asset is well-suited for a listing on the NZ stock market? A dog like Rio Tinto's alumina assets? You watch as a number of large investment bankers swarm to engage in a capital raising for this 'spin-off''. Small investors will be offered stock and brokers I guess will be looking for a very lucrative 7% commission to cove their asses. Why would they jeopardise the reputation of their company? Perhaps because they work on commission? Perhaps because they have performance-base options which encourage them to think short-range.

I have already commented on the quality of these assets being sold off by Rio Tinto. One has to wonder whether these financial companies actually insure their exposure to these 'clients' in terms of their handling of these capital raisings. Of course these investment bankers have not done anything wrong yet by showing interest in the sale of their assets....but what exactly will they be getting paid millions for? To paint an objective picture of the assets for sale? I don't think so. To create the illusion of quality. Remember, like like POLITICS 101, perceptions are more important than facts.

You could well argue that any asset is a buy at some price....but this asset will be offered to long term investors, not day traders looking for stag profits.

I've seen this all before. I am reminded of a company called Queensland Magnesium which was raising capital in Australia about a decade ago. As an analyst at the time working for a broker, I noted that the major financial institutions were earning a 7% commission in order to sell this dog. Why was it a dog? Well, it was the nature of the magnesite market - the raw material for producing refined magnesium. I was negative about the project as a mining analyst. In fact - very negative. My boss said that they would not recommend it, but if the investors wanted it, then of course they give it to them. Rest assured that no stockbroker selling such a 'dog' to clients was going to knock back the opportunity to make 7% commission. In most cases they would typically get only 5%.

PS: Queensland Magnesium Corporation went broke within the year if I recall correctly. I'm a bit hazy on the dates, as this was a decade ago. Shareholders lost a great deal on that deal. The way markets are regulated, there is just utterly no sense of reality. The risks are not being borne by the people who should be bearing them; whilst some law suit is destined to hit a corporation's current shareholders long after the parasites have taken off with their stock options. Just consider the current example in Australia. There is a legal firm taking a class action against the banks over their misappropriation of bank fees. Who will pay? The executives who got stock option bonuses at the time - or current executives. We teach our children that their are consequences for their actions. Where are the consequences for the executives who cause systematic pain across a nation? Where are the consequences for the politicians who sanction or facilitate law changes which help these executives to be corrupt legally. We have ombudsman to ensure that government depts and corporations act in compliance with the law. But what is the law is skewed to allow people to profit 'legally' but immorality?

That is why I have a concern about sanctioning the election of Don Brash, the leader of the ACT Party, the former leader of the National Party and former Governor of the Reserve Bank of NZ, for this 2011 NZ election. His ignorance is woeful...though he does respond to my questions; at least until they become uncomfortable. Here is my dialogue with Don Brash about the fiduciary duties of Reserve Bank governors and governments.

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Andrew Sheldon www.sheldonthinks.com

RIM likely to find support

2011-07-05T03:11:00.000-07:00

Research in Motion (TSE:RIM or NASDAQ:RIMM) is a stock that has emerged on my radar screen. The company's flagship product is the Blackberry smartphone. This phone has always been very popular with the business community, and we think the company is likely to have a resurgence, but perhaps under Android or Windows OS, or both. i.e. Letting the customer decide. It was never really software that distinguished it in the market was it? And how could you go wrong by adopting the same software as your competitors with a brand like Blackberry. There are other reasons as well:

1. The market is abuzz with tablets and touch screens. These are marketing gimmicks, and RIM is right to not get bedazzled by them. I can touch type far faster with fingers than I can with a touch screen. Buttons have edges; screens don't. I have never understood the appeal of these tablets either. They are tomorrows dinosaur. Expect netbook, mini-laptops and full-size laptops to dominate. Touchscreen is a fad with limited use.

2. Trading on low multiple: RIM is currently capitalised at $28 billion, it has $2billion in cash, and a PER of just 4.7 according to Google Finance.

3. Upside is huge. The market for Blackberry's are a discerning crowd. I personally prefer the Nokia E5, however people can expect a similar experience from RIM in forthcoming models.

Expect their new releases to grab sales from loyal business customers, i.e. Might it be selling off another 25,000 units to GM? I think so. These customers, unlike the retail customers, are sitting on the side, and not just for RIM's new product, but for new Android applications to justify dumping their old phones.

For this reason, I am expecting some good news from RIM in coming months. But what would I know....I am just a mining analyst who loves my Nokia E5. Want more info on RIM - I am responding to this story and Google Financial data.

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Andrew Sheldon www.sheldonthinks.com

Silly acquisition for BHP-Billiton

2011-02-21T22:47:00.001-08:00

This is a silly acquisition by BHP-Billiton. If you are going to invest in might oil & gas prices they should be looking at greenfields areas, or green technologies. For example, they ought to be exploring offshore NZ or India (as BP is doing). There is also compelling reasons for it to enter algal technological development, though it might well argue that it makes more sense for it to just purchase the technology when someone else has developed it. The problem is - the technology might be acquired before they can even get their hands on it by one of their competitors. Might it be difficult to know who will be the leader? My guess the oil company throwing the greatest amount of money at it..... at least you will get a market advantage....rather than throwing it away on market speculation.

The reality is that these companies are more interested in building on economies of scale, adding market premiums rather than creating wealth. They are accreters of assets, not builders of assets. Which means they just take advantage of cheap capital in global capital markets to add value, which is passed through to shareholders after they take their bite. Yes, it was always about the CEOs....leave the risks to the small enterprise which really build wealth. The small companies find the oil; the large companies spill it around the world's oceans.

OK, a little unfair. :)

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Andrew Sheldon www.sheldonthinks.com

Discretionary showroom retailers are under threat

2011-01-07T11:11:00.000-08:00

The shift to online commerce is a shift that major retailers of discretionary products have failed to anticipate. They really did not appreciate their vulnerability, and this is true for several reasons:

1. Economies of scale - Online sellers have far better economies of scale

2. Superior profit margins - Online sellers have slightly higher distribution costs, but they have much lower capital overhead, staff costs and warehousing costs. They don'y have to sit on as much dead stock.

