Use access key #2 to skip to page content.

speedybure (< 20)

A 20 Stock International Portfolio I Set Up For A Friend... Thoughts Much Appreciated

Recs

6

June 18, 2009 – Comments (14) | RELATED TICKERS: SLW , AUY , POT

Tickers: SLW, AUY, AEM, JAG, CEO, RDSA, SU.TO , PWE, NUF.AX , MGO.TO, GENZ, RIG, COS-UN.TO, ABB.AX/ VT.TO, PM, FNV.TO, and 1 TBA , Any Suggestions??  

 

A Friend of my (who is an engineer) asked me to allocate a rather large sum of money in a large diversified portfolio (in terms of industries and countries). Even engineers have realized the majority of money managers are nothing short of used car-salesman. When I was an undergraduate I saw many brokers, even some who managed 10,20,30..1000 times more money than their skills warranted, relying on morningstar, valueline & S&P rating when picking equities. That being said, I had no problem agreeing to his request. Though I am doing this for two other friends since January, this is the first time I have composed such a large portfolio as I tend to focus on a handful of industries and can only responsibly keep track and evaluate (both qualatatively and quantatatively) a given number of different stocks. Please share your thoughts/comments/reccomendations to that mentioned below and/or your personal favorite in that industry and if possible which ones are trading the furthest below their intrinsic value and (in addition to what you determined that value to be). 

 Silver Wheaton - This needs no explanation by me as I have written extensively on silver and SLW in general. i have also posted various valuations models with updates for their recent aquisition of silverstone.  

 Yamana - I have written perhaps more on this than silver wheaton and posted updated valuation models both before and after their recent divesture of there three medicore mines

 Agnico Eagle - Again In depth analysis and valuations on a previous post.

 Jaguar Mining - Finally, The last of the miners and in my opinion, the one with the most upside potential. 

Franco Nevada- Is a Royalty Company (larger in terms of streams and prodcution than Royal Gold), which receives 65% of revenue from Gold, 25% from Oil and Gas, 5% from Potash and 5% from Plantinum 

 Oil - I Have Initiated 40% of Target allocation as I belive oil will pullback before moving higher 5-

China National Offshore Oilfields - Great Valuation in addition to have a rather large stake in China Blue Chem, which provides a broad range of agriculture products and services

Royal Dutch Shell - Good Valuation with a nice dividend for income-

Transocean - I have just began initiating this position, and will only add on pullbacks. Although I think this stock is a gem  because deep-water drilling is the sweetspot in the industry,incredible returns on tangible capital, a beautiful DCF model using very conservative estimates and of course their qualatative characteristics.

Suncor- I am very excited about the merger with Petro-Canada. Not only is the valuation attractive but they now have exposure to oil, natural gas & the Oil Sands.

Canadian Oil Sands Investment Unit Trust - This stock is very hated due to the fact the common ignorance surrounding the oil sands in general is misguided. Yes it is true they have operating margins below the industry average, but if you believe Oil is going back over $100 (and closer to $200 a barrel over the next 2-4 years), the lower operating margins are insignificant. I say this because COS-UN.TO has an enormous reserve base which more than offsets the margin difference. Not to mention the Synacrude project which they have 37% working interest in will have an extraordinary IRR. This negative sentiment is priced into the stock, which makes it that much more appealing. 

Pennwest Unit Trust - Great Valuation as it over-reacted to the oil trusts losing their tax status in 2011. After it fell like a rock, the dividend yield will be almost identical to before the announcement, so either it will payout a nice dividend or price appreciation will make it an average oil divdend. Either way the price is right.  

ABB Viterra - I had been reasearching the grain market last fall and saw a very lucrative industry going forward. The valuations, however, were nothing to write home about until last Dec, Jan & Feb. At this point I personally loaded up on ABB Grain of Australia which quickly grabbed 55-60% of the grain market after the Australian Wheat Board monopoly was broken up. I had also had my eye on Viterra but was hesistant to be as aggressive as I was with ABB, because the market price was trading much closer to its intrinsic value relatively speaking (although it was still a buy in my mind). Luckily about a month ago, Viterra made a $9.50 bid for ABB, nearly doubling my original return on investment. After doing the proper due dilliegence, the combined company was now incredibly attractive due to the risk reduction (it is more likely crops to be ruined if located in only one country), cost cutting measures, a worldwide reach on the Industry and of course the leverage they have to wheat prices. (The production-consumption gap has been narrowing year over year for nearly a decade).  

