247Bull portfolio update: 14 November 2012

This article provides an update on the 247Bull investment portfolio. It includes details of the companies we have sold, those we have purchased, and those we have placed on probation.

Recent sales

Google Inc. (NASDAQ:GOOG): Since making a new all-time high of $774.38 in early October, Google has sold off sharply falling 14.9% to $659.05.

On 18 October the company reported its third quarter results and they fell well short of analysts estimates. Third quarter earnings came in at $2.18 billion, or $6.53 a share, which was down from $2.73 billion a year ago. While revenue, excluding traffic acquisition costs (TAC), was $11.33 billion, or $9.03 a share. However Wall Street was expecting Q3 earnings of $10.65 a share on revenue of $11.86 billion.

We sold Google yesterday for a tiny profit of 0.4%. The company will remain on our watch list and we may look to acquire it once it has made a firm bottom.

International Business Machines Corp. (NYSE:IBM): IBM made a new all-time high on 5 October at $210.87, however on 17 October the stock opened 4.6% lower after the company reported declining third-quarter revenue in each of its major business segments, including a double-digit dip in hardware sales. Revenue has now declined in the past two quarters as businesses cut back on technology spending.

Currency headwinds have also been a drag on IBM’s results with unfavourable exchange rates reducing revenue growth by nearly $1 billion in the latest reporting period. Overall, for the third quarter, IBM reported profit of $3.82 billion, down from $3.84 billion a year earlier.

We sold IBM yesterday for an 8.1% loss.

Potash Corp./Saskatchewan Inc. (TSE:POT): As the weekly chart below shows, Potash made a major top in February 2011 and then sold off breaking down through the 150-day moving average. According to Stan Weinstein’s Stage Analysis, the stock is now in a Stage 4 decline.

A 3 year weekly chart of Potash Corp. (Click on the chart for a larger version)

A 3 year weekly chart of Potash Corp. (Click on the chart for a larger version)

Charts courtesy of stockcharts.com

On 17 October this year Potash announced that earnings for fiscal 2012 will be below the low end of the range provided in July 2012, reflecting lower than forecasted potash sales volumes due to delays in new contracts with buyers in China and India.

On a long-term basis we like Potash however we will now wait for a better entry point.

We sold Potash yesterday for a loss of 5.6%.

Strathmore Minerals Corp. (TSE:STM): Strathmore is another company we like long-term, however the continued fall in the price of uranium, which is now just $41.25 per pound, has driven the stock lower.

We sold Strathmore yesterday for a 52.3% loss, though the company will remain on our watch list and we will look to acquire it again once it has made a definitive bottom.

Global X Uranium ETF (NYSEARCA:URA): Because of the near-term outlook for the uranium sector we have also sold our position in the Global X Uranium ETF.

The Global X Uranium ETF was sold yesterday for a 15% loss.

We have also reduced our holdings of McDonald’s and Coca-Cola.

Recent purchases

We have added to our holdings of Yamana Gold, a gold mining company we profiled recently here. Our target price for the stock (in the next 2-3 years) is $30 a share (current price $19.61), however it is possible that the stock will reach $60 a share by around 2015.

That scenario is based on $2,000 gold (which is a low estimate since gold ought to be around $2,500 by 2015), plus a cash cost per ounce of $223/oz, operating cash flow of $3,376, an operating cash flow multiple of 13.4X (which is what gold stocks reached in November 2009), and annual gold production of 1.90 million ounces.

Companies on probation

The following companies within the portfolio are on probation, meaning that we are keeping a close eye on them and if they continue to underperform they will be sold.

Cameco Corporation (NYSE:CCJ): Cameco has declined from $23.12 in August to $17.25. To avoid being dropped from the portfolio, the stock needs to find support at the 2011 lows at around $16.25 to $16.35.

Gold Resource Corporation (NYSEAMEX:GORO): Long-term we are very bullish on Gold Resource Corporation, however recent problems at their La Arista mine (they ran into a bottleneck mining enough ore to feed the mill) caused the company to announce a big drop in Q2 production. The announcement surprised the market and the stock dropped more than 25% on the news. The company also guided down its forecast for its full year gold production to 100K ounces in 2012 from 130K ounces.

Gold Resource Corporation has scheduled an earnings conference call for 15 November in which management will update shareholders on third quarter 2012 results as well as current operations. We expect better news from the company.

McDonald’s (NYSE:MCD): Last week McDonald’s announced that their global comparable store sales had declined by 1.8% in the month of October, the first time this has happened in 9 years.

McDonald’s CEO, Don Thompson, announced last month that the company would be launching and marketing new food items in 2013. It will also promote a Dollar Menu to value-conscious American customers in an attempt to overcome a weak economic environment and competition from competitors such as Burger King and Wendy’s.

Our holdings of McDonald’s are down 7.6%, although the company is still paying an attractive 3.6% dividend.

McEwen Mining (TSE:MUX): McEwen Mining has now agreed to a settlement regarding their ownership dispute on the Los Azules copper project in San Juan province, Argentina. The deal was reached prior to a trial that was set to begin on 19 November.

The company has also chosen to raise $60 million via a rights issue which allows existing share holders to buy additional shares in the company. In a letter to share holders last week, Chairman & Chief Owner Rob McEwen, stated that he has “personally committed to subscribe for any and all unexercised rights, thus insuring our Rights Issue will be successfully completed”. Mr McEwen also stated that he “will be investing a further $15 million in the Company… because I like our growth prospects and I see value in our large and expanding mineral resource base.”

Our holdings of McEwen Mining are down 11.9% but over the next 18-24 months we expect good things from the company.

Newmont Mining Corp. (NYSE:NEM): Newmont is the largest gold producer in the US and the second largest in the world. The company pays a dividend (currently just under 3%) which is linked to the gold price, meaning that investors will receive a $0.20 increase in the dividend payout for each $100/oz rise in average realized prices of gold. Shareholders could receive an annual dividend of $4.70 a share if the average realized gold price reaches $2,500 an ounce.

Recently however, Newmont’s stock has been suffering from lower production and profits, as well as questions over its future growth prospects.

Our holdings of Newmont are down 8.7%.

Pinetree Capital Ltd. (TSE: PNP): Pinetree reached a high of $4.29 in February 2011, however by May of this year it had reached a low of $0.78. It looks as though the company made a bottom back in the summer and we like Pinetree as a long-term holding, however it is now approaching support and failure to hold will see it ejected from the portfolio.

Our holdings of Pinetree are down 15.7%.

The 247Bull portfolio (Click on the chart for a larger version)

The 247Bull portfolio (Click on the chart for a larger version)

Portfolio as at 14 November 2012

Despite the recent poor performance of some of the companies we hold, overall the 247Bull portfolio is still in positive territory.

Fission Energy Corp. (CVE:FIS) is up 100%, while Yamana Gold Inc. (NYSE:AUY) is up 28% and Franco-Nevada Corporation (TSE:FNV) is up 21%.

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