3. Sales exemption - In many countries online retailers can avoid sales taxes, whether they are claimed legally or illegally by the buyer of the goods.

4. Recession - People are looking for discounts more than ever.

5. Security - People are feeling more and more secure buying product online, and are broadening the range of product they buy online.

6. Less staff turnover - Showroom retailers rely on cheap youths whose jobs are seasonal, and the consumers buying habits are also seasonal. Online websites can be internationally integrated.

7. Fewer product returns - Online buyers are less likely to return products.

8. Product disclosure - Online sellers have a far easier and more effective product and sales policy disclosure. There is a tendency for customers to just trust major traditional retailers.

9. Regulation - Online sales are regulated by the market. Online sellers are far more accountable than showroom retailers because unhappy customers can get online can discredit a business, and any maligned customers soon establish a presence. If I was unhappy customer of Harvey Norman, I might find that the company has technically done nothing wrong, i.e. There are loopholes in arbitrary statutory law, or I might find that the government offers few resources to assist retailers. For online customers, they need only search for 'RETAILER, scam, bad service, complaints' and see what comes up, or go to forums. Once you high a reliable supplier, you can stay with them, or keep searching.

10. Online sellers stock the latest products and at reasonable mark ups. I suspect that manufactures have dropped the discrepancies between major product markets. i.e. the latest digital camera in Japan might be $500, but in Australia it will be $1200. Over time that price margin will erode, but you will always be buying old product.

Consumer Backlash: Some traditional 'showroom' retailers are lobbying governments for tax concessions, and are being attacked by consumers who oppose their lobbying to increase taxes on the consumer. Those in the firing line in Australia include Harvey Norman, Myer Group, and others. These companies and others have set up a coalition to lobby the government. The problem is - they only have lobbying muscle so long as they are able to create jobs, and they are a dying industry who only preserve some relevance for those elderly people who have not grasped the internet, and who don't have grandkids to help them. Expect tools in the future to help those elderly people adjust, i.e. Some product search feature which trolls the databases of major online retailers.

The reality is that any consumer complaining about the high mark-ups of Australian retailers are not likely to pose much of a threat to these retailers, simply because they are the people already enjoying the benefits of online buying. The problem is the lobbying by the retailers themselves - they are effectively telling customers they can save 50-80% by buying online. They are posting nationwide newspaper advertisements to tell them. Basically any 'showroom' retailer selling discretionary items is going to suffer because people can afford to wait a few weeks for these items. The biggest exponent of tax reform has been Gerry Harvey, and he is being savaged in the traditional and social media for his support of adopting the GST upon foreign online sales.

Looking at the stock prices for these two companies -Myer and Harvey Norman - and it is safe to say that these businesses will be a shadow of their former self, and will eventually disappear. You soon realise that many of the services they provide can be offered by online sellers as well, if they ever needed to.

The Australian 'showroom' retailers are particularly vulnerable if they don't own the stores and since they are not integrated in with railway developments. The good news is that the Australian economy is very strong, and there are a lot of wealthy who are not terribly discerning about where they buy from, and thus not particularly fuzzy. That price gap will be closed. In Japan, 'showroom' retailers like Sobu and Toban are vertically integrated with the ownership of railways. I think people will want to go out and 'window shop', as they do in Japan, but I think you will find people increasingly just walk into the store, kick the tyres, eat at a restaurant and go home, knowing that they had a nice day out "virtually" shopping, before they do their "real" shopping online. Harvey Norman, CEO of Harvey Norman Ltd, attributes this trend to the 10% tax. Nonsense, its the least significant factor.

For my thoughts on Gerry Harvey's tax lobbying - see here.

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Andrew Sheldon www.sheldonthinks.com

Coalspur (ASX:CPL) - a company making project

2010-08-31T21:31:00.000-07:00

This is not strictly a blue-chip stock but it will resemble one in a few years since a company-making mining project. Australian coal miners have always competed with Canada, Colombia, Venezuela, Indonesia, South Africa and China in the seaborne coal market. Colombian coal mostly goes to Europe, South Africa is for domestic, EU and Asia, Venezuela to EU & USA, Indonesia for domestic and Asia, and increasing China is for domestic, as it can afford little export capacity given its burgeoning energy market.

West Coast Canada coal mining capacity lies amongst the Rocky Mountains. Most of the coal is used for domestic applications, however when prices have been high, some capacity has always leaked in to the Asian market. A strong Chinese demand and an appetite for coal from other sources than Australia, makes this company particularly appealing.

Coalspur (ASX:CPL) is developing a 900Mt thermal coal resource in Western Canada's Rocky Mountains. It is a lower quality coal (5800kcal/kg GAR) compared to Australian projects (6400kcal/kg GAR), so its $48/tonne FOB operating cost is not directly comparable. I suspect this local port can only do panamax ships (70,000dwt), so they will have a freight penalty to Asia, but perhaps not NE Asia (China, Japan). Canada appears to have a 15% federal resource tax judging from the feasibility study. The project is expected to generate cashflows of $110-180mil per annum. Expect this project to find a Chinese financier looking for project equity and marketing rights. For more info refer to www.coalspur.com/asx-announcements.

West Coast Canada has always been an exporter of coal to Asia, and it does not have the same potential as Australia for new capacity. This project however has a large resource. I suggest it has remained undeveloped until now because of the low coal prices before they took off a few years ago, and because the coal is lower energy. There is probably good reason they will stay high given the Asian demand for electricity, and prospect of electric cars.

Most mines I think in West Canada have been developed primarily for the domestic market. So long as China is strong, this project has value. i.e. It is vulnerable to a collapse in Chinese economic activity. I expect China to take off though, so I see little reason to expect a collapse. The company has placed shares to a strategic investor, ie. 67mil at 50c, raising $35mil, plus $7mil, so they have $42mil, which will allow them to finance some project development. I have no idea why the options were given 1:2 so cheaply. The company has 367mil shares at 77c worth $270mil. See Google Finance for a stock chart - support is at 60c, but personally I would not be surprised to see them fall back to 45c after an issue.