Migao - This is my favorite agriculture company, with ABB Viterra coming in second. They are trading less than 9 times enterprise value, operating income having a 40-65% 6 year CAGR assuming Potash prices remain subdued at $550/Ton (a far cry from last year's $1000 high). In the next 14 months alone they are expanding capacity 75-80%. This is a 5-10 bagger if I've ever seen one, and I'm not one for that bold of a call.

Chaoda Agriculture

Nufarm - Second best agriculture company in Australia (in my opinion) trading at a great valuation. Still attractove despite the large run-up

Potash - from my financial blog site "1) WHAT IS POTASH? Broadly speaking it is a very important fertilizer used in the agriculture industry. Some attributes include improving water retention, crop protection, maximizing the yield of a harvest, etc. Potash mines are located primarily in Canada (The largest being located in Saskatchewan), Potash being the largest producer. Other large companies are making attempts are BHP Billiton as this Australian based company realized the future importance of this product. It’s not like BHP doesn’t have enough on their plate as it is, but like great company, takes advantage of every opportunity should the arise.

2) OK, I KNOW WHAT POTASH IS, SO WHAT? Well as emerging countries industrialize thus increasing the standard of living, the demand for potash will increase as these societies demand safe nutrient rich agriculture product. Despite alternatives for this fertilizer, the market has shown its desire by the high corresponding demand. Potash is not an extremely rare product, but it certainly has a supply constraint which will tighten as the years pass. In short, here is another example of a necessary everyday commodity that has an increasing demand that will outpace the diminishing supply

Phillip Morris Int'l - Good valuation in addition to a 5.2% dividend yield

Denway Motors - Major Auto parts supplier in China.

Genzyme From my blog site -This is another overlooked stock as many people don't understand the strategic brilliance, they have executed to position themself unlike all the other biotech giants. Genzyme,  who had a very broad range treatments, catering to numerous “niche” markets is the company I’m making reference to. This strategy was unprecedented until recently as they target those diseases that strikes a very small part of the population. This, however, has given them “fast track status” on the majority of their drugs, referred to as “orphan drugs”, consequently resulting in longer patent lives than the industry average. Genzyme began moving drugs onto the market that treated a select few with some type of rare disease, but have gradually brought bigger and bigger drugs in front of the FDA with remarkable success. Over the last 2 years they have successfully brought 3- mini blockbuster drugs on line with several more in the pipeline in addition to some real blockbusters in the oncology arena. Unlike other mega biotech giants like Amgen whose main focus is in a single specialized area (that being oncology for Amgen), Genzyme has a very diverse portfolio in terms of treatments afflicting main medical arenas. Their target market covers 6 main areas including cardiovascular disease, renal disease, Diagnostics, genetic disease, bio-surgery & most recently Oncology (which they have achieved enormous success in the small time spent here). They have built up a strong capital position before entering the world of oncology as the research tends to be expensive relatively speaking. They have done this through exploiting various niche markets as well as making contractual strategic alliances with such companies as Isis (The leader in the development in RNAI technology, which the scientific world believes is the future for cancer treatments). I think they have the best pipeline in biotech land, hands down. They have 11 drugs in stage 3 of the FDA drug approvale process, 24 in stage 2, 11 in stage 1 and many more in development. They also have taken pressure off their previous flagship drugs via approvals of Myozyme, Mozobil and Fabrazyme. Their pipeline is so impressive because it covers (Huntingtons disease, Crohn's, Kindey failure, AML, small lung cancer, parkinsons, MS, high cholestoral, breat cancer and many others. This valuation is great as well, as I think the pipeline is worth more than the current market value of their company $14 Billion. 

14 Comments – Post Your Own

#1) On June 18, 2009 at 6:43 AM, shanelevy (< 20) wrote:

Question: since you seem to be very knowledgeable about GENZ, whats up with all the insider selling?

Report this comment
#2) On June 18, 2009 at 7:34 AM, rd80 (98.46) wrote:

I would be very uncomfortable with 17 of 20 picks tied to commodities unless your friend has a lot of other assets.

Report this comment
#3) On June 18, 2009 at 8:16 AM, kaskoosek (62.16) wrote:

In a hyperinflationary enviroment, you would be King.

