In the first few months I was quite active. Given that the market had dropped substantially, I found many stocks to buy. Following is the complete list of my value idea contest submissions. The table lists the price of the stock when I took a position and the return after almost a year.
|Company||Published Date||Starting Price**||Price today||Dividend||Return||S&P Return|
|ArcelorMittal (MT)||Sep 29, 2011||$16.05||$15.09||$0.64||-2%||24%|
|ABB (ABB)||Sep 30, 2011||$17.39||$18.81||$0.77||12.6%||24%|
|Roche (ROG.VX)||Oct 15, 2011||SFR 142||SFR 179||SFR 4.42*||29.1%||15.5%|
|Novartis (NOV)||Oct 17, 2011||$58.5||$60.62||$2.48||7.8%||14%|
|Transocean (RIG)||Oct 24, 2011||$54.56||$46.29||$1.58||-12.2%||11%|
|Teva (TEVA)||Oct 28, 2011||$37||$39.71||$0.77||9.2%||10%|
|Autoneum (AUTN)||Oct 29, 2011||SFR 60||SFR 40.7||-||-32%||10%|
|Medtronic (MDT)||Nov 02, 2011||$33||$43.27||$0.99||34%||10%|
|BDX||Nov 04, 2011||$73||$77.73||$1.8||9%||10%|
|Skechers (SKX)||Nov 23, 2011||$12||$18.91||-||57.5%||20%|
|ITW||Dec 13, 2011||$41||$60.62||$1.46||51.4%||16.5%|
* Actually Roche paid SFR 6.8 but 35% withholding tax applies in Switzerland. You might have to subtract witholding from ABB, NVS and all the others depending on where you live.
** Price that is mentioned in the article. Sometimes there is none, in which case I use the price on the day the article was published.
Eight of my 11 picks have a positive return. The average return of the portfolio is a respectable 15%. Meanwhile, the S&P has also returned 15% (i.e. the average of the returns in the last column).
So far, you would have been better served by just investing in the S&P and sitting on your bum and not worrying about the market. This is quite a sad realization for me.
It is to be noted that the S&P was punished quite a bit in the months I started. It traded around $11.30, which is the lowest it had been in the last few years. At the moment, it trades within 5% of its five year high.
I would like to say a few words about the stocks in my portfolio which have a negative return.
Transocean is still feeling the after effects of the BP oil spill. It also got embroiled with the Chevron (CVX) spill in Brazil. It got out of its shallow drilling business and wrote off some $878 million as impairment loss. On the positive side, its utilization rate for floaters is 81% which is the highest it has been after the Macondo spill. Also, it is getting a lot of new business. It was just awarded a 10-year construction contract from Shell, which is worth $7.6 billion worth in revenue. There was also a $8.3 billion increase in its backlog in the last quarter.
Metal, mining and related stocks are suffering. Look at Rio Tinto (RIO), BHP (BHP), Caterpillar (CAT), Coal stocks, Alcoa (AA) etc. The fear of hard landing of Chinese economy and the world economy playing with the recession has been enough to drive these stocks to low valuations. In a related development David Einhorn is short mining stocks and in his presentation he mentions ArcelorMittal (MT) as one of the stocks he is short in. I on the other hand am sticking with my pick. I concur that Einhorn may be right in the short term but the economy will recover at some point. Being one of the largest Iron & Steel companies with vertically integrated operations, I have tall expectations from MT. If one looks at the fundamentals it will be hard not to be convinced that it is cheap. Given its global footprint and cheap valuations I am willing to hold as long as it takes.
This was a spinoff from a well respected Swiss firm Rieter Holdings. Autoneum is progressing well and was profitable in the first year of its operations. As a part of Rieter in 2010, it had a net margin of -41.3% (it is 2.3% now). Following is a snapshot of its performance.
With SFR $1.7 billion in sales and $188 million market cap, it has a P/S ratio of 0.11. Compare this to Delphi (DLPH), which sells for a P/S of 0.7 and Johnsons Control (JCI) which sells for 0.4.
The only problem I had with Autoneum was its capital structure, which is 70% liability and 30% equity. For a new spin-off I deem this to be on the high side. With the European economy teetering on recession, I don’t feel too comfortable with this situation. This has not changed and the management does not seem to mind it. There has been no discussion in the report about reducing the debt levels. To be completely fair the LT debt is SFR $142 million and the equity is SFR $293 million. With SFR $41 million in cash and nearly SFR $30 million in operating cash flow, this is manageable. The interest expense for the HY12 was SFR $12 million and as the company has turned profitable, it does not face immediate challenges. But I don't see a very good margin of safety here, in terms of surviving a recession.