I have mixed feelings about this one because of the issues already make. Too much corporate activity is happening behind the scenes. I think this could have been a far better investment for you, and I was a bit late finding it. Just one to watch until it falls to one of those support levels. A mental post-it note for all of you. The project does have the capacity to produce a great deal of coal as there is a lot of unused coal export capacity in the region I suspect. These issues need to be considered. I called this a 'blue chip' only because I won't be buying it.

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Andrew Sheldon www.sheldonthinks.com

SMH tips - a mix of good and bad

2010-08-29T17:27:00.000-07:00

I note that the SMH is recommending a few stocks, some of which we think look good:

1. Abacus Group (ASX:ABP) - see http://www.google.com/finance?q=ASX:ABP - the chart seems to suggest to me they are consolidating before making a move

2. Fairfax Media Ltd (ASX:FXJ): I much like Fairfax Media limited as well because I see the media companies benefiting from increased penetration of the Facebook and Twitter domains. The interesting aspect will be the revenue they will eventually derive from Facebook and Twitter for use of their stories. I am expecting the media groups to profit from sharing of media stories. See http://www.google.com/finance?q=ASX:FXJ. They will eventually realise they should be allowing you to share content, and to benefit from sharing that content.

3. Harvey Norman (ASX:HVN): The chart is less impressive to me, probably because they trade off higher priced, higher margin products, and that is not attractive in this internet-based revolution, so whilst earnings might recover in a strong Australian market, I think they will lose market share. So less attracted by this stock, and that is reflected in a less appealing chart trend. See http://www.google.com/finance?q=ASX:HVN.

4. News Corporation (ASX:NWS) - The Sydney Morning Herald is recommending media stocks to its readers. Does it not see a conflict of interest there? The stock is even trending down. Maybe that is why it feels compelled to recommend Fairfax. Anyway, we would be looking for signs of support in this stock before we signed on. See http://www.google.com/finance?q=ASX:NWS. I trust I am matching the right paper to the right group. I guess the problem for News Corp is its exposure to the weaker US and European market. So I would look for downside to that magical $10 support it always seems to go for. In the meantime, I'd go for Fairfax for media exposure.

5. Sims Metal Management (ASX:SGM) - This is a great stock, but this does not appear to be the time to buy them. I guess the problem is a shortage of scrap, but I must confess I do not know the dynamics of the industry. See http://www.google.com/finance?q=ASX:SGM.

6. Salamat Group (ASX:SLM): I actually know something about this group because of my partner's background in the call centre market. The stock has already recovered, and I don't have such a positive view of the industry, as I see people relying more upon online support, people being prepared to use more online support, and the outsourcing of business to offshore call centres, where they will see margins fall. Interesting they use Malaysia as a call-centre base. In this respect they will probably confront higher staff turnover than in the Philippines, as well as a smaller population base. They will have a better work ethic than Filipinos, however Filipinos are more personable, and I think provides a more sustainable call centre base. See http://www.google.com/finance?q=ASX:SLM. This stock I think will not yield much growth, but more likely trading volatility, in which case, you have missed the move already.

7. UGL Limited (ASX:UGL): I like engineering contractors like UGL, and the chart has some appeal, as I think we are destined to see a breakout. Resolution of the election will likely give greater comfort to investors that the company will be able to book more project contracts in future, so I can see this stock breaking resistance, but I would watch for confirmation of a positive trend, as I don't know the market position of this stock. See http://www.google.com/finance?q=ASX:UGL.

SMH also recommended some gold stocks, though I don't like the top end of the mining market. See my speculators blog.

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Andrew Sheldon www.sheldonthinks.com

Vector Energy (VCT.NZD) - break out

2010-03-02T18:57:00.000-08:00

I actually didn't pick this stock up sooner, but in any respect Vector Energy in NZ has staged a break out, then fallen back to support (consolidating the move), and is now in an uptrend. This is of course a stock you could buy. I prefer the hydropower exposure, however the chart looks good. The reality is that all power companies in NZ are never going to have their precious margins questioned. The idea that NZ is a deregulated market is not in question. What is apparent is the uncompetitive market stucture which was put in place to guarantee NZ's paid taxes in the form of higher electricity prices, as opposed to taxes. All their profits when to investment bankers. Its a great scam if you get your share of the pie. I might add, Victoria (Australia) ran the same scam when they privatised their electricity assets. In the meantime, CEOs are giving themselves huge bonuses. Before they were accountable to the government....now....oh its the market....pricing signals...supply and demand :(

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Andrew Sheldon www.sheldonthinks.com

Aquarius Platinum (AQP:LSE)

2010-03-02T18:07:00.000-08:00

There is some temptation to buy Aquarius Platinum (AQP) given the current strength in platinum prices. The problem of course is that I think this stock will under-perform as long as the broader commodities market is strong. There will come a time when copper, vanadium and other commodities which we associate with South Africa, get sold off. Until such time, I would expect AQP earnings to be effected by the strong Rand, as well as disruptions to mine production, which have just been resolved. The outlook for this company will otherwise be good as precious metals prices rise.

The chart also looks good, though I think I'd be looking for a market entry closer to support. We can see the previous resistance provides a line of support at 318 pounds.
You can buy this stock in Australia as well, as I did many years ago at 80c, but the chart is different. Its probably listed in South Africa too.

