What have we been buying?
At Intelligent Investor, we like to eat our own cooking. As you can see from the Staff Portfolio on our website, between us we've got interests in many of the stocks that are or have been on our Buy list.
What's more, we have a blanket rule that (other than in exceptional circumstances) we can't trade in the opposite direction to a Buy or a Sell recommendation. So if you're feeling the pain on a stock, then it's quite likely that we're right there with you; and (preferably) we're quite likely right there wondering when to take profits when an opportunity has come good.
But of course we all search far and wide for ideas and some are too small or too speculative to recommend to members. Some of us also invest overseas. We also all apply our research differently. So we thought it would be interesting to ask each of our analysts to explain their most recent trading activity and reveal the top candidate(s) for their next purchase.
Analyst | Recent Buys | Recent Sells | On the Radar |
---|---|---|---|
Nathan Bell | JGWPT Holdings (US) | Computershare (CPU) | ResMed (RMD), Acrux (ACR) |
Greg Hoffman | Fleetwood (FWD) | eBet (EBT) | Gold producers, mining services |
Graham Witcomb | Zicom Group (ZGL) | Acrux (ACR) | |
James Carlisle | SMS Mgmt & Tech (SMX), DWS (DWS), Trade Me (TME) | iCarAsia (ICQ) | Acrux (ACR) |
Gaurav Sodhi | Noni B (NBL) | Spark Infrastructure (SKI) | Vision Eye Institute (VEI), Fleetwood (FWD) |
Nathan Bell
I bought a 3% position in US-listed company JGWPT Holdings after reading Kerrisdale Capital’s analysis of the stock in February. Kerrisdale founder Sahm Adrangi also talked about the company in our interview in April. JGW floated late last year at $14 and rose above $17 after Kerrisdale published its analysis. The company enables people to convert part of their annuity into a lump sum chiefly to meet their mortgage repayments provided a judge agrees that it’s in their best interest.
JGWPT isn’t suitable for widows and orphans. It’s extremely complicated, it needs constant access to financial markets for funding (it was forced into an organised bankruptcy in 2009 after securitisation markets froze) and the company is controlled by private equity owners via special voting rights and a poison pill in the form of a right to issue a massive quantity of new shares to avoid being taken over.
I’m a shareholder because the company owns two dominant and well-known brands and the payments it securitises barely suffer defaults because they’re received from reputable insurers. It also looks very cheap. Following an awful result recently the company’s stock price fell to around $10 and I added another 1%.
I recently sold my small Computershare holding as annual total returns from here are likely to be closer to 10% than 20%, in contrast to when I bought it at $7 in 2011. It’s still a wonderful business and a key holding in our model portfolios, but I would favour higher risk stocks ResMed and Acrux (see Graham’s analysis below) if I were investing new money today.
Greg Hoffman
Following Gaurav’s recent research, I purchased some Fleetwood shares. I don’t feel it’s as speculative as other mining services stocks for a few reasons. Firstly, it’s been around for a long time. That’s no guarantee of continued longevity but it’s better than some of the mining services businesses that have floated in the past eight years or so.
Secondly, it has now finished the hefty capital expenditure associated with building the Osprey village in Port Hedland. This project should start producing plenty of cash flow now, so I expect Fleetwood’s 31 December net debt balance of $45m to reduce sharply over the next couple of years. If it also got an uptick in its caravan business at the same time, then the stock could easily double.
In terms of selling, I’ve been reducing holdings in more speculative stocks that are in vogue. eBet, which I highlighted in Standout Small Stocks For Your Portfolio last December, has risen strongly as investors applaud its move into Queensland and now Victoria. The story remains on track and my sales have been for portfolio management purposes.
In terms of what’s on my radar to buy, the gold producers and mining services stocks are the main areas attracting my attention. There may be more pain ahead but this seems like a good time to start accumulating them with a view to buying more if prices move even lower. Some may not make it out the other side of this downturn but hopefully the gains from those that do will more than compensate for the risk.
Note: Gold stocks currently on our buy list include Kingsrose Mining, Silver Lake Resources, Northern Star Resources and Beadell Resources. Also note that as a freelance contributor, Greg Hoffman's holdings don't appear in our Staff Portfolio.
Graham Witcomb
I haven’t bought an Australian stock in more than a year but, price permitting, will soon buy Acrux. I normally steer clear of stocks offering such large potential downside but Acrux could be a multi-bagger.
