Bargain hunters are wise to pay careful attention to insider buying, because although there are many various reasons for an insider to sell a stock, presumably the only reason they would use their hard-earned dollars to make a purchase, is that they expect to make money. Today we look at two noteworthy recent insider buys.
Latvijas Banka kept its main monetary policy interest rate, the refinancing rate, steady at 3.50%, and held its other interest rates unchanged, but reduced the reserve ratio for bank liabilities above two years to 2% from 3%, and for other liabilities to 4% from 5%. The Bank said: “By reducing the reserve ratio, additional financial resources are released for lending and more beneficial conditions for the availability of lending resources necessary for economic growth are created. A simultaneous reduction of the reserve requirement for liabilities of different maturities will promote a balanced impact on the availability of financing in the banking sector and will continue to maintain banks’ motivation in attracting long-term financing.”
Previously the Bank also kept monetary policy settings unchanged, leaving the refinancing rate at 3.50% at its November meeting. The Bank of Latvia last reduced the refinancing rate by 50bps to 3.50% in March 2010. Latvia reported annual inflation of 4% in December, down from 4.4% in October, 4.6% in September, and 4.7% in August. The Latvian economy expanded 5.6% on an annual basis in Q2, while GDP growth was reported as 3.5% in the previous quarter. The Latvian currency, the lat (LVL), last traded around 0.54 against the US dollar.
by Mike Kapsch, Investment U Research
Friday, January 20, 2012
Believe it or not, over the past 14 years, Lipitor has earned Pfizer (NYSE: PFE) close to an astounding $154 billion. It has been deemed “the best selling drug in history.”
Zyprexa, a drug used to treat schizophrenia, has helped Eli Lilly (NYSE: LLY) rake in nearly $65 billion.
Levaquin, an antibiotic from Johnson and Johnson (NYSE: JNJ), has brought in just around $22 billion.
But last year all three of these blockbuster drugs lost their patent protection, allowing other drug companies the chance to sell generic versions. And now, over the next year, big pharma firms stands to lose over $19 billion as more patents expire. By 2015, it’s estimated an additional $200 billion in sales is at risk of being lost.
While this “patent Armageddon” is scary news for most major drug companies, it’s also creating a number of opportunities for investors to cash in…
Little Pharma Firms Are Ripe for the Taking
Big drug companies are urgently looking to buy up smaller firms to fill in their revenue gaps. In fact, for the past two years, mergers and acquisitions (M&A) activity in the biotech, pharma and generics industries have hit record numbers. And this has pushed premiums for smaller drug companies way up.
According to Reuters, the average takeover premium for biotechnology firms alone are nearly double the average premium across all other industries.
One investment banker even said, “…there is a panicky quality to deals as companies appear to be playing musical chairs and they are grabbing at things to avoid being left alone when the music stops.”
Last year, Israeli generics firm Teva Pharmaceuticals (NYSE: TEVA) alone completed five takeovers totaling $13.5 billion. Gilead Sciences (NYSE: GILD) paid $11 billion, an 89% premium, to acquire Pharmasset (NYSE: VRUS) in November. And Bristol-Myers Squibb (NYSE:BMY) picked up Inhibitex for $2.5 billion… a 163% premium.
There’s no doubt these inflated prices will continue to be up for grabs over the next few years. And investors will want to take notice.
So where are some places to sniff out the best M&A deals?
The Lowdown on Little Pharma Takeovers
At the J.P. Morgan Healthcare Conference, which Senior Analyst Marc Lichtenfeld attended, Pfizer’s CEO Ian Read said the company is scoping out a number of small deals in China, India and Turkey.
Reuters says bankers and executives also agree that emerging markets are an ideal place to scour for potential takeovers.
And according to Firecepharma.com, investors will most likely want to look for deals around the $2-$3 billion range. Companies like Roche (PINK: RHHBY), Novartis (NYSE: NVS) and Sanofi (NYSE: SNY) have all expressed interest in looking for deals in this range.
Good Investing,
Mike Kapsch
Article by Investment U
by Alexander Green, Investment U Chief Investment Strategist
Friday, January 20, 2012: Issue #1691
A conversation with a friend last week sounded numbingly familiar.
