Eureka Correspondence

Santos, investing in Japan and Dick Smith.

Santos

Can you do an article on Santos (STO)? Share price has gone through the floor but I can't seem to find out much about the reasons or its true/future value.

Geoff

Editor’s response: Thanks for your letter. You might be interested in Tim Treadgold's recent article about oil stocks including Santos, Woodside and Oil Search: Why are oil stocks not dropping? (July 22). He comments in the piece: "Woodside and Oil Search are protected from the full effect of what’s happening on the oil market because most of their revenue comes from the sale of liquefied natural gas (LNG) under long-term contracts. That’s why Woodside shares have slipped modestly from $35.61 on June 19 to $34.60 and Oil Search is down from $7.43 to $7.21. Santos, however, is more exposed to the oil price which is why it has fallen further, down 13 per cent from $8.35 to $7.45."

Investing in Japan

I have been following, with great interest, your articles on offshore investment opportunities.  I am wondering what, if any, opportunities the Eureka team see in the Japanese Market?

Does the Eureka team believe there is any value to be found in the land of the rising sun? If so, what is the best way to play it? Any individual stock picks or ETFs would be greatly appreciated.

Peter

Editor’s response: Thanks for your letter. Clay does indeed have one individual stock pick listed in Japan: robotics company Fanuc. He's written about it here: Cashed-up Fanuc (February 23) and here: Global equities scorecard: A table thumping oil 'buy' (August 10).

A complete list of our international stock recommendations is available here.

Dick Smith

Does anyone know why Dick Smith shares have fallen?

Ken

James Samson’s response: Thanks for your letter. Essentially, the share price has fallen following the company's FY15 report in August, and kept going since. I believe that the market was concerned that the company's organic growth was flat, and that aside from the store roll out led growth the business was stagnant. Additionally, the result showed weak cash flow, which can attract short sellers, as it is a sign of vulnerability.

That said, we are confident of a few things. Firstly, the cash flow number was a timing issue caused by the early purchase of inventory to avoid being hurt by a lower AUD. Secondly, I believe that the market is speculating on poor consumer sentiment, and a difficult consumer electronics market, which at this point is probably overdone. Finally, I believe that there is some short selling in DSH which has pushed the share price to an abnormally low position. Given the fundamentals of the business remains attractive, and the company is expected to continue to pay a decent dividends, we believe this is likely temporary. 

I realise that this may come as little solace, as the market price falls. But i would encourage you to consider DSH as one part of a well diversified portfolio. IT will likely provide a strong yield in coming years, and even has the potential for share price recovery... however, as is always the case with these type of investments it may take some time for sentiment to properly shift.

We will continue to closely monitor DSH and provide any updates where necessary.