4WM - The Four Wise Monkeys | Blog

8th Podcast – Stephen

The biotechnology sector is pretty dynamic and very interesting for investors. Innovative and exciting, it’s also an expensive business to be in so there are plenty of barriers to entry for potential competitors. The sector offers defensiveness and yet volatility; growth and yet value. After all, an aging population together with growth in personal wealth across global emerging economies means increasing demand for years to come, while P/Es are at their lowest point in a decade. David has picked a biotech this week but I think that’s pretty difficult to do. There are some good funds in this area which are worth a look, but I’d be tempted to examine the investment trusts in this sector. Investment Trusts are pretty good at investing in companies such as these and have the benefit of trading at sizeable discounts to NAV at the moment – value on value.

posted at: 16:07 | path: | permanent link to this entry

7th Podcast – Paul

Some of the companies within the Powershares CleanTech investment have price earnings ratios that are astronomical, to pick this investment you have to have a belief that unlike all other bubbles this is the one that will succeed. Whilst it is easy to be sceptical looking at tulips, bowling and poker as a good example, 'green' has a political and economic that has not existed in any previous bubble and whilst the .com bubble had many causalities, the big boys all survived and our powerhouse businesses today. This fund tries to identify the powerhouse companies of 'green' investment.

posted at: 13:23 | path: | permanent link to this entry

7th Podcast – Stephen

So I’m feeling courageous and calling a short-term floor in the FTSE 100. There seems to be one at around 5100 and possibly one at 5300. What leads me to make this bold claim is that the news over the past week has been uniformly bad. Manufacturing is struggling and so is the service sector; the banks have reported huge falls in profits, other company results have been weak; house prices have fallen, economic indicators have disappointed… the list goes on. And yet markets have been relatively robust. This has something to do with the price of oil which has rallied markets in recent weeks but it is also because of the nature of markets: they are discounting mechanisms. This means that all of this bad news is priced in already. So, provided there are no shocks, unanticipated disasters (and I accept David’s ‘black swan’ pessimism) a short term target of 5700 is reasonable.

posted at: 16:49 | path: | permanent link to this entry

6th Podcast – Paul

Apologies for not making the recent filming. David came in with another property play with Hirco, which he also then tipped in the FT Money Supplement. Research on the boards suggests that the discount to NAV is not as great as David would suggest. The NAV excluding any unrealised profits in the investment companies would move the discount down. There is still a very substantial discount but I am not sure I am interested in the company.

Accsys, another growth play in a time people are looking for value. The timber product is already selling very well, it is a shame that the product is appearing at the wrong stage of the economic cycle, this is what would concern me the most combined with the high price. However, the company has not let down on its promises like many tech companies and as a result is being added to my holding again.

posted at: 11:33 | path: | permanent link to this entry

6th Podcast – Stephen

There are two stories that caught my eye this week: the mixed news coming out of the United States and profits (yes profits!) from British companies.

A huge budget deficit of some $500bn was announced at the same time as world trade talks collapsed, the housing market continued to falter and ongoing nervousness about financial services. But on the bright side, after 6 consecutive negative months, consumer confidence improved and Wall Street rallied on the back of oil weakness. The world of course is looking to the US for signs of recovery and the new President will have a very mixed bag of statistics on his desk when he takes over in the new year. Are we seeing America recover? It’s too early to say but investors will be pouring over these stories for some time to come.

Profits in British companies announced this week were again a mixed bag but amongst them there were some impressive numbers. Unsurprisingly, the energy companies did pretty well - Centrica posted a £1bn profit, Shell £4bn - Anglo American mining saw its profits up 27% to over £2bn. The banks have suffered as have the likes of BT and Unilever. But while profits fell substantially, we shouldn’t lose sight of the fact that they still made sizable profits. And here’s the point,I suppose, for investors we talk a lot about sentiment but profits are important and even in these pessimistic times British companies continue to post big profits.

posted at: 18:30 | path: | permanent link to this entry

5th Podcast – Stephen

It’s interesting that not only are there a number of new funds specialising in North Africa and the Middle East but existing emerging market funds have been moving capital into the region. We’re talking about countries such as Kuwait, Saudi, Morocco and Egypt. Egypt alone has returned more than 700% over 5 years; the more developed Saudi almost 200%. And what these economies have in common is relatively low inflation, economic de-regulation, oil and gas rich or commodities rich but with current account surpluses and are spending the cash on their own infrastructure. This means a growing middle class and increased economic growth. Also attractive is the low correlation with the European and US economic cycle. This is a sector that is not without risks – dependency on oil and political uncertainty in particular – but it will be attractive to many investors building globally diversified portfolios.