“I just can’t seem to win for losing in the stock market,” he confessed. “Five years ago, my broker had me fully invested in stocks and I took a drubbing. Then when things were bottoming out a couple years later, he talked me into making my portfolio more conservative. As a result, I didn’t get much of a pop on the rebound. Now he’s trying to get me to reshuffle again. But I’m too scared to do anything.”
Since he was a friend, I felt obliged to tell him the truth: He’s getting lousy investment advice. Not because his broker failed to outguess the market… but because he’s guessing at all. As if that wasn’t bad enough, there’s a good chance that the advice he’s getting is tainted by self-interest.
Here’s what I mean…
It still astonishes me that the vast majority of investors – even ones who have been active for decades – still don’t understand that stock market success has nothing to do with figuring out the economy.
Look back at history. There’s no correlation between economic growth and stock market performance from year to year. Equities routinely plunge during the good times and rally during the bad. If you know this – and truly understand it – why would you invest your money based on someone’s economic forecast?
The same is true of market timing. It’s easy to look in the rearview mirror and see when you should have been in the market and when you should have been out. But when you look ahead, it is always a blank slate. No guru or trading system can change that.
Even if you could somehow divine what the stock market was going to do next – which you can’t – you still wouldn’t know which stocks would outperform and which ones would lag.
The only way to determine that is to look at business fundamentals. Companies that are doing all the right things – increasing sales, compounding earnings at high rates, growing market share, improving operating margins, paying down debt, buying back shares – will post superb returns, regardless of what the economy or stock market are doing. And those that are doing the opposite – experiencing flat or negative sales, lackluster earnings growth, small margins, high interest costs and diluting existing shareholders with new stock issues – will be laggards.
In short, stock market success is about analyzing businesses not investing in some self-styled expert’s macroeconomic forecast. Yet that’s exactly what the mass media and much of the investment advisory industry encourages people to do every day.
The media does it to attract viewers – and thus advertisers. The advisory industry does it sometimes out of ignorance but often just to justify its fees. This is especially true when you have a transaction-based relationship with an advisor where the more you trade the better he or she is compensated. Trust me. That doesn’t generate satisfactory long-term returns.
Every time you hear a pundit talk about “the new normal,” the rally just ahead or the prolonged economic slump we’re likely to endure, understand that you’re listening to opinions that are no more helpful than a weather forecast for three weeks from Sunday.
Both pieces of advice are worthless. But one is a lot more expensive – and harmful – than the other.
Good Investing,
Alexander Green
Article by Investment U
Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.
Source: ForexYard
The euro was largely up during yesterday’s trading session, as positive global data led to risk taking among traders. A successful Spanish debt auction combined with a lower than forecasted US Unemployment Claims were largely responsible for the euro’s bullish trend. That being said, analysts are warning that the overall trend for the common currency is still down and that considerably better euro-zone news is needed before a meaningful reversal will take place.
The US dollar saw substantial gains against several of its main currency rivals yesterday, following a better than expected US Unemployment Claims figure. The weekly unemployment figure came in at an almost 4-year low and well below analysts earlier predictions. The news helped boost faith in the US economic recovery and turned the USD bullish against both the Japanese yen and Australian dollar.
The USD was not as fortunate against riskier currencies like the euro. The EUR/USD was trading above the 1.2900 level, following a successful Spanish debt auction. Risk appetite was also helped by gains on Wall Street and reports that the IMF is increasing its funding for countries adversely affected by the euro-zone debt crisis.
Turning to today, traders will want to pay attention to a British retail sales figure as well as US Home Sales data. Both are forecasted to come in above last month’s readings, which if true may help riskier currencies extend yesterday’s gains. In addition, any positive news out of the euro-zone, particularly regarding Greece’s ongoing debt talks may lead to further losses for the USD against the euro.
A positive Spanish debt auction sent the euro up against most of its safe-haven rivals, including the Japanese yen and US dollar. The EUR/JPY was trading above the 99.00 level for much of yesterday’s trading session. The pair, which only recently hit an 11-year low, has seen small but steady gains over the last several days. Meanwhile, the EUR/USD broke the 1.2900 level in trading yesterday, as renewed confidence in the global economic recovery led to an increase in risk taking.