Andrew Sheldon www.sheldonthinks.com

Xero - accounting services (NZX:XRO)

2010-01-06T23:38:00.001-08:00

I have not been watching blue chip stocks lately, though my suggested KDDI in Japan is doing well. I have come across a NZ stock which I think requires some attention. The NZSX is a relatively small exchange so good stories tend to slip past people. The stock is by no means a blue chip, but it could be. I note that the founders of MYOB haved taken a significant stake in the business. It is only capitalised at $123mil, but its quickly expanding globally, and it seems to be on top of its costs now, with still $23 million in cash.
The company has developed an online accounting solution for small-medium sized businesses (SMEs). I think its a great solution given the ease of taking your accounts on the road with you, the opportunity and desire to see your latest results on the go, and the ability to show people your latest financials. I also believe we will see in future corporate accounting become 'continuous' in the sense that you will have period reporting only for the purpose of comparison. We will not wait for quarterly results, we will want dynamic data for sales, etc. Maybe these will be processed straight away too, i.e. Straight thru processing. This is the future, but these guys seem to be well along this path. This is a big market, and I think this group will seize a part of it.
See their review and latest 6 monthly interim result.
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Andrew Sheldon www.sheldonthinks.com

KDDI about to reach previous low

2009-11-15T00:43:00.000-08:00

KDDI is close to returning to its previous low, making it another great opportunity to pick up the stock at a very reasonable buy price. We recommended this stock last time it bottomed, and the current 'double bottom' offers another compelling opportunity to buy this stock. We expect a turnaround in earnings in years to come as they streamline costs. KDDI is the 2nd biggest cell phone seller and network operator in Japan after NTT Docomo.
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Andrew Sheldon www.sheldonthinks.com

KDDI doing well

2009-06-20T21:27:00.000-07:00

Five weeks ago we suggested an investment in KDDI in Japan. This mobile phone operator is the 2nd biggest cellphone network provider in the country. Five weeks ago we recommended at Y442, its reached a high since then of Y525. The stock remains in a downtrend, though I believe it is going higher at some point. It may fall back to the Y419 support, though this stock is due for a breakout some time. It has already made a double bottom, for this reason I would be hanging on for bigger gains despite weakness in the broader equity market.
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Andrew Sheldon www.sheldonthinks.com

KDDI - Is this a turnaround story?

2009-05-12T02:02:00.000-07:00

For investors who use the CFD platform of CMC Markets, you might be interested in this stock from Japan. KDDI is the 2nd largest mobile phone service provider in Japan. The company has been undergoing a slow restructuring. The company I believe has a lot of debt, thought I don't see it going broke. Rather I would not be surprised to see it perform a wonderous turn-around for two reasons:

1. Rationalisation of services - the company has acquired an agglomeration of brands and cell phone standards. Its task is to get customers onto a single standard. These brands include Tuka (which I used to use), AU and PHS.
2. Expanded sales - I would expect KDDI to benefit from cut backs in customer expenditure. I envisage that customers will shift to lower cost plans, i.e. pre-paid options, particularly students and single people.
3. Persistence of low interest rates should allow them to make in-roads
4. Investor (Vodafone? re-entry) or capital raising

Its competition is Docomo, which has always offered a premium & family service. I think Vodafone is the most likely company to enter the market. It has previously sold out of Japan, having sold to Softbank, but I would not be surprised to see it re-enter the market given its experience in Japan, and because of the large market share it will acquire. Anyway, I watch this stock with interest because their share price has sunk back to previous lows.
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Andrew Sheldon www.sheldonthinks.com

Aquarius Platinum - watch for new highs

2009-04-28T16:40:00.000-07:00

Aquarius Platinum has been doing very well of late after having recommended them at $2.60 about 6-7 months ago. I would be taking a look as they test a previous resistance level. My concern is that they will fall back in the light of current SIV fears. I would wait for market direction on this issue. One must remember that this is a very volatile stock, so one needs to react quickly to any technical signal. Refer to the attached chart - you are looking for a break out to a new high, or a fall below the previous low. The outlook for platinum is very good - both because its a monetary asset and because of its application in fuel cells, but that is long term. In the short term, I believe they are expanding output and cutting costs.

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Andrew Sheldon www.sheldonthinks.com

Australian Agricultural Company (AAC.ASX)

2009-03-14T02:53:00.000-07:00

Once again we are at a place where Australian Agricultural Company not only becomes a good buy, but I would suggest to you its a probable takeover target. I'm not altogether sure a takeover would succeed however. Why? For two reasons:

1. Its the only public company in Australia
2. I think its the largest private owner of land in Australia - so I can't see that passing to foreign hands
I have already sung the praises of this company, so I'd be inclined to just refer to those. Once again its a timely entry. Food prices will move up, and this company will continue to benefit from strong beef demand in Asia, and I would suggest from a free trade agreement with ASEAN countries. It will even benefit from climate change, as northern Australia is experiencing more rain.
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Andrew Sheldon www.sheldonthinks.com

Futuris Corporation (FCL) - buy

2009-03-14T02:09:00.000-07:00

Futuris Corp is one of my dad's old favourite companies. In actual fact this is precisely the type of company that is good to buy in these times because it is a large company with good exposure to the rural Australian economy. There are several reasons why we should be excited about that:

1. Commodity prices might have collapsed, but food prices will hold up better, and the $A has collapsed as well so $US receipts from commodities will translate into a lot of $A. That is good for farmers.
2. I would also expect the rural sector to benefit from infrastructure projects in rural areas. Nation building projects.
Aside from these points - the stock has reached a low point. Looking at the chart, we can see a hang-man candle pattern, which to my mind is a signal to re-enter this stock.
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Andrew Sheldon www.sheldonthinks.com

Commonwealth Bank (CBA.ASX) - support $20-22

2009-01-23T22:02:00.000-08:00

The Commonwealth Bank of Australia (CBA) is another bank which has plummeted to lows. I can actually see it finding support soon - around $20-22/share. I'd be inclined to place an order around $20 because I think it will reach those levels during intra-day trading and recover to $22-23 level.
Historically the stock has proven strong resistance at $35/share, however is this market I would be surprised to see it exceed $30/share.

