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March 2007



Personal portfolio: sold Avon, bought American Express

March 22, 2007 – Comments (0)

I mentioned that, for my personal portfolio, I was considering selling Avon and buying some Amgen. Well, I bought American Express instead. I still intend to add to my holdings in Amgen, but I thought I should open a position in American Express while it's down. AXP is a very profitable company, catering to big spenders, and charging higher interchange fees. It also has a closed loop: it issues its own cards and processes them through its own network. Overall, it's more profitable than Mastercard. Warren Buffet has held this stock for years and years, and he's laughing all the way to the bank. I think that AXP is still a stock you could buy and never sell. Yes, it's now a $66bn (I think) company. But, it still has room to grow, as the use of credit cards increases globally. And it's a very well-run company, whose management team is sure to find good opportunities to expand the business.

Meanwhile, Barclays (BCS) is in exclusive talks to acquire ABN AMRO. ABN has many assets that would work with BCS' plans, particularly its wealth management assets and its branches in emerging markets. If it went through, the merger would create the 5th largest bank worldwide. However, there is reason to be concerned.
Many of ABN's assets are, frankly, mediocre. There is little overlap with BCS' assets, and there would be few cost redundancies to eliminate. Their interest margins and organic growth are low and their operating expenses are high.

Analysts estimate the deal to be around 80 bn pounds in stock and cash. Many analysts feel that that's too high a price to pay. And there are other parties who could realize better synergies from a merger with ABN, and BCS could end up having to up its price.
I spoke with a director at their investor relations branch. He said that BCS was committed to delivering shareholder value. He reminded me that they were in talks, not in agreement, to merge, and that the price was, right now, speculation. He implied that they would strongly consider price in their decision to acquire ABN. He also implied that BCS would consider divesting assets of ABN that were unnecessary at the right price. His words have eased, but not eliminated, my concerns.

I find it ironic that the Children's Investment Fund, a hedge fund, acquired a stake in ABN AMRO and tried to force it to maximize shareholder value through asset sales or a merger ... and that they've recently written to Barclays' to caution them about paying too high a price (not sure if they own shares in BCS). Now, I'm not a hedge fund out for short-term gains, but I agree with TCIF. Barclays has already had to make political concessions to ABN to increase the chance of the merger going through. It had better be careful not to pay too much, and it had better be sure that ABN's assets are performing or can be made to perform. US investors may remember the bidding war over Guidant between Johnson & Johnson and Boston Scientific. BSX paid way too much, and its stock has been murderously punished.

I had my finger on the sell button today. I ended up selling Avon to purchase AXP. I still might sell Barclays, but I intend to wait until I see the terms of their deal. I've ended my pick in BCS, but that might have been a little hasty. Although I've sold AVP, I have maintained my pick in CAPS; I'm confident that its restructuring will bring further fruits, but the stock was up 30% since I purchased it over a year ago, and I needed the money to reinvest.  [more]



Oy veh, Amgen

March 12, 2007 – Comments (0)

Amgen has had some product problems lately - poor clinical trial results, a suit from JNJ, and a generic drug in Europe similar to their flagship product Aranesp. But, this is one of the best biotechs, with a rich pipeline. they will recover.
in my personal portfolio, I've made a nice gain in Avon, and I may sell Avon in favor of Amgen. Avon is good, but I think Amgen probably has more potential. the CAPS community seems to agree with me: Avon has 2 stars to Amgen's 4.
aside from that, I'm really, really, REALLY glad I got out of New Century. too bad I didn't turn around and pick it to underperform. but, truth be told, I'm not real good at picking underperforming stocks. I see a few stocks whose fundamentals are poor but the market is bidding up ... and the market still seems to be bidding them up. I'm a lot more comfortable waiting for the market to realize a strong company's overlooked potential than to wake up and take down a bad company's share price.  [more]

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