Today, euro traders will want to watch out for any announcements out of the euro-zone, particularly with regards to Greek debt talks. Positive news will likely help the euro extend its recent gains. In addition, British Retail Sales and US Home Sales figures are likely to generate market volatility. With analysts predicting positive news for both indicators, the euro may maintain its current trend to close out the week.
The USD/CHF pair continued to fall throughout the day yesterday, as positive euro-zone news weakened demand for the safe-haven US dollar. The pair has fallen for the last four days, as European data continues to generate risk taking among traders. A better than expected US unemployment figure released yesterday did little to change the trend of the pair, as European news continues to determine market trends.
Turning to today, traders will want to keep an eye on economic indicators from both the UK and US. With both the British Retail Sales and US Existing Home Sales forecasted to come in significantly better than last month’s, the franc may maintain its current bullish trend to close out the week. At the same time, with the euro-zone as fragile as it is at the moment any negative data may cause traders to revert back to safe haven currencies like the USD, likely at the expense of the franc.
Investor fears that Iran could close off a significant waterway used for oil shipments led to a spike in the price of oil in yesterday’s trading. Iran has threatened to close the Strait of Hormuz, the waterway used to supply about a fifth of the world’s oil, should the country’s security be endangered. The price of oil also moved up yesterday, as positive euro-zone news boosted commodities throughout the day. As a result, oil was close to $102 a barrel for much of the day.
Turning to today, oil will likely maintain its current trend given that no expected breakthrough is predicted to resolve the current tensions between Iran and the West. Traders will want to pay attention to any news out of the Middle East. Any escalation in the conflict with Iran could cause oil prices to spike as markets close for the week.
Most technical indicators are showing this pair trading in neutral territory. The daily chart’s Relative Strength Index is currently around the 40 level, while the Williams Percent Range is at -60. As the data is inconclusive at the moment, traders are advised to take a wait and see approach for this pair.
Technical indicators are providing mixed signals for this pair at the moment. The daily chart’s Stochastic Slow is in neutral territory, while the Relative Strength Index on the same chart has just drifted into the oversold zone. Traders will want to take a wait and see approach for this pair, while keeping in mind that an upward correction may take place.
The Bollinger Bands on the daily chart appear to be tightening, indicating that a price shift is likely to occur in the near future. That being said, other technical indicators are inconclusive as to which direction the movement will be. Traders will want to keep an eye on the Relative Strength Index on the daily chart for possible clues as to whether the correction will be bullish or bearish.
The Stochastic Slow on the 8-hour chart is currently forming a bullish cross, indicating that upward movement could occur in the near future. This theory is supported by the Williams Percent Range on the same chart, which has drifted into oversold territory. Traders may want to go long in their positions.
Technical indicators are placing this pair in oversold territory, meaning that an upward correction could occur before markets close for the week. The daily chart’s Williams Percent Range has dropped below the -80 level, while the Relative Strength Index on the same chart has drifted into the oversold zone. Forex traders may want to go long in their positions today.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
By MoneyMorning.com.au
BY Merryn Somerset Webb, Editor-in-Chief, MoneyWeek (UK)
Bric: for much of the investment world, this stands for Brazil, Russia, India and China. These were the countries that Goldman Sachs’ Jim O’Neill singled out in 2001 as being the biggest and fastest-growing emerging economies – and the ones we should all be investing in.
But for Albert Edwards of Société Générale, it stands for something slightly different: Bloody Ridiculous Investment Concept.
Who’s right? From 2001 until a few years ago, it rather looked as if it was O’Neill. All of the Brics did brilliantly. Their economies grew at astonishing speeds and their stock markets soared – something most people put down to that very growth. In the past few years, however, things haven’t gone so well. In 2011, the MSCI Emerging Markets index fell around 20%, and the MSCI Bric index (O’Neill’s idea was so embraced that the Brics got their own index!) fell around 25%.
To me, this makes sense. In 2001, the stock markets of the Bric countries were cheap – particularly relative to developed markets. They were also starting to grab the attention of Western investors. I remember writing about the likes of Brazil’s and China’s economy a decade ago, agreeing with O’Neill and encouraging everyone to buy emerging market stocks (and chuck in some commodity funds on top).