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Andrew Sheldon www.sheldonthinks.com

Bank of Queensland (BOQ.ASX) - support at $7

2009-01-23T21:51:00.000-08:00

The Bank of Queensland (BOQ.ASX) strikes me as an even better buy than ANZ because of its favourable geogrpahic exposure to Queensland. Queensland has several positive aspects to it:

1. Strong population growth
2. Strong tourism potential - given the low $A outlook
3. Strong coal & gas sector - thanks to coal seam methane. The investments planned in this sector will be preparatory for the day the global recovery occurs. There are plans for an LNG terminal for the gas, likely power stations, there is a constraint on coal export capacity too.
4. Prospect of a merger with a financial services (wealth management enterprise) - long term
This bank also has collapsed along with the other banks. There is I suggest the prospect of greater exposure to loans, so you might want to investigate its provisions for doubtful debts, and the CEOs comments in this regard. But for a trade, there is some upside coming.
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Andrew Sheldon www.sheldonthinks.com

ANZ Bank - approaching $10 support level

2009-01-23T21:31:00.000-08:00

Australian & New Zealand Banking Corporation (ANZ) is under stress as it approaches its $10 support level. The Australian banking sector is in good condition I would think, so this would strike me as a good base from which to buy. ANZ does have greater exposure to NZ, but the other banks are similarly exposed. Commonwealth Bank owns Auckland Savings Bank (ASB) and Westpac also has a subsidiary here. ANZ has been the leading Australian bank in the Asian market.

ANZ has fallen from over $30 to almost $10. That strikes me as a decent correction even if the banking sector is not going to be one of the best performing in the next few years. One needs to remember that the banks have a solid position in wealth management, and their control of credit and forex is unassailable thanks to government favours (barriers to entry). People will say that there are no barriers to entry, but the reality is that huge amounts of money would be required to duplicate the position of the major banks. Interestingly a number of Australian financial institutions are interested in becoming banks, so we might just see that reality. I would love to see an online bank like Shinsei Bank in Japan. But you really want a bank that can perform all the tricks. Its not enough to offer cheap services, you want a full range of services. eg. Stock broking. Some existing banks have relationships with third party brokers, etc, but these relationships are too arms-length to effectively integrate services. B
uy at $10, look for exit before $15. No buy & hold in this climate. We should be traders for the next few years, with the exception of gold & silver, where we can take longer term positions.
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Andrew Sheldon www.sheldonthinks.com

Graincorp - at support - a good buy

2008-11-30T15:51:00.000-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

Graincorp - at support - a good buy

2008-10-26T16:33:00.000-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

Stock picks for dad's in a chilly market

2008-10-26T16:24:00.000-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

Alumina Ltd (AWC.ASX) - good buy

2008-09-07T20:59:00.001-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

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

2008-09-07T20:50:00.000-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

Cuil - Google has a new rival

2008-07-29T07:46:00.000-07:00

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 www.sheldonthinks.com' 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 www.Ask.com), 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.
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Andrew Sheldon www.sheldonthinks.com

Alumina Ltd (AWC.ASX) compelling buy

2008-07-09T01:25:00.000-07:00

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.

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Andrew Sheldon www.sheldonthinks.com

Bank welfare reaches its zenith

2008-05-09T00:33:00.000-07:00

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.

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Andrew Sheldon www.sheldonthinks.com

Qantas (QAN.ASX)

2008-05-06T17:46:00.000-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

Google - the price of success

2008-04-29T19:23:00.000-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

Pan Australian Res update (PNA.ASX)

2008-04-13T23:14:00.000-07:00

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.

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Andrew Sheldon www.sheldonthinks.com

Pan Australian Resources (PNA.ASX)

2008-04-06T10:05:00.000-07:00

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.

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Andrew Sheldon www.sheldonthinks.com

Australian Agricultural Company (AAC.ASX)

2008-04-06T09:44:00.000-07:00

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.

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Andrew Sheldon www.sheldonthinks.com

Lycopodium Ltd (LYL.ASX)

2008-03-12T01:36:00.000-07:00

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.
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Andrew Sheldon www.sheldonthinks.com

Takeovers – for whose benefit?

2008-03-09T15:57:00.000-07:00

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.

Healthscope (HSP.ASX)

2008-02-19T00:33:00.000-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

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

2008-02-19T00:16:00.000-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

IAG Australia Group (IAG.ASX)

2008-02-18T23:59:00.001-08:00

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)

2008-02-18T23:18:00.000-08:00

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.

BHP, RIO looking good, steel companies facing higher costs

2008-02-17T18:12:00.001-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

Futuris Corporation (FCL.ASX)

2008-02-17T05:09:00.000-08:00

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!
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Andrew Sheldon www.sheldonthinks.com

Mincor Resources (MCR.ASX) at technical lows

2008-02-17T04:22:00.000-08:00

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 http://hot-metals.blogspot.com.
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!
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Andrew Sheldon www.sheldonthinks.com

OneSteel Ltd (OST.ASX)

2008-02-17T04:09:00.000-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

Bluescope Steel (BSL.ASX)

2008-02-17T03:49:00.000-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

Brambles (BXB.ASX)

2008-02-17T03:29:00.000-08:00

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.
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Andrew Sheldon www.sheldonthinks.com

Gunns Ltd (GNS.ASX)

2008-02-03T22:17:00.000-08:00

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.

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Andrew Sheldon www.sheldonthinks.com

CSR Ltd (CSR)

2008-02-03T20:49:00.000-08:00

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 - http://futures.tradingcharts.com/chart/SU/M 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 www.tradingmarkets.com/.site/news/Stock%20News/792812.
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 http://finance.google.com/group/google.finance.674217/messages.
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Andrew Sheldon www.sheldonthinks.com

Australian Agricultural Company (AAC)

2008-02-03T18:14:00.000-08:00

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 http://www.abc.net.au/news/stories/2008/01/30/2149594.htm.
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 http://www.bom.gov.au/cgi-bin/silo/rain_maps.cgi 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.
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Andrew Sheldon www.sheldonthinks.com

Sumitomo Metal Mining (TSE.5713) Update

2008-01-09T11:49:00.000-08:00

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 http://quote.yahoo.co.jp/q?s=5713&d=c&k=c3&h=on&z=m. 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 www.gaijinpot.com/bb/showthread.php?t=11552 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.