 

PM is the best bet in my oppinion.

Report this comment
#4) On June 18, 2009 at 8:46 AM, lemoneater (82.77) wrote:

I agree with #2, Commodities have been very volatile for me, but my optimism and relative youth tends to give me a very high risk tolerance. At least a lot of your picks also have generous dividends so when the shares go down the dividend % goes up (as long as it isn't cut) allowing you to buy more if you re-invest. How risk tolerant is your friend?

Report this comment
#5) On June 18, 2009 at 9:57 AM, chk999 (99.97) wrote:

This doesn't look diversified to me. It is well positioned for inflation, but if that doesn't happen it could really sink.

Report this comment
#6) On June 18, 2009 at 12:36 PM, speedybure (< 20) wrote:

Part of the reason behind me asking me to do this for him was his belief in inflation, he like me thinks the next 2-5 years thinks an uno\precendented inflationary era is brewing, dwafring that of the late 70's, ealry 80's.

But from all the data i have gathered, silver is going to be big no matter the outcome, as they are planning to use mass amounts of silver in solar panels and even more importantly, in batteries, which will soon replace those crappy lithium ion batteries. For those who don't know lithium ion batteries have one major flaw, each charge lasts a bit shorter than the last.

In terms of oil, that to without inflation, is poised to do very well as the supply- dissconnect is very much in play. Even those optomistic scientists say peak peak oil will be 2012, while many others have said we have reached it as far back at 2005/2006.

Agriculture is mostly the same - as all the various data on world grain production /consumption shows a narrowing of this gap. likely due to the increased quality of food the population of emerging countries will demand. 

To answer the Genzyme question, although not all of the insider selling was voluntary, but like any company many of these sales were planned out years ago thus not based on the current state of the company. Many executives pay themselves a very low salary and pay themselves in stock instead in order to reduce their tax burden.

Additionally, Inflation is inevitable to the susbstancial increase in the money supply, 1.5 trillion of unfunded liabilities (just in social security, medicare, medicaid and interest payments on our debt for 2010), which elxudes all the other spending such as defense,etc. Loan loan losses have been increasing 400% quarter over quarter (but worse yet this rate is accerlerating), the continuous treasury auctions of the 10- year and 30-year are driving up yields on mortages and interest on our foreign debt payments. Optimistically speaking, if long term rates can stay at 10% in 2010 or 2011 (although i think they will be much higher as in the 70's), this would increase the cost of serving our debt to somewhere in the nieghborhood of 1.2-1.3 trillion + total healthcare costs which will be 1.2.1-1.3 trillion as well increase our unfunded liabilities to 2.4-2.6 trillion! we will have to print a large portion of this because tax revenue will be lower than anyone thinks due to tax loss carry forwards.

I have written in depth in previous posts- in such posts as "the day the dollar died" , "hyperinflation - echoes from the weimer republic and other latin american hyerinflation" or much more in depth analysis at my blogsite : http://www.comingcurrencycrisis.blogspot.com 

Like Jime rogers says" diversification is nothing more than a word created in the financial world to keep brokers from getting sued.

I honestly think this is rather diversified- but he asked me to make it mostly resource based, so what can i do. 

1) silver, gold, oil, potash, oil, natural gas, biotech, cigarettes, chemical fertilizers, consumer staples, foreign auto parts, wheat - al of which are based on great valuations which use the current prices of commoditties. This is only one of his portfolio's as the two money managers he is with know nothing about international stocks unless they are ADR's.

Anyway- I am still more then 30% in cash,  and while I have some other ideas in mind, I was hoping some of you would give me your personal faovrites as I can expand this to 25 equities.

Report this comment
#7) On June 18, 2009 at 12:51 PM, caltex1nomad (< 20) wrote:

If your looking for agriculture check out  CRESY . It's up about 80% since I bought it, but the value of their land alone is worth about $5.00 of their stock price.