Numerous studies have shown that equity market returns aren’t correlated to economic growth at all – they are correlated to price and money flows. In simple terms, if you buy into markets when they are cheap, you have a good chance of making money – and if you buy them when they are not, you have a good chance of losing money. So it was with emerging markets. They were cheap. They went up.
These days, though, it is different. Today, the emerging market index has a price/earnings (p/e) ratio of about 11 times. Developed-market stocks cost much the same. Although the average p/e ratio in the US is 14 times, here in the UK we are on 11; France comes in at 10.3; Germany at 9.7 and even Norway and Sweden are knocking around ten.
Emerging-market bulls will point out that some of the Brics are still cheaper than our markets. China, for example, is on a p/e ratio of around eight times. But I would argue that, for now at least, most emerging market indices should trade at something of a discount to developed market stocks.
Why? Because in a market such as the UK, you can say that the index genuinely reflects private business (not necessarily UK private businesses, but at least companies run roughly according to capitalist principles and to the rule of law). That isn’t so much the case in some emerging markets.
According to a report from Hong Kong-based Asianomics, “less than 50 of the approximately 1,400 listed firms on the two Chinese stock exchanges are genuinely privately owned.” And those that are properly private tend to be expensive. Those that are not, shouldn’t be expensive at all. According to one fund manager cynic, they are run in such a way that they “make the NHS look efficient”.
Look at it like this, and I can’t see much reason why emerging markets should outperform on the basis of price.
I can’t see why they would outperform on the basis of better growth, either. Even if you were to think economic growth rates relevant to stock market returns (which, I repeat, they do not seem to be), it would still be hard to make a case for many emerging markets. China, Asia’s driver, seems to be on the edge of a sharp slowdown as its exports to our miserable economies slow, and its property bubble implodes. That, as Albert Edwards, ever the optimist, put it to me this week “will bring the lot down”.
Merryn Somerset Webb
Editor-in-Chief, MoneyWeek (UK)
Publisher’s Note: This is an edited version of an article that first appeared in Money Morning (UK)
From the Archives…
Why Fallen Commodity Prices Mean This Sector is Worth a Punt
2012-01-13 – Kris Sayce
Why Australian Banks Are a “Suckers” Investment You Should Avoid
2012-01-12 – Greg Canavan
The Fed’s Funny Money Merry Go Round
2012-01-11 – Kris Sayce
Silver Price Ready to Explode
2012-01-10 – Dr. Alex Cowie
Will the Gold Bull Keep Running in 2012?
2012-01-09 – Dr. Alex Cowie
By MoneyMorning.com.au
Yesterday Kris wrote about shale gas.
Which got us thinking about the energy sector…
Which led us to this interesting chart…
Which makes the energy stocks in the ASX Energy Index look cheap!
The Australian Stock Exchange’s Energy Index (XEJ) is trading at 13,764.50… That’s 44% below its all-time high… It’s 27% below its most recent high in April 2011… And right below an important support level.
If the index can break out above this red line, the index could trend up… Where it would find its next support at around 15,000, followed by 16,000… roughly a 14% gain.
But as you can see in the circle to the right of the screen, in October and December 2011 the index had two false breaks through this level. And the index quickly fell back below this line.
On the long-term chart, the next support to the downside comes at 12,000… Followed by 10,700… If the index hit that level and you invested in a fund that tracks it, you’d be looking at a 28% loss. That’s a risk-reward ratio of 2-1 – those odds are against you.
Most novice traders place their trades as soon as a stock breaks out of a trading range. Slipstream Trader, Murray Dawes says that’s a big mistake. Because many break outs tend to be a ‘false break’, where the stock is unable to hold above a previous high.
Murray prefers to see the stock (or index) settle into what he calls a ‘distribution’ and then trade the stock within that range.
For the moment the higher probability bet is to hold off and wait until the index makes a sustained break either way. Only then should you think about placing a bet.
Aaron Tyrrell
Editor, Money Morning
From the Archives…
Why Fallen Commodity Prices Mean This Sector is Worth a Punt
2012-01-13 – Kris Sayce
Why Australian Banks Are a “Suckers” Investment You Should Avoid
2012-01-12 – Greg Canavan
The Fed’s Funny Money Merry Go Round
2012-01-11 – Kris Sayce
Silver Price Ready to Explode
2012-01-10 – Dr. Alex Cowie
Will the Gold Bull Keep Running in 2012?