Sumitomo Metal Mining (TSE.5713)

2007-11-23T19:52:00.000-08:00

In recent times the weakness in the USD has culminated in a stronger JPY, but also a weakening Japanese equity market. Along with the broader selling down of the Japanese market to the 15,000 level, we have seen Sumitomo Metal Mining (TSE code 5713) take a dive. This is an unjustified sell-down as the stock has mostly offshore exposure to growing metal production. They have operating gold, copper & nickel mines in a range of countries, as well as smelting/refinery activities in Japan, and passive stakes in a multitude of foreign projects and companies related to mining.
As far as technical analysis is concerned, Sumitomo has pulled back to an important technical support level around Y1950, and have since rallied up to Y2050. There is easy upside to Y3000 before we see any sign of resistance. BUY. Follow the stock at http://quote.yahoo.co.jp/q?s=5713.t&d=c&k=c3&a=v&p=m65,m130,s&t=1y&l=off&z=m&q=c&h=on

Sumitomo Metal Mining (TSE.5713)

2007-11-18T18:33:00.000-08:00

The Nikkei has been very week in recent weeks in response to a week US economy. I think we are likely to see support for the Nikkei emerge very soon. The best place to go is to our old favourite Sumitomo Metal Mining.

The only gold producer I know in Japan is Sumitomo Metal Mining (code 5713) listed on the Tokyo Stock Exchange. See http://quote.yahoo.co.jp/q?s=5713&d=c&k=c3&h=on&z=m. The question is will it fall back to its previous support under 2000. the stock is weakening, and I suspect it will bottom tommorrow under Y2000, but will rally from that point. This chart has not been updated for today's price action.

Listing of fastest growth companies

2007-10-22T03:20:00.000-07:00

The financial media occasionally provide some really useful information to help you make investment decisions. The following website is one such resource if you are buying North American based companies. See http://money.cnn.com/magazines/business2/b2fastestgrowing/full_list. Among the benefits of investing in the USA are:
1. The better online financial resources - all in English
2. The greater range of enterprises to invest in - number and industry diversity
3. The greater trading liquidity

The benefit of this list of fastest growing enterprises is that it might at some point help us to identify a future 'Google'. The flipside is that because these companies are 'growth companies' they trade at a premium - that is they are trading on a high PE ratio. The high rating might be justified, particularly if:
1. The growth in earnings has been maintained over a number of years -say 5 years or the CEO has a very good track record elsewhere.
2. The company still holds just a minor market share
3. The company shows a propensity for acquisition and has a successful track record absorbing those take over targets
4. The industry is in need of consolidation

You can use the link to look at the best performers over a number of years. I personally however like companies with a negative track record because at some point:
1. They will be taken over or turned around by new management
2. They become over-sold, often to the point that they are trading below asset values

Australian Agricultural Company (ASX.AAC)

2007-09-25T14:02:00.000-07:00

I have previously made mention of the agricultural commodities - and the potential of companies like Qld Cotton, Namoi Cotton, Australian Wheat Board, Graincorp and Australian Agricultural Company. Since that time, we have seen the takeover of Qld Cotton by a Singapore-based company, and AWB hit by a number of law suits. The problem is that there isnt much exposure to the agricultural sector on the Australian ASX. The bulk of farms remain private family corporations. I suspect this is about to change for 2 reasons:

1. High levels of debt

2. Drought has undermined revenues

3. Hedging debacles

4. Rising costs for inputs, eg. Fuel, fertiliser, insecticide

5. Low prices for alot of commodities

6. A strong $Aust - now $0.87 to $US

Travelling through the Northern Territory, Qld and NSW, it was readily apparent to me that:

1. Farmers in the North are till benefiting from very good unseasonal rains in May'07 even though crop farmers are watching their crops fail. Pastures in the north are well grassed.

2. Some commodity prices are up, but some are down due to drought, mixed fortunes of those crops used by biofuel production.

3. Input prices like fuel and fertiliser have increased considerably in the last 6 months

So I think farm failures are going to result in a number of new ASX listings as agricultural commodities rise. Why do I think agricultural commodity based stocks are going to perform well:

1. More takeovers - from Japanese, Chinese, local and US companies particular

2. Higher commodity prices - stronger demand for beef from Asia in particular, strong demand for grains for energy and feed, the flow through of input prices

3. Final end to the drought

4. Consolidation of family farms offering expansion upside

5. Growing speculation on agricultural based commodities by financial institutions

Its not a sector that I know much about but I would also expect trading in water rights to be brisk and I suspect a lot of money will be made there. But as far as equities are concerned, I like Australian Agricultural Company (AAC) because:

1. It is a well managed company

2. It is a pure beef exposure - pasture and feedlots

3. The outlook for beef demand in Asia I think is particularly good

4. Geographic diversity - they own 1.2% of Australia (8mil hectares), with their stock dispersed among a multitude of properties - se www.aaco.com.au

5. Improving rainfall - despite the drought, the rainfall in the Carpentaria region (West Qld) is has been increasing over the last 50 years. The paddocks are currently well grassed.

6. The prospect of the drought ending - this is already the worst drought since the 1930s

Technically the AAC chart looks good as it consolidates at its moving average. Currently trading at $2.75, with an earnings yield of just 1.1% and a dividend yield of 5%. This implies to me that the stock is only just recovering from drought-affected earnings. The clear intent here is to position in a stock that will benefit from those unseasonal rains, higher future commodity prices and any cessation to the drought - when it finally comes. Given that we are breaking 100yr records, the end to the drought cant be too far off. In case you are thinking that the drought is really climate change - consider that over the last 50 years, the locations of AAC properties have actually benefited from a significant increase in rainfall - thats in the Carpentaria region.

Buying value for money - profiting from crises

2007-08-13T23:51:00.000-07:00

There are different ways of identifying good investment opportunities. There tends to be several reasons why good buying opportunties arise:

1. Poor management generating poor returns on investment. These companies can offer attractive buying because such companies are often taken over by competitors who think they can do it better.