posted at: 16:27 | path: | permanent link to this entry

5th Podcast – Paul

EDI has just been tipped by Shares magazine as a possible takeover candidate, one candidate might be Kaplan who are private for-profit company growing fast in the United States owned by the Washington Post. Yesterday was VQ Day, and the vocational qualification market is showing good market growth as students consider alternatives to GCSE’s and A-Levels. This offers good growth potential, relatively protected at a low price.

Inland don’t seem to be as cash rich as I would have expected (though clearly it’s a strong balance sheet) and so in the cold sober light of the day I would have some concerns about this purchase. However it is pleasing to see director purchases, and a small investment might be warranted.

posted at: 16:10 | path: | permanent link to this entry

4th Podcast – Paul

British Banks have made a recovery since the show, in the case of Barclays almost 40% higher. This is currently not a sector that I am participating in, having shorted a few stocks on the way down I am now unsure of its future direction. In the case of Barclays the 250p looks attractive but with ‘e’ in p/e collapsing, the shares could go considerably lower. I would like to mass redundancies in the banks before I probably return to the sector. Further to this, I believe government action internationally is actually increasing the issues rather than my preferred approach of letting some of the banks go bust.

Spice, another growth selection. They are not cheap, so you may want to set a target price for purchase, but the company has a good track record to date.

posted at: 13:40 | path: | permanent link to this entry

3rd Podcast – Paul

ST41 is the doomsday scenario warrant, I don’t think it will be in the money at expiry and if it is, then 1% investment won’t really make enough of a difference (even if the return will be spectacular). Aviva is the best FTSE 100 stock, likely to continue to pay an above average dividend. If you buy slowly and regularly into this stock, I reckon the return over ten years will beat the market. The shares may fall as low as 300p, so proceed with care.

posted at: 15:42 | path: | permanent link to this entry

2nd Podcast – Paul

For awhile I have held reverse tracker warrants in my portfolio, SH32 is an excellent purchase, particular when the markets rally for 3-4 days. The market is likely to be under continued pressure and all investors would be wise to take advantage of this type of investment. However as the market falls, you should be reducing your exposure to shorts in my opinion. Whilst I am tipping buys like Park Group, you do need to make sure your portfolio is protected, otherwise wait for lower share prices.

Gold could take years and years to make profit (moving considerably upwards) and I don’t fear inflation or large scale oil prices at this time. The demand/supply balance of oil can be quickly corrected and growth figures will need to increase before we see rampant inflation.

posted at: 16:03 | path: | permanent link to this entry

2nd Podcast – Stephen

Gold! Always believe in your soul, you've got the power to know, you're indestructible.

Gold is also a 'flight to quality' asset class where the August future has just jumped 3.4%. It has promised many times in the past and rarely delivered the returns that many investors expected but given the global economic environment, a bit of exposure to this commodity would suit many portfolios.

Gold is an effective hedge against inflation and oil price rises - in fact it can protect against broad erosion in the value of money since the shiny stuff is an age old store of wealth. When the economy suffered from stagflation in the 70's, it was gold that enjoyed a decade long bull run. While things are not so bad today, the core reasons for inclusion in a portfolio are present. Gold should also benefit from slowing supply as sales from Central banks decline and increased demand as investors in emerging economies accumulate.

Investors are spoilt for choice when it comes to methods of accessing gold with ETFs, ETCs, structured products, covered warrants, funds and mining shares on offer.

posted at: 15:29 | path: | permanent link to this entry

2nd Podcast – David

SH32. Catchy title ? Don't those letters just roll around in your mouth like a juicey New World Red (wine that is). all the aroma of panicking markets, the slow onset of despondency and gloom. Investors bailing out.

Yep this is a covered warrant put that makes you a whole bundle of money if the FTSE 100 keeps on falling between now and December of this year.