2012-01-09 – Dr. Alex Cowie
By MoneyMorning.com.au
Successful businesses detect change.
They don’t always have to act on it (although they may be foolish if they don’t).
The same goes for successful investors. If you can spot a change (or even a potential change) early on, it can lead you to a big pay day.
But if you spot the change and don’t act on it… well, the results aren’t as good.
Take Eastman Kodak [NYSE: EK] as an example. The company had a great new idea in 1975… it invented the world’s first digital camera.
That’s some foresight.
Today, digital cameras are a central part of new media and the social networking fad. Photos on Facebook. Twitpics. Photos taken and published seconds or minutes after both trivial and important events.
Who doesn’t have at least one device with a digital camera? So, for the digital camera inventor it should have been the path to fortune for them and their business. But based on the news we’ve seen overnight, that hasn’t quite happened…
Yesterday, Eastman Kodak went into chapter 11 bankruptcy protection. It means the company will have the chance to reform the business rather than go bankrupt. But, a once household name is on the verge of death.
Where did it go wrong?
Well, this is where it gets interesting. After the invention of the digital camera, Eastman Kodak either made its biggest mistake… or one of its best ever decisions.
Bloomberg News writes, “The company also invented the first digital camera in 1975, which it shelved because it would threaten its lucrative film business…”
The first reaction is to say, “How dumb were they?”
But maybe shelving digital photography 37 years ago was the best choice the firm ever made. After all, if they had gone ahead with it, who can say Kodak wouldn’t have gone bust earlier… By other firms beating them out that had a better handle on the technology.
After all, as you can see on the chart below, the Eastman Kodak share price didn’t do so badly after it shelved the idea:
Of course, we can never know for sure what would have happened.
But it’s an insight into why some ideas stay hidden… while others are just delayed.
That’s typical of what happens in big companies. For them it’s not just whether a new idea is profitable. It’s about whether the new idea will harm or destroy the company’s existing business.
In 1975, the managers of Eastman Kodak weighed up the options. They decided the risk of introducing a digital camera to the market was too great. In the short term they may have been right. But in the long term they were hopelessly wrong.
Because all it did was delay the technology. It didn’t kill it. Soon, others picked up on digital camera technology. They saw the opportunity and what it could be worth.
The will to detect and accept change is why those businesses succeeded… while Kodak failed.
Detecting and accepting change is one of the things we look for in small companies. When you think about it, it’s hard for a small company to just copy a big company. Small companies have to do things differently.
That’s where entrepreneurs either create a new product to replace an existing one… or they’ll try to nudge an existing product in a new direction.
That’s what makes small firms more interesting than big firms. If a big firm does something new it may only have a small impact on the firm. But if a small firm does something new, it can be a game-changer.
The lesson you (and Aussie companies) can learn from Kodak’s demise is investing and hoping a company isn’t overtaken by new technology is a sure-fire way to lose a lot of money.
And while investing in small firms with new ideas is risky, if the game-changing idea comes off, that’s when you get the big pay day. Simply because you only need to make a small bet to potentially make a big return.
If the bet doesn’t go your way, what have you lost? You only placed a small bet anyway.
Right now, the Australian Securities Exchange is full of good businesses with great ideas: biotech companies developing new drugs, oil and gas companies using new methods to recover hard-to-reach resources, and hi-tech firms looking for the next direction for the technology industry.
But more than that, after a year of taking a beating, many of these stocks trade for just cents on the dollar.
Our job over the coming weeks and months is to figure out which of these good businesses with great ideas has the best chance of success.
It’ll be hard work, but it’ll be a lot of fun too.
Cheers.
Kris.
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IBM (NYSE:IBM) reported Q4 EPS of $4.71, topping consensus estimates of $4.62.Revenues in the quarter came in at $29.49 billion, slightly below estimates for $29.71 billion.The company is forecasting 2012 EPS of at least $14.85, vs. consensus estimates of $14.81.The company added that its services backlog rose $4 billion, to $141 billion.