2. Bad news creates opportunities because disgruntled shareholders tend to dump the stock. They dump the stock out of frustration, minimise exposure to more bad news, to punish the management. Whether its a law suit, a health scare, an oil spill, a mine collapse, or an earnings downgrade often bad news can have a silver lining.

3. Market shocks provide a great opportunity to buy stocks. The biggest challenge is identifying the best types of stocks to enter. They might be the worst performers, or you might buy good stocks similarly hit by the generally bad market sentiment. The best opportunities are presented by smaller stocks with good cashflows, though go for those with big share registers as these are more likely to experience many shareholders dumping the stock. In these circumstances, there is competitive pressure to unload the stock. Illiquid stocks tend not to display the same level of selling pressure and recover more quickly....thus illiquid stocks dont have the same psychological 'panic symptoms' that we like to see.

Trading strategy

The challenge is to understand the industry, how bad the news is before others, so that you can profit from any turnaround. There are 2 tools that you can use to profit from these opportunities:

1. Fundamental analysis: This is where you attempt to quantify the value of the company or the value written off, so you can determine if the comapny presents good value. You need an indication that the market has over-reacted because we are looking for bargains. The best indication is the pace of the fall, the amount of share turnover. We are more likely to see bargains if a higher volume of shares are traded, and we are more likely to get a position.

2. Technical analysis: We can look at charts and see the support and resistance levels, but its not necessarily easy to know which support a share might fall to. You might think it has support, then it falls further on its own or driven lower by further news.

If you can't quantify the value of the company post-bad news, you can still make money by using charts. In fact charts are critical for understanding

Want a strategy for buying blue chip stocks that will out-perform the market? Look no further than those making the headlines....for bad news that is. There are different strategies for different circumstances.

1. Short term strategies: This is where you are following sudden news announcements and you see an opportunity to profit from over-selling of a stock driven by shareholders motivated by fear. eg. In Japan there was a health scare when Snow Brand Milk reported that several customers had fallen ill after drinking its contaminated milk products. The CEO resigned, consumers stopped buying Snow Brand products, and millions were wiped off the companies stock value. Its safe to say however that the stock was always going to be over-sold. Why? Because the share price action was driven by short term news. Manufacturing capacity is very easily mobilised to produce new brands so a manufacturer can very easily regain the confidence of consumers if they offer discounts and sack senior staff. Also such companies offer compelling takeover targets. Whats important is that you recognise that the value of any asset is the discounted value of any cashflow. So a loss of income for 1 year has a mild significant (5%) on corporate value, but not the 20-30% we see shares sold to. The more tragic the news the better the buy because the greater the pressure for action.

2. Longer term strategies: This is where a company has been reporting a succession of poor results or bad news reports that have pushed the stock to new lows. The best way of finding these stocks is on the internet. CNN, Forbes and other media groups often report the best and worst corporate performers. eg. http://money.cnn.com/galleries/2007/fortune/0707/gallery.global500_losers.fortune/17.html

Trading tips

There are several things we can do to profit from bad news:

1. Dont always be fully invested otherwise you will likely never have spare cash for such opportunities. Alot of people feel compelled to always have their money in the market. Their attitude is...'you can't make money if you are not in the market'...true, but you can save alot.

2. Always have a buying and selling strategy. Have it written down, stating your rules. You dont need to learn a strategy from your mistakes, you can actually develop one based on historical price action (chart data). Analyse the charts for the type of stocks, bonds, etc you trade and establish rules.

3. Always follow your rules: If you break the rules, step away from the market and examine why. Dont re-enter the market until you have accepted the loss, so you are not emotionally charged. The same can be said for profits. Alot of people give away a good profit because they consider themselves high rollers turning tricks. This is not gambling. If profits bring out the worst traits in you, make it a rule to step away from the market after you take profits. If you are the type of person who cant follow rules, impress upon yourself the risks of arbitrary action.

4. Decide your trading period: You need to know from the start whether you are planning to hold the stock for a short period (a few days) or longer term. Periods of bad news draw alot of shareholders into the market place. For this reason expect alot of volatility. As the trading volumes quieten down, so does the volatility. Periods of volatility suit short term trading, but also large investors trying to take large positions. Expect market manipulation. Get as much news as possible so you can assess the upside or downside.

5. Cover contingencies: Read up on the company to determine whether there is likely to be any more bad news coming to the market that might push them to new lows.

6. Determine entry and exit points: The best basis for taking positions is a combination of fundamentals and technical (chart) analysis. For fundamentals, make sure you write down your reasons for buying and selling. If you decide to buy or sell, revisit these reasons. Same for your charts, follow the guidelines you have set for your trading. Write things down..as it makes your thinking more objective.

Trading Examples

Consider the link we found to the 25 most unprofitable companies. We note that they are listed on various exchanges - New York, London, Tokyo, Amsterdam. Most have American Depository Receipts on offer. From this list its apparent that there are a number of stocks that have recovered, so clearly these stocks have already turned around, so no longer offer compelling value. There were however 6 which have only recently reached lows, so we are interested in these. So we now need to consider:

1. Upside: Are these good industries to be in. I personally like all the industries that these companies are in, but might opt against Delphi because I dont know its business wel enough.

2. Charts: All these stocks are at chart support levels or close, so they are stocks that would interest us.

Just in case you cant read the charts - they are Tech Data Corp, Tyson Foods, Alacatel-Lucent, Sanyo Electric, Lear Corp and Delphi.

Japanese Equity Picks - Aug'07

2007-08-06T00:43:00.000-07:00

I have a personal interest in Japan, so occasionally I keep an eye on the market there. The sectors I like most in Japan are IT and resources. The following stocks are of particular interest at the moment.