If, and it could change any day, but if the FTSE 100 stays at around 5500 and then heads down 10% to just under 5000, this'll make a 90% return. If you'd have bought a few weeks back when the FTSE was closer to 6300, you'd have made double that, but beggars can't be choosers and I'd predict that the market will behave oddly on its way down past this barrier. I think there might be a small rally in the coming weeks and you may get a good chance to buy this covered warrant put at a better price but the overall pattern of trading is clear - the bulls are selling out and the bears are taking over. You could of course make alot more money on shorted dated options or spread betting but that's too short termist for me - markets are too volatile at the moment and I'd be terrified of being stop lossed if the markets move up a few per cent.

Its issuer SocGen have a huge range of covered warrants to suit just about every bear - even a commodity bear like myself - and you can test them all out at its web site at uk.warrants.com - Trading Tools on the left hand menu. I'm closely looking at a warrant - SV97 -that'll make an awful lot of money when the price of oil eventually turns and heads south. I'm not rushing to buy it as I think oil is still on its way up but economic gravity must eventually weight on oil prices as the global economy skids into a recession and I intend to be there to make a profit from OPEC's much deserved misfortune.

posted at: 11:43 | path: | permanent link to this entry

1st Podcast – Paul

Carnival may take years to provide a strong return, but all the long term fundamentals are right. The only issue would be overcapacity of cruise ships undermining margins, presuming this is kept in check then the company should make solid progress regardless of the short term impact of oil prices. Also my tip takes into account increased oil spend and the shares still look a Buy. Cruise oil spend is far below airlines, and no airline has a similar monopoly like Carnival has in the cruise market.

During the filming I suggested Infrastructure was so last year, but it continues to be trendy. It isn’t one of my preferred investments, though opportunities like the 3i warrants can offer decent higher risk returns.

posted at: 08:30 | path: | permanent link to this entry

1st Podcast – David

A few thoughts on the other 4MW picks. I sort of understand Carnival - I run lots of stock screens on the market looking for classic value stocks. With these stocks you;re after blue chips, great brand, solid cash flow and a long term growth story - Carnival ticks all those boxes. The only fly in the ointment is that dead as a parrot share price which has steamed south for as long as I can remember. But, and its a big but, oil will eventually turn and when it does Carnival will fly.

As for infrastructure I sort of agree with both Stephen - its interesting - and Paul - its boring. Some of the most interesting very long term growth stories are the most boring and I have in the past owned infrastructure stocks - HSBC Infrastructure and more recently 3i Infrastructure which I think is a superb global fund. But I have a worry - not that its boring but that its actually too trendy. Too many private equity outfits are chasing the same set of infrastructure assets bidding up prices, especially now all the other usual suspects on the investment scene have vanished.

As for my pick, well it really is boring. The name says it all perpetual preference shares that base their payout on a 1% premium above the london inter bank lending rate. How boring can you get ! But I have to say that I echo Clem Chambers recent comments in the Investors Chronicle that this bear market is only one third of the way in and we won;t see any real hope until the FTSE cruises past 5000 and possibly 4000. In these circumstances playing safe especially in a world supposedly threatened by stagflation seems wise in my book. The ticker is INVR if you can find a dealer who will let you buy it from the Channel Islands International Stock Exchange.

posted at: 16:40 | path: | permanent link to this entry

1st Podcast – Stephen

I know Paul thinks this a bit dull but I bought an Infrastructure fund in my SIPP at IPO 15 months ago and it's delivered a solid 20% return plus a nice little dividend. Infrastructure is an important asset class which is suitable for most portfolios. It's also inflation busting, something we should take into account given the Bank Governor's warnings and recent retail spending figures.

Infrastructure funds finance everything from roads to rail to public services and is a truly globally diversified sector encompassing not only Europe and North America but also the rapidly growing emerging economies of India and China. China alone is spending 10% of its GDP on infrastructure and it is estimated that over the next decade more than $20,000 billion will be spend on these projects worldwide - that sounds like a lot of cash to me.

There are simply far more projects than finance available leading to solid, durable and predictable returns combining capital and income. There are two drawbacks I should mention: firstly the nature of these funds means that there is often early underperformance since they raise funds and gradually spend the cash over a period. Secondly, as my own fund shows, prices have already risen but it has to be said from a relatively low base (sometimes discounted). This is an asset class with huge, global, sustainable demand over the longer-term which can help protect a portfolio against market weakness and the ravages of inflation.

posted at: 14:02 | path: | permanent link to this entry