Austock portfolio versus my model portfolio update (as at 31st Dec 2011)

So, five months are almost up since I started the challenge of a model portfolio I picked in five minutes versus Austock’s list of preferred stocks (at 6th July 2011). My model portfolio is comfortably beating Austock’s preferred stocks by more than 4%. Sadly, the model portfolio is lagging the ASX 200 Accumulation index by 1%.

Billabong International Limited (ASX:BBG) – Capital raising on the cards

Billabong released a trading update on Monday 19^th December, announcing a profit downgrade, an operational review and a strategic capital structure review. Billabong’s share price subsequently fell by 40%.

The company said that sales in Europe have been affected by “Sovereign debt issues and fears of a global recession, impacting consumer spending patterns significantly”. Europe is also being affected by bad weather due to limited snowfalls.

Sales in Australia have been significantly affected by unseasonably cold summer weather, despite the November rate cut by the RBA.

My first article for the Motley Fool

I recently started freelance writing for the Motley fool in Australia. My first article “ 5 safe haven stocks for 2012” can be seen here. I can certainly recommend having a look at the article and having a browse around the site. There’s definitely some very good articles on the site. I will still be adding articles to this blog, but my main focus will be articles for fool.com.au.

Spotless Group (ASX:SPT) – Arbitrage opportunity or trap?

Spotless Group Limited (ASX:SPT) received a takeover offer from Pacific Equity Partners Pty Ltd (PEP) for $2.50 per share on 9th May 2011. The Offer was revised to $2.68 on 30th November 2011. What is unusual is that SPT’s shares haven’t traded above $2.50. Buyer’s today could make 18 cents per share (8%) return by buying shares today and holding until the deal completes. The question is, what is the risk of the takeover not-proceeding?

Movie Review: Inside Job

Not what you really expected is it? A movie review on a site about value investing.

I accidentally started watching the “Inside Job” the other night and was glued to the screen for two hours until the finish. The movie is a 2010 documentary on the Global Financial Crisis (GFC), but focuses on the CEOs of Wall Street investment banks and the US regulators and their actions.

Austock portfolio versus my model portfolio update (as at 2nd Dec 2011)

Its been a while since I gave an update on the performance of my model portfolio versus a selection of stocks made by Austock. This is mainly due to me being exceptionally busy rather than not wanting to provide an update. In the last update on 28th Oct 2011, the model portfolio was lagging behind the ASX200 accumulation index by almost 3%, but still 2.4% ahead of the Austock portfolio. In the latest update – see picture above, my model portfolio is now leading the Austock portfolio by over 4%, and trailing the Accumulation Index by less than 1%. Performance is still not that good when you consider that my return since 6th July is  down 6.4%. I would’ve been better-off putting the cash in the bank. Having said that, the Austock portfolio is down more than 10% since July 2011.

A review of Skaffold.com – Yet another black box trading system

You may or may not be aware of Roger Montgomery’s site www.skaffold.com. It’s basically Roger’s ideas on rating and valuing ASX listed companies in a web application. You can think of it as a black box that indicates which companies are cheap/expensive and which are good/bad/average. And that’s the issue. There is no insight into how those ratings and values are arrived at. This is where Skaffold fails, and becomes yet another black box stock system.

Matrix Composites announces $61m in new orders

Matrix Composites & Engineering Ltd (ASX: MCE) announced on Thursday 17th November, that they had secured $61m in new contracts. They also announced that they had $105m in unfulfilled orders and have $560m in outstanding submissions.

This is the first announcement of new contracts since they reported 2011 full year results. Its been a while coming and Matrix had noted in August 2011 that orders had slowed for the whole industry.

In February 2011, Matrix announced that it had received $400m of new contracts in three months, since November 2010.  This announcement of $61m in contract wins should be put in that perspective. This should be the first of more announcements to come in the next two-three months, and while it’s a good sign, it should be considered as a baby step in the right direction, and not as a return to the levels of growth the company has sustained over the past year or two.

I’ll be watching with interest to see if Matrix announce more contract wins in the months ahead.

Austock portfolio versus my model portfolio update (as at 28 Oct 2011)

The Stock market volatility continues and the performance of both my model portfolio and the Austock portfolio also continue to lag behind the ASX 200 Accumulation index. As I’ve mentioned before, this is not a sprint, but a marathon, so performance over twelve months counts. Performance over four months means we are only a third of the way through our journey.

Does a low PE Ratio mean a stock is cheap?

The short answer is….’not necessarily’. There are many reasons why a stock might have a low PE ratio, including the following:-

• It has been overlooked by the market.
• Its share price has been marked down by the market because of real or imagined threats to its business in future.
• It has had abnormally high earnings in the last year.
• The market in general has fallen; so many stocks have low PE ratios.
• The sector as a whole may be suffering e.g. the retail sector in Australia at the moment e.g. David Jones Limited (ASX:DJS) is trading on a PE of 8.9x, Myer Holdings Limited (ASX:MYR) is trading on a PE of 8.2x.
• It’s a cyclical stock. Resources and Australian Bank stocks typically trade at lower PEs than the market as a whole e.g. BHP Billiton Limited (ASX: BHP) is currently trading on a PE of just over 9x and Westpac Banking Corporation (ASX: WBC) is trading on a PE of 8.7x.
• The company has gone through a de-merger or sold off some of its revenue producing assets, so the previous earnings bear no resemblance to its future earnings e.g. Tabcorp Limited (ASX: TAH) current PE is 3.37 based on earnings per share of 80.7 cents, however it recently split off its casinos business into Echo Entertainment Limited (ASX: EGP), so 2012 earnings won’t be as high as 80.7 cents.
• The company has issued a heap of new shares or had a rights issue. Generally this forces the price down, but earnings might still be based on the old number of shares.
• Property and Infrastructure trusts can have misleading earnings per share due to non-cash adjustments included in the income statement e.g. property revaluations.
• The stock may have gone ex-dividend, so price is pushed down, causing PE ratio to be artificially low.