1. Toho Zinc (TSE:5707): This company is a refiner of base metals and also takes equity investments in mines around the world from which it purchases concentrates. Its code on the Tokyo Exchange is 5707. I like this stock on the basis of its technical characteristics. I know that it has equity in Consolidated Broken Hill (CBH) in Australia, as well as buying its metal concentrate. Today its share price is Y1096. See http://quote.yahoo.co.jp/q?s=5707.t&d=c&amp;amp;amp;amp;k=c3&a=v&p=m65,m130,s&t=1y&amp;amp;amp;amp;l=off&z=m&q=l

2. Sumitomo Metal Mining (TSE:5713): Sumitomo Metal Mining is a diversified metal refiner and miner with a focus on nickel and gold. I first recommended this stock at Y1540, and would be inclined to recommend it at Y2500 now. No doubt its benefiting from a weaker yen and its increasing output.

See http://quote.yahoo.co.jp/q?s=5713.t&d=c&amp;amp;amp;k=c3&a=v&p=m65,m130,s&t=1y&amp;amp;amp;amp;l=off&z=m&q=c&h=on

3. Yozan Inc (JASDAQ:6830): Yozan is not the best exposure to the ongoing development of the WIMAX communications format, but its Japanese exposure, so worthy of mention. With laptop computer sales overtaking desktops around the world, and increasingly people wanting flexible lifestyles, its clear that there is a role for WIMAX-based solutions. The question is - Can new WIMAX infrastructure compete with the established HSPA (3G) networks. The positive aspect about WIMAX is that it promises to offer high-end business people better communication solutions when they travel overseas. See http://quote.yahoo.co.jp/q?s=6830.q&amp;amp;d=c&k=c3&a=v&p=m25,m75,s&amp;amp;t=6m&l=off&z=m&q=c&h=on

4. Tobu Railway (TSE:9001): Tobu Railway is one of the larger rail-development companies in Japan. Such companies have a powerful position in the market because of their capacity to use their cashflow from railway operations to finance additional stations and the property infrastructure and services around them. They really are fully-integrated property-transport development companies. This company has a little distance to fall until it reaches support, but should be good buying soon around Y500 support. See http://quote.yahoo.co.jp/q?s=9001.t&amp;d=c&t=2y&l=off&z=b&q=c&k=c3&a=v&h=on&p=m65,m130,s

5. KDDI (TSE:9443): KDDI is the 2nd largest cell phone provider in Japan after NTT Docomo, following the amalgamation of the AU and other provider(forgot the name??). Expect synergies from consolidating these businesses. Whilst this looks like a good buy, I dont like them as a long term investment because of the maturity of the technology and declining population growth. Expect profit margins to narrow. A buy at Y800,000 with an intent to sell at Y900,000.

See http://quote.yahoo.co.jp/q?s=9433.t&d=c&k=c3&a=v&p=m65,m130,s&amp;amp;t=2y&l=off&z=m&q=l

2005-09-20T02:59:00.000-07:00

I personally have no interest in the blue-chip stocks or anything close to paying dividends - franked or otherwise, but then I retain some excitement for any opportunities I see. The following stocks are likewise.

Emperor Mines (EMP): Emperor's Vatakoula UG mine in Fiji has one of the longest lives of any in the world. I remember this company from its heydays in the 1980s, when the stock was trading at $12. Some 20 years later, it is still producing 110-140,ooooz/year, albeit at higher operating costs. Its record over that time has been chequered, but what can you expect when the prior MD was an accountant. Nevertheless this is a difficult mine. For starters its a 'hot' volcanic mine requiring refrigeration. Grade control & reserve calculations are spirilous because of the irregular distribution of the gold. The veins are thin, so mine headings are narrow. Having visited this mine, I can say workers are confronting some of the hardest conditions in the western world, excluding South Africa. Little surprise that strikes are common. The last 6mths has been shocking after a mine flooding, shaft equipment failure, high oil (thus power) costs and higher maintenance costs. The mine went from $6-8mil 6mth profit to a $33mil annual loss. The management team has abandoned the mine, opening the project to fresh ideas. DRD Gold's takeover demonstrates the value inherent in this minem having secured 49% of the equity. Conversion of their loans into convertibles suggests this might increase. Regardless, the bad news seem to be behind them. They still have a respectable 3.3Moz of gold resources at an average grade of 12g/t. The company has $6mil in cash and its debt will be reduced by $8mil if Alcaston can negotiate the sale of the Tavolu project (0.4Moz in Fiji). The Net Tangible Asset value of the company is $0.18, and the share price is $0.26. Being a significant gold producer (albeit high cost) presents an attractive turnaround story at a time of rising gold prices, particularly if they succeed in returning gold production to 140,000 oz per annum. Higher oil prices and continued operational problems pose the biggest concerns. See the chart below - I see scope for a break-out.
Resolute Gold (RSG): They operate 3 gold mines in Australia (Ravenswood) and Africa (Ghana & Tanzania) producing around 230,000 0z per annum. They have alot of blue-sky upside to expand resources, and I wouldnt be surprised to see a merger with Gallery Gold (GGN) to expand their market profile with institutions. They have a significant about of hedging, but expanded output will create added upside. The chart suggests the best opportunity to buy has been missed. Wait to see if resistance at $1.30 is broken, as a better entry might come yet. ie. A delayed wedge breakout.
Croesus Gold (CRS): CRS operates in 3 districts of WA. The company operates mines in the Binduli, Davyhurst and Norseman areas of WA. Production is currently running at 183,000 oz per annum. The company has hedged 21% of its reserves. It has recently increased its total resource base to 3.6Moz, and the company has raised $15mil through a convertible note issue to fund an exploration program in the Norseman area, as well as acquisitions overseas. The notes raises CRS cash reserves to $21mil + $4mil in investments. The project has significant upside in underground resource potential. The institutions dont like it because it lacks a large resource base and has high operating costs. The chart suggests weakness in CRS despite higher gold prices. The reason is the deterioration in cash operating costs the Davyhurst (and Binduli) operations. Their 329mil shares at 36c are worth $118mil. Look for support at 35c, otherwise weakness to 20c. See chart below.