Report this comment
#8) On June 18, 2009 at 2:20 PM, peachberrytea (77.73) wrote:

hmm if you're looking at diversifying into non commodities you could try CEDC BGC CMG-B NRG... obviously these aren't as attractively priced as they were before our recent rally but there's still value.. of course, these are merely suggestions so do your own research

hmm you seem like a silver/gold bull.. i'm still a bit of a skeptic on those so i'd like ur thoughts on them if u don't mind. i think i'm convinced that they'll go up but what i don't have a good feel is how much - just how likely is gold going to go to 1650 or 2000 or whatever, and where do those numbers actually come from?? i'm having a hard time determining how much upside there is in silver/gold compared to other commodities like ag and oil (these 2 i have a better feel for)

Report this comment
#9) On June 18, 2009 at 2:28 PM, wisesilverwolf (< 20) wrote:

What about Silver Standard Resources? Here's an interesting post on them: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=210423&t=01004136043043786352

Report this comment
#10) On June 18, 2009 at 3:53 PM, speedybure (< 20) wrote:

peachberrytea:

I agree with you oil and agriculture (especially wheat, corn & Potash) will appreciate greater % wise than gold but not silver. My personal holdings which you can find cash flow analysis for (published via google docs) on my previous blog posts and are open for editing. They also include sensitivity analysis. For example Jaguar Mining is still a 3 bagger with gold at $800 indefinitely. Based on the unprecendented money and credit creation (which will show up as soon as the velocity of money picks up again) will spur inflationary to likes we can;t even imagine. Even the govenment supplied fugires show a 260% increase in the monetary base from Jan 2008. This exludes all the bailouts, govt purchase of worthless securities, 2.5 trillion of deficit spending, etc. Meanwhile mining output for gold has been declining for nearly a decade. So as I do with every valuation I assume very conservative inputs. Agnico as well as Yamana are in previous blogs, but all three have the best growth in the industry. For example Agnico produced 280k oz in 2008 and will ramp up production to 2m/oz per annum by 2012. Their 2010 cash costs per ounce mined is $270!. After Sg&A, this equates to approx 60% operating margins. Their costs for the most part are hedged for years to come keeping cash costs down under to around $400/oz. So even assuming a $900-$925 gold price, thier operating margins will hover around 50%!. The same goes for Yamana. Now if you assume inflation will push gold to 1500-2000 which i think it will, their margins are second to none. But the reason why I am overweight these miners is because they are more or less an emergin industry, as this is one of the first time in which these companies will be profitable for a long period of time. I will post links to these valuation and you could play around with the inputs.

Silver Wheaton - is a monster of a stock and my largest holding (mostly because i bought most of it in Nov and Dec around C$3.90/share. This to has a published valuation which got a substancial amount of compliments. They have the most dynamic model in the industry as well as the least risky. Here is a quick overview of the company. They got tremendousn financing via equity and debt, which was used to help other miners finance large projects in return for a certain % of the product mined purchased at a significant discount. For example they currently pay an average of 3.86/oz of silver and then sell it for the market price. They have quietly put toghether an amazing portfolio of 11 operating mines (which they have royalties for an average length of 20+ years, with many of them lasting the life of the mine. In addition they have 2 mines in the development stages. Like the other miners, they have tremendous growth from 2008-2013 - producing 11m/oz of silver in 2008, 18m/oz in 2009, 25m/oz in 2010, 25m/oz in 2011, 29-31m.oz in 2012 , 33-35moz in 2013 and eventually peaking at 36-38m/oz assuming the aformentioned projects in development are excluded and they don't speand 1 penny on capital expenditures. My guess is they will make 1 or 2 more aquistions, bring one of the deleopment projects online over the next 5 years, thus becoming a 45-50m/oz producer around 2014-2016. They are subject to a maximum 1% inflation rate increase in their purchase price. So around 2018-2020, they will still pay only around $5-5.20 per ounce of silver. So assuming the silver price average $24 a year from 2010-2015 - This equates to 3.5 Billion in Net income! They were granted tax exempt status by the candian government as long as excess profits are repayed to shareolders as dividends or it is reinvested. 3.5 billion is 130% of the current market cap by the way.

