Tuesday, November 28, 2006

Banking on Chinese Stocks

Chinese stocks have significantly outperformed the US markets this year. That trend looks to continue for the next several years. Many believe there is plenty of room for further growth. Citigroup along with several other investors recently paid $3.6 billion for an 86% stake in Guangdong Development Bank. According to, Citigroup paid 3 times book value for shares of Guangdong. The average price to book value for money center banks is 2.01 (Source: Reuters). The best way to invest in China is through the iShares ETF (FXI). PowerShares also has a China ETF (PGJ) but it is comprised mostly of Chinese ADR's. PowerShares' ETF only has financial exposure in China Life Insurance (LFC) (4.82% of holdings). If you want to own a piece of the Chinese banking sector you need to buy FXI not PGJ.

FTSE/Xinhua China 25 Index Fund (FXI)
Expense Ratio 0.74%
Beta 1.6

Holdings as of 11/24/06 (Source: iShares)
9.27% China Mobile Hong Kong, Ltd.
9.05% PetroChina Co., Ltd.-Class H
8.44% Industrial & Commercial Bank of China-Class H
China Life Insurance Co., Ltd.-Class H
6.23% Bank of China, Ltd.
4.33% China Telecom Corp., Ltd.-Class H
4.22% China Construction Bank-Class H, 144A
4.16% Bank of Communications Co., Ltd.-Class H
4.10% China Petroleum & Chemical Corp.-Class H
4.06% China Shenhua Energy Co., Ltd.-Class H

Sunday, November 26, 2006

Watch Silver, Apple (AAPL), and Retail

I will be focusing on Nymex spot silver prices as they approach important technical levels. I would like to see silver break $14 an ounce. Look for continued weakness in the US dollar to drive metal prices higher. (Note: I am long Silver Wheaton SLW)

Apple (AAPL) continues to be on a terror. This Christmas season looks to be another record quarter for Apple. Apple is not just an iPod story. I am looking at the January $100 calls for $2.75.

Hopefully we can get some good retail sales numbers. I especially want to see JC Penny (JCP) and Kohls (KSS) post good numbers. Kohls' stock has shown some weakness of late.

Veolia Environment (NYSE: VE)

Many people have mentioned that the next commodity boom will be for water not oil. There are a limited number of ways to play the "water rush." PowerShares has a Water Resources ETF (PHO) , but not all of the companies in the fund own water resources. The best way to play the growing demand for fresh water is through Veolia Environment (VE). Veolia is a European water utility. When comparing Veolia with Aqua America using P/E ratio analysis, Veolia is undervalued.

Aqua America (WTR) 2007 P/E = 29
Veolia 2007E EPS ($3.80) * 29 = $110 (62% Upside)

The 2007 multiple used for Veolia could be more conservative and there is still a healthy amount of room for price appreciation.

Note: As of 11/26/06 I have no position in Veolia Environment

Sunday, November 19, 2006

Nymex Holdings (NMX)

On Friday I went long Nymex Holdings (NMX). I am using some leverage with this position. CBOT's (CBOT) stock traded higher on its second day of trading. Will Nymex follow? Nymex will be range bound between $120-$140 for the next couple of sessions. Over the long term, Nymex will benefit from exchange consolidation, higher contract fees, new product introductions, electronic trading agreement with the CME (Globex), and an increased public interest in trading commodities.

Note: I am long NMX

Friday, November 17, 2006

Speculating On Takeovers and Buyouts

Private equity has been in full force of late. There has been plenty of mergers and LBO's. I have compiled a list of deals that have been rumored in the media. One way to play these possible takeovers is to go long distant call options. This involves a significant amount of risk, but provides limited downside to your initial investment in the call option premium. I do not know when any of the speculated deals will go through. In many cases the deals might never materialize. If you decide to speculate on takeover candidates with options, remember that options have a declining time value built into the premium.

Possible Deals

Federated Department Stores (FD)- Carl Ichan has expressed some interest.

Harrah's Entertainment (HET)- casino operator already received a potential bid around $83 per share. Bid could be raised.

International Securities Exchange (ISE)- electronic exchange for equity options. Could merge with Nasdaq (NDAQ) or NYSE Group (NYX).

SBAC Communications (SBAC)- cell phone tower operator. Competitor Crown Castle (CCI) recently purchased Global Signal (GSL).

The Tribune Company (TRB)- could go private or sell off its assets. Owner of the Chicago Cubs, TV stations, and newspapers.

United Airlines (UAUA)-further consolidation in the airlines sector makes sense. Could also go private as restructuring has helped curb costs.

Note: I have no position in the above mentioned stocks.

