Wednesday, February 28, 2007


Ooof that was nasty. Thankfully you don't get many days on the stockmarket like Tuesday the 27th February 2007. My growth portfolio was down almost 4% and every stock in my portfolios and wish lists was down. The normally solid FTSE 100 was down over 2% and the S&P500 was down an incredible 3.5%!

On a day like yesterday being diversified didn't help as everything was down. Of course those with a significant proportion of their portfolios in cash were smiling sagely.

It is frustrating to see gains earned over weeks and months wiped out in a day but the stockmarket is a fickle beast. Yesterday's correction was not the worst drop in recent history and certainly will not be the last. I guess the lesson is not to have any money you are going to need in the next few years in the stockmarket. The other lesson is that the market is stronger that individual growth stories. What I mean that is that nice stocks like eBay and Gilead Sciences were hit as much as anything else. The market is like an incoming tide knocking over any sandcastles on the beach.

The final lesson is that it is nice to have some cash sometimes. After selling Tesco I felt that there were some optimistic valuations around and didn't rush to reinvest the proceeds. How being 15% in cash helped yesterday! Now when I do invest it in a few weeks (probably in British Land) I will get a much nicer price. Short term weaknesses are the friends of the patient investor.

Saturday, February 24, 2007

Find the right REIT

Well it looks like Tesco is not going to come back to my target entry price of 400p any time soon so I need to invest the proceeds of my sale somewhere else.

HBOS looks solid but that would leave me with too much exposure to the banking sector (35%.) Aberdeen Asset Management looked nice but I wasn't sure how well it would do in a recession.

Recently the government has brought in Real Estate Investment Trust legislation which allows property companies to operate on a tax free basis as long as they return at least 95% of their income to the shareholders. Buying into a REIT would be a good way of diversifying my mortgage portfolio and the share price performance of a couple over the last five years certainly looks impressive:

That was British Land in blue against Land Securities. British Land certainly has an edge there.

Fundamentals? The market cap. is about £7.5 Billion, the 2007 PE is 30 and the yield is about 2%. The EPS growth rate is about 13%. The PE looks high but this is always the cause with real estate companies which are valued close to their net asset value. In the case of BLND the NAV is about 1610 pence per share so the current share price of 1470 represents a significant discount.

Chairman Chris Gibson-Smith says "The business continues to make good progress and is well positioned for the future.” A suitably bland but comforting statement!

So why buy BLND? It offers diversification, a quarterly rising dividend and solid long term prospects.

The recent market correction has taken 15% off the share price so now may be a good time to buy. My Sharebuilder account will be buying in for me in a day or two so my money is where my mouth is!

Friday, February 16, 2007

Growth in Aberdeen

Am I dreaming or have I discovered a UK growth stock?

The company in question is Aberdeen Asset Management (ADN). ADN does what it says on the tin - it manages equity, bond and property assets, mainly for pension funds.

Here are the basics: Market Cap. of £1.3 billion, 2007 PE of 18 and 2007 growth of 26%. So a mid cap. with a healthy PEG. As a bonus there is a healthy yield of almost 3%.

ADN is a truly global company with offices in Europe, the USA and Asia. Its policy is to locate fund managers in the same regions as the markets they manage, which make sense.

Chairman Charles Irby summarises the outlook for the future with the nice but bland statement: "With the economic climate seemingly set fair,we look forward to the future with confidence."

It is hard to read the latest annual report without feeling sleepy - financial management is hardly exciting unless it is your own finances and it feels a bit incestuous to invest in an investment company.

Nevertheless ADN seems well managed and if they can continue to grow at around 20% there will certainly be more share price growth.

I am still looking for a suitable candidate to invest the proceeds of my Tesco sale in. ADN may be the one - if I can stay awake long enough!

Saturday, February 10, 2007

Got some Gilead

Phase 2 of my rotation into biotech. is complete. I sold Qualcomm at breakeven and bought some Gilead (GILD) at $72. I now just need to get a good exit price for Google and then I can buy into Genentech and Amgen.

It would be great if I could invest in some large British biotech. companies but there do not seem to be any! There are the two pharmaceutical giants - GlaxoSmithKline and AstraZeneca but these are not growth stocks. Then there is Shire which I guess does qualify as a Biotech but its price is inflated because of bid speculation. Growth is only in the low teens anyway.

The are also some small pre-sales biotechs like Alizyme but I am not a fan of these sorts of companies. They are almost impossible to value and the share count is constantly diluted as they seek further funding.

So that leaves the American options. Which means I have to be exposed to the US Dollar. But even when UK interest rates were up at 14% the dollar did not weaken below 2.2 dollars to the pound so on a historical basis it should not get much weaker. I am willing to risk it based on the fantastic fundamentals of the likes of DNA, GILD and GENZ.

Saturday, February 03, 2007

Gilead good to go

I just keep finding large US biotechs which offer a great risk-reward ratio. I have already bought some Genzyme and am waiting for an opportune moment to buy some Genentech. Next up is Gilead (GILD).

GILD was founded in 1987 and is headquartered in Foster City in California. It focuses on anti-virus products, in particular HIV but also hepatitis B. GILD also has Tamiflu which targets bird flu.

The market cap. is $30 Billion, the growth rate is over 30% and the 2007 PE is 22.

GILD has just paid $2.5 Billion for Myogen, whose main drug, ambrisentan, is awaiting FDA approval. Any additional revenues from ambrisentan are not factored in to the 2007 forecast.

Approval of ambrisentan could occur as soon as this month and a jump in the share price should be expected if the FDA accept it.

One worry is that R&D spending is only 13% of revenues at the moment. I like to see biotechs spends more on R&D than that and the GILD executives do mention in the latest conference call that they are seeking to address the imbalance.

This is a very short summary of GILD but my time is up.

I have only recently discovered biotechs but I think they offer a better risk-reward compared to some of my technology holdings. For example Qualcomm is on a similar 2007 PE to GILD but is growing slower and is battling serious competitive risks at the moment. Technology stocks will be hit by a recession whereas biotech stocks should not.

I play to rework my growth portfolio significantly, selling Qualcomm and possibly Google and buying Genentech, Gilead and possibly Amgen. Then I will be well placed to exploit any re-rating of big biotechs in 2007.

Happy hunting.

Every surge helps

I am not a trader but there is a type of trade I am happy to make. The is when a holding that is already very profitable makes an unmerited surge. Then I will sell in the hope of getting back in a few weeks later at a cheaper price.

This is what I did yesterday with Tesco. The shares jumped 5% after news of bid talk about their arch rival Sainsburys. This took the share price up to 440p which is a 2007 PE of 18. That is rich for a company that is growing at 12%.

So I hit the sell button. Of course there is no guarantee that Tesco will ever fall enough for me to buy back in but every company has its price.