Tips from Sydney Trading and Investment Expo 2012

Investor Centre was one of the exhibitors at the Sydney Trading and Investment Expo 2012. One of their presentation pointed out several key strategies. The one listed here is based on the fact there are several time period in the year where the Index price moved in a consistent direction. The tips below is also aimed to be used with Indices, which has no individual company risk.

Easter - Sell then buy shares. Oil opposite. This is affected by the holiday weekends and more shares are sold before people go for holidays.

End of June 30 - buy then sell. At the end of the financial year, people are selling less. Hence there is pressure on the buy side.

RBA Tuesday - sell then buy. Every Tuesday of the month, the RBA makes a decision about interest rate and released at 2:30pm. The fear of the unknown sentiment before this time causes selling of stocks. This is usually followed by a rebound soon after the announcement no matter what the interest rate is.

Dividend Sept - buy then sell. Company dividend period. Many buyers, including big overseas players may buy stock just for the dividends.

Tip - NUF, JHX

Market has been a bit uncertain lately, both the US and Australian. In general, the overall trend is still down. But even in these conditions, there may be stocks which hold their ground and outperform the index. Here are two such stocks:

Nufarm - NUF   and James Hardie (JHX)

Without going into details, their fundamentals look quite reasonable - you can always check their annual reports. Their technicals are shown below, and they seem fairly resilient. Something to watch for over the coming weeks.

Nufarm - NUF

James Hardie JHX

News - Facebook (IPO) Bandwagon

On Friday 18 May, Facebook will launch of its initial public offering (IPO) on the NASDAQ Stock Exchange, with symbol -FB.  It will float 337 million shares with pre IPO price of US$38.

For Australians, FB's CDFs can be traded via CMC Markets.

There are mixed opinions on the valuation of FB. Here are a few number facts about FB, according to its IPO Prospectus:
- most widely used social networking site on the internet
- more than 845 million members
- approximately 483 million of these log into Facebook every day.
- annual revenue in 2011 was US$3.7 billion
- operating income of US$1.8 billion.
- profit in 2011 was US$1 billion.
- price for whole company, assuming IPO price, is over $104 biliion
- A simple P/E using IPO_price / Profit is roughly 100:1      - implying that the profitably can increase so much more in future. Do you believe that?

As a comparison with other high-flying, media grabbing IPOs, here are some stats about the opening price.

             IPO          Close    Close/IPO
 Google     $85.00 $100.33     18%
 Baidu     $27.00 $122.50     354%
 Groupon      $20.00 $26.11     354%
 Linkedin      $45.00 $94.25     109%

Market Sectors - Australian

The sharemarket is made up of many different types of companies. The companies are often group together so they can be compared with their peers to assess their relative performance. The study and analysis of relative performance itself is one powerful strategy for investing.

This post will list the Australian market SECTORS which are in line with the international standard MSCI Barra / Standard and Poor's Global Industry Classification Standard (GICS). The hierarchy under sectors are:
Sector - Industry Groups (24) - Industries (68) - Sub Industries (154).

The Australian sectors are:

1.  Metals and Mining
2.  Energy
3.  Materials
4.  Industrials
5.  Consumer Discretionary
6.  Consumer Staples
7.  Healthcare
8.  Financials
9.  Information Technology
10.  Telecommunications
11.  Utilities

Analysis - RED - Red 5

A previous post "Valuation of Gold Mining Companies" (http://ozstock.blogspot.com.au/2012/05/valuation-of-gold-mining-companies.html) had proposed a way to measure gold mining companies. This post will apply that valuation technique to a gold mining company as an example. That company is called Red 5 (ASX: RED).

1. Mine life. RED is estimated to have a mine life of more than 10 years.
Rating = 2.0

2. Reserves. RED is estimated to have gold reserves of 850,000 ounces.
Rating = 0.85

3. Time to Production. RED is actually expected to produce its first lot of gold in 2012 of 18,000 ounces. In 2013, it is expected to produce 75,000 and increasing thereafter.
Rating = 0.75

4. Cash Generation. Although RED is scheduled for production this year and cashflow will be incoming, it is still not cashflow positive at this moment. Hence the rating will be more conservative here.
Rating = 0.0

The Master rating will be the average of the 4 ratings and if it is above 1.0, it should be deemed favourable.

The Master rating is (2.0 + 0.85 + 0.75 + 0.0)/4
                     = 3.6 / 4
    = 0.9

With a Master rating of 0.9, it is very close to the point of being favourable, 1.0. Rather than buying into RED now, the rating suggest this is a company with very good potential and may be a good buying opportunity in the near future. Something to keep an eye on.