Wednesday, November 15, 2006

NYMEX Holdings IPO Update (NYSE: NMX)

Nymex Holdings (NMX)

Now selling 6.5 million shares up from 6 million
New Price range of $54-57 up from $48-52
Will start trading Friday November 17, 2006 on the New York Stock Exchange.

How to get in?

Generally, you need to have an account with one of the lead underwriters. The two lead underwriters are JP Morgan Chase and Merrill Lynch. You can try calling JP Morgan or Merrill Lynch but it is unlikely that a "common investor" will be able to pick up any shares pre-IPO. "Hot" IPOs are generally reserved for the best customers.

Other Underwriters: Lehman Brothers, Bank of America Securities, Citigroup Global Markets, and Sandler O'Neill Partners.

Side note: KBR priced at the high end of the range ($17).

Tuesday, November 14, 2006

Russian Wireless

Emerging market wireless carriers have outperformed the overall markets. Some of the popular names include China Mobile (CHL), America Movil (AMX), and NII Holdings (NIHD).

It is time to look at two Russian wireless providers, Vimpel Communications (VIP) and Mobile Telesystems (MBT). Both stocks are up over 60% in the past year. I still believe there is more room to run for both MBT and VIP. Average Revenue Per User (ARPU) has started to climb after two years of declining ARPU. Vimpel and Mobile Telesystems both can trade at 10x 2007 EBITDA for 20+% annual growth.

10x 2007 EBITDA would value MBT at $85 (ING Bank EBITDA Estimate). 88% Upside
20x 2007 EPS would value MBT at $72.40. 60% Upside
20x 2007 EPS would value VIP at $93.80. 40% Upside

Monday, November 13, 2006


The New York Mercantile Exchange (NMX) will trade publicly on either Thursday November 16th or Friday November 17th. Again I will recommend purchasing shares in the NYMEX (NMX). There will continue to be consolidation with exchanges. I look at this IPO as free money if you can get some shares at the IPO price.

Shares Outstanding Following Offering: 79,924,800
Total Liabilities: $2,924,774,000
Total Assets: $3,087,826,000
2006 Net Income (6 Months Ended): $71,766,000

Average Revenue Per Contract
2006 (6 Months): $1.41
2005 (12 Months): $1.29
2004 (12 Months): $1.14
2003 (12 Months): $0.97

Sunday, November 12, 2006

Portfolio Holdings

2005 Return 10.5%
2006 YTD Return: 22.0%

I am considering adding some more international exposure to the portfolio. AllianceBernstein (AB) is in the asset management business and has considerable exposure to the global markets.

1. Silver Wheaton (SLW) 15%
2. Altria (MO) 12%
3. Cerner (CERN) 11%
4. AllianceBernstein LP (AB) 10%
5. Corrections Corp of America (CXW) 9%
6. Broadcom (BRCM) 9%
7. Chipotle Mexican Grill (CMG) 9%
8. Chesapeake Energy (CHK) 8%
9. Banco Bradesco (BBD) 8%
10. Citigroup (C) 6%
Other 3%

Recent Pick Performance

Performance Since Posted on October 23-25

GOL Airlines (GOL) Down 8%
Copa Holdings (CPA) Up 1.4%
Ryanair Holdings (RYAAY) Up 9.4%
Nasdaq Inc. (NDAQ) Up 2.3%
ISE (ISE) Down 1%
NYSE Group (NYX) Up 26%
CME (CME) Down 1.5%

Note: I have no position in the above stocks (11/12/06).

Thursday, November 09, 2006

Healthcare Looks Attractive

With the Democrats winning the house and senate, healthcare names have been hammered the past few sessions. It is time to buy Johnson & Johnson (JNJ), Merck (MRK), UnitedHealth (UNH), Humana (HUM), Gilead Sciences (GILD), Wyeth (WYE), and Novartis (NVS). The selling is overdone and a rally is imminent.

I continue to like the electronic medical record companies such as Cerner (CERN), Quality Systems (QSII), and Allscripts (MDRX).

Note: I am long CERN

Monday, November 06, 2006


On Friday I entered into a long position in AllianceBernstein Holding (AB). Today I closed my position in Etrade (ET) to reduce my margin exposure.

Thursday, November 02, 2006

"Bet" On Politics

You can now legally "bet" (invest) on politics with futures contracts. The University of Iowa allows you to deposit between $5 and $500 into an account. There are some restrictions. The futures contracts trade just like index futures. No commodity is delivered. For more information visit the Iowa Electronic Markets (IEM).

Current Quotes: Republicans Gain, Hold, or Lose
Symbol Bid Ask Last Low High Average
RH.gain06 0.028 0.043 0.030 0.028 0.047 0.041
RH.hold06 0.268 0.288 0.289 0.246 0.289 0.264
RH.lose06 0.701 0.725 0.703 0.703 0.730 0.720
More Graphs and Quotes