Silver is being used in consumer goods at an increasing rate, electronics and industrial production. Most rencently they have been used in solar panels and will soon be the majority component of batterties as opposed to the current lithium Ion batteries than become weaker after every charge. Not to mention they are use as an inflationary hedge like gold. But what most people don't realize is that because of the economic slowdown, silver inventories have hit a 4 decade low! This is because the majority of silver mined is as a bi-product of base metals. Therefore we have an increasing demand and a decreasing supply plus inflation! 

regarding your last question, i actually go the total world number of tons of gold around the world from the world gold council, I also attained the production numbers from 1970-2006.On average 12-19% is used every year ofr jewelry, but this has been increasing as world production has been declining. i determined gold was worth $127/oz in 1970 and adjusted the increase in the money supply less the increase in world production, giving me an intrinsic value of $872 in Feb 2008, I have recently updated this data, which showed an increase of $135, therefore as of know it is worth $1000/oz. This, however does not include all the printed money unnaccounted for in the government supplied monetary aggregates, future loan losses,  and the currency held outside the U.S. Assuming 20% of foreign debt is redeemed, that increase the value beyond 1300 an ounce. This also does not account the future money we will have to print i.e 950 billion in 201 for social security, medicare, medicaid, which nearly doubles by 2016. The interest payments on our debt will also increase every year as keeping the 30 year yield down is unsustainable. Optimistically speaking 10% 30-year treasuries mean 1.2-1.3 trillion in interest payments every tear. In other words by 2015-2016 these two liabilities alone will cause approx 4 trillion (which includes health, defense and interest payments). 

I have oil weighted about 25% in my portfolio, only because the equities are far more accurately prices than the miners at this point. I will increase my exposure to both ag and oil as soon as these miners get the recognition they deserve. But as of now I hold Suncor and Canadian Oil Sands Unit trust as my largest oil holdings.

I like silver standard resources but they will require lar capital expenditures for the next several years, as you know  the true earninigs of a company isn't net income, it is free cash flow. For this reason I own options for Jan 11'. I also like first majestic silver, which I believe has a greater appreciation potential % wise but more likely than not will be a target for an aquisition. These two are small holdings, as I think the worls of SLW's model, execution & managment. 

What are your favorite ag stocks? I have 4 standouts which I have subjected the majority of concentration on - Migao , ABB Viterra & Nufarm and Hanfeng Evergreen

Report this comment
#11) On June 18, 2009 at 4:16 PM, speedybure (< 20) wrote:

Here is Yamana's Valuation:

YAMANA http://spreadsheets.google.com/ccc?key=rZVIqTDv7wakvjZHw_KX3mA

 Silver Wheaton:

http://spreadsheets.google.com/pub?key=rp8ogHt26nhNkyN1nD...... 

Jaguar Valuation: http://spreadsheets.google.com/pub?key=rDZewYzWYLQ5sq4WQ7......

Potash valuation: 

Migao Valuation: 

Report this comment
#12) On June 18, 2009 at 7:18 PM, peachberrytea (77.73) wrote:

Hey speedybure,

Thanks for the reply and all those valuations. I'm going to take a good look at those once I get the chance.

I like SLW (I have a small position in it actually). I've been meaning to look at JAG just because they're trading below NAV and they don't have much debt, so not too much risk. I like silver/gold as asset classes.. just not sure how much exposure I want in them - there is just so much value in the market these days and so much to choose from.

My fav ag play is POT. It's my largest holding. IMO there should be a fair bit of medium term upside with not a lot of risk. I've been meaning to look at MGO. No opinion on those other ag plays tho.. I'm Canadian and I don't want to buy any more USD. The USD I have on hand now are in oil plays :)

Report this comment
#13) On June 21, 2009 at 11:50 AM, silverincite (63.54) wrote:

Hey Speedy,

What do you think of Silvercorp Metals (SVM.TO)? 

Canadian silver producer with mines in China and they just made a bid to buy out Klondex Mines (KDX.TO), another Canadian miner with claims in Nevada.

Thanks for all your work.

Report this comment
#14) On June 26, 2009 at 5:10 PM, speedybure (< 20) wrote:

silverincite ;

Great Question, well funnt actually, I had a 20-30 min chat with the CEO of Silvercorp about 2 months ago and was impressed with what he had to say as well as his outlook on the markets. Thats Being said, I personally only think there are 4-5 silver companies worth investing in.

My Favorite : Silver Wheaton

2) Silver Standard Resources- I expect their resource base to be near or > 2 billion oz within 12-18 months.

3) It is a tie between frist majestic (valuation) and Silvercorp

After meeting the CEO and doing my due dilligence, I bought a few hundred shares. I didn't realize this but China is now the largest producer of gold, and thus high silver output given that it is a bi product most of the time.  

Report this comment

Featured Broker Partners


Advertisement