Valuation of Gold Mining Companies

How do we value gold or other precious metals mining company? Their metrics or financial ratios must be different to the average industrial company (http://ozstock.blogspot.com.au/2008/11/fundamental-analysis-ratios-formula.html), simply because of the different nature of the mining business. A mining business may have a fixed term life, may not be profitable now, but may have high potential for profitability and growth. In this sense, it may have something in common with the strategy for biotech valuation (http://ozstock.blogspot.com.au/2007/01/biotech-valuation-indices.html).

The aim of this post is to present a quantitative way of valuing mining stocks, in particular, gold mining companies. This strategy may be modified a little to tailor to other metals mining companies.

Briefly, each of the criteria to assess are:
1. Long mine life.
2. Amount of gold (or other metals) in reserve
3. Time to production, if not producing already.
4. Cash generation ability

Each of this criterion is described in detail, and a number scale for each criterion is explained.

1. Long mine life. Scale 0.0 - 2.0
The company should have a long mine life in order have a good opportunity for growth of the original investment. A mine life of at least 5 years is considered to be good. Hence the Scale should be assigned as follows:
0.0 = 0 year mine life
1.0 = 5 year mine life
2.0 = 10 year or more mine life.
Anything above 1.0 is good.

2. Amount of gold (or other metals) in reserve. Scale 0.0 - 2.0
In order for the gold mining company to become a big producer, we would expect the gold reserves to be at least 1 million ounces. Hence the Scale should be assigned as follows:
0.0 = 0 ounces of gold reserve
1.0 = 1 million ounces of gold reserve
2.0 = 2 million ounces or more of gold reserve
Anything above 1.0 is good.

3. Time to production, if not producing already. Scale 0.0 - 2.0
Another big question is whether the gold miner is close to production or not. Obviously the closer it is to production, the higher the share price. However there is also high risk for explorers who are far away from production. A company closer to production means it is closer to being able to generate cash flow and not relying purely on finance. Therefore this indicator can assist in factoring in the risk. Hence the Scale should be assigned as follows:
0.0 = 1 year or more before production.
1.0 = Production has been started just now.
2.0 = Already producing gold for 1 year or more now.
Anything above 1.0 is good.

4. Cash generation ability. Scale 0.0 - 2.0
Gold miners able to generate cash gives confidence to investors. In addition to generating cash, if the cash flow is positive, it further increases confidence of the company. We consider having 1 year of positive cash flow as favourable. Two years of higher is fantastic. Hence the Scale should be assigned as follows:
0.0 = Has not been cashflow positive yet
1.0 = Cash flow positive for 1 year now.
2.0 = Cash flow positive for 2 years or more  now.
Anything above 1.0 is good.

Master rating. Scale 0.0 - 2.0
To summarize the system, each for criteria, Mine lives, Large gold reserves, Time to Production and Cashflow Positive; have been given a rating from 0.0 to 2.0, where the midpoint is the point of becoming favourable. Once each rating is given, a Master rating can be determined as the average of these ratings.

Top Stocks from Lincoln and V.Vest 2Feb12

Lincoln Top 10 stocks published in the Money Magazine, March 2012 issue, are:
Silver Lake (SLR)
Miclyn Express (MIO)
Monadelphous Group (MND)
Consolidated Media (CMJ)
Credit Corp Group (CCP)
Tax Free Solutions (TOX)
REA Group (REA)
McMillan Shakespeare (MMS)
Forge Group (FGE)
Ausdrill (ASL)

The Lincoln stocks above were ranked as at 2 Feb 2012

The stocks below are obtained on the same date at 2 Feb 2012 using the Vector Vest system. Two systems using quite different technical metrics to come up with a list of top 10 stocks at the same date. We would expect the list to be different since there are almost 1700 stocks analysed. But there are 2 stocks appearing on both lists. They are:

Silver Lake (SLR)
Credit Corp Group (CCP)

Fast forward to today, and looking at a list of Top 20 stocks on 23 March 2012 according to Vector Vest, the stocks that are also in Lincoln's list are:

Credit Corp Group (CCP)
McMillan Shakespeare (MMS)
Ausdrill (ASL)

So the stand out consensus is CCP. Although SLR has been quite strong in the past few months, recently its trend is down. Both MMS and ASL appear to be consistently strong over the last few months.

https://www.google.com/fusiontables/DataSource?docid=1KBV9PNnuL1jVn90_Mnnrn-H8b4jK71szm2pAdZQ&pli=1

https://www.google.com/fusiontables/DataSource?snapid=S4385359yN6