Model portfolio versus Austock portfolio update as at 22nd Jul 2011

As at Friday 22nd July, the Austock portfolio has returned 0.92%,slightly ahead of my portfolio returning 0.87%. This turnaround from being behind by 1.1%, is mainly thanks to a takeover bid for Connect East (ASX:CEU), which saw CEU’s stock price rise by 20% from 45c to 55c. Despite this, the Austock portfolio is only managing to hold onto a very slim margin. Read more of this post


Austock portfolio versus my model portfolio

On 6th July, The Eureka Report published a report that included a list of stocks that Austock most preferred. Apparently this type of list is usually reserved for their top-tier clients. By top-tier, they usually mean those fund managers and super funds that pay them the most brokerage. However, anyone could come up with a similar list of stocks, and I’ve come up with my own list of stocks that I’m 99% certain will beat the stocks in the Austock list over the next 12 months. Read more of this post

AJ Lucas – It was only a matter of time

In a blog I wrote in Dec 2010, I discussed AJ Lucas (ASX: AJL) and how shareholders were being mistreated. On 23rd May 2011, AJ Lucas went into a trading halt to restructure its business. It was only a matter of time. Now shareholders will probably be asked to contribute more equity, while directors will say they are doing the right thing, and still reaping big pay packages. On 1st July 2011, AJ Lucas gave an update in which they state “an equity raising is the preferred outcome for the company with a corresponding reduction in financial liabilities.”. In layman’s terms, the company is going to ask shareholders to cough up more cash so the company can pay off some or all of its debt. As at end of Dec 2010, AJ Lucas had $100m in debt, and around $11m in cash on its balance sheet.

At its last traded price of $1.35, AJ Lucas had a market cap of around $89m, with 66m shares on issue. I can’t imagine that AJ Lucas is going to be able to raise much equity without issuing new shares at a substantial discount to its last traded price. To pay off net debt of around $90m, they would need to issue at least another 66m shares, and more likely a lot more. I could imagine the share price falling by at least 50% when and if they start trading again, depending on the number of new shares they will be forced to issue.

The best thing that directors could do for shareholders would be to offer the company up for sale, at least then shareholders would get some return on their investment. But I see that as very unlikely. It’s not a great company and I can’t see the equity raising turning things around for the company, and this is probably the last time I’ll write about AJ Lucas.

A portfolio approach to buying stocks

When considering buying stocks, you may be looking to gain exposure to a certain sector of the economy e.g. you want exposure to gold stocks, infrastructure or utilities, financial stocks, media or telecommunications stocks.

When looking at the stocks in a sector, you may come across more than two or three stocks that appeal to you. So rather than just investing in one stock, an idea to consider is to buy more than one stock in that sector. There are advantages and disadvantages to this.

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