As I explained in Ignore the FDA and buy Acrux on 13 Jun 14 (Speculative Buy – $0.80), the stock has been crushed due to a US Food and Drug Administration (FDA) investigation into the risks of testosterone treatments. It’s not specifically aimed at Acrux, but as the company's earnings are entirely related to a royalty stream from its Axiron testosterone product an unfavourable ruling could KO the business.
Acrux is not a lottery ticket like many biotech companies. It’s profitable, pays attractive (albeit lumpy) dividends and the company is currently valued at less than it was prior to receiving approval for Axiron back in November 2010. Axiron is one of the safest forms of Testosterone Replacement Therapy and it has a 14% market share in a market that could grow for decades to come. Outside the US the market has barely been scratched. I expect the FDA will demand new labelling to increase awareness of the risks of testosterone treatments rather than completely ban the product, just like it did with Viagra.
Recently I sold Zicom Group, which manufactures deck machinery such as anchors and winches for the shipping industry. Originally I liked that its enormous cash balance was artificially depressing its return on equity, making the business look much less profitable than it really was. It also helped protect the business from a cyclical downturn.
The operating business seemed well positioned to take advantage of the rebound in the shipbuilding industry given its history of strong profitability before the global financial crisis. I watched the shipbuilding industry data like a hawk, and as it improved quarter by quarter I grew more confident that the investment case would play out.
To my surprise the company released a profit downgrade in January showing its inventory wasn’t moving. Profit downgrades aren’t necessarily an issue but management blamed it on poor industry conditions which I knew to be false. Management was already enriching itself with high salaries and plenty of options, so the hollow attempt at misdirection was the final straw. The stock still looks cheap on most measures but shareholders may not benefit.
James Carlisle
My most recent flurry of activity was last month, when I bought DWS and SMS Management & Technology a few days after we upgraded them in IT stocks under a cloud on 16 May 14. The reasons for buying are given in that article, so I won’t dwell on them here.
I also took the opportunity to buy Trade Me, whose price has fallen 10% or so since we upgraded it to Buy in Trade Me: Interim result 2014 and upgrade on 19 Feb 14 (Buy – $3.54). The weakness has to do with the battle with NZ estate agents (see Trade Me price guide reduced on 23 May 14 (Buy – $3.28)), but I’m confident that sense will ultimately prevail.
The purchases were funded in part by the sale of half my holding in iCarAsia, which (sadly but quite understandably) was considered too small and speculative for our main publication, so I mentioned it on our Doddsville blog in Wild punt – or a careful speculation on 10 April 2013. Anyway, it’s one thing having a small flutter on a stock like this, but if they do well they can soon become a large gamble – and at a more demanding valuation – so the prudent course is to take some money of the table. I’ll probably regret it – but fear of regret is not a smart basis for investing.
Next up on my buy list is likely to be Acrux, a terrific recent find of Graham's, but I don’t want to increase my overall equity exposure at the moment so I’ll need to find something to sell first.
That’ll probably be some or all of Computershare and/or Servcorp, which have both had decent runs over the past year or so. I’m still very happy with both stocks, but I prefer Acrux at current prices and (other than iCarAsia) they’re the only stocks in my portfolio that we don’t have Buy recommendations on and which are therefore available to me to sell.
Gaurav Sodhi
The last stock I bought was women’s fashion retailer Noni B after its share price dropped around 20%. Like most discretionary retailers Noni B is performing badly. Even the Kindl family – the founders and majority shareholders – are considering getting out.
I bought in below 40 cents when the company’s cash pile was larger than its market value. You have to be very careful with retailers as store leases are quasi debt, but as some of Noni B’s leases are maturing and its rents are higher than some of its peers it may be able to close some stores or renegotiate lower rents.
The company may never be a raging success but there are plenty of potential buyers sniffing around. They know that at about 10% of sales Noni B is priced for a dire outcome, and with $100m in annual revenue a small increase in margins could make a huge difference. There's also a 10% discount in shops for shareholders [I think this is your colour Gaurav – Ed].
Turning to my latest sell, for a long time my largest holding was Spark Infrastructure. But as we noted in Storm brews for Spark Infrastructure on 27 Aug 13 (Hold – $1.60) it's facing headwinds. I sold my entire holding not because I'm particularly pessimistic but because the best gains have already been made and there are cheaper alternatives, such as Vision Eye Institute which I’m watching closely. As Graham has explained in previous reviews, the company is cheap on a free cash flow basis, debt is falling and the worst seems to be behind it. Fleetwood is the other one I'm close to pulling the trigger on.