Stocks and Commodities

We're reaching a market top!

2010-01-26T20:38:00.014Z

Hello!

In 2nd March of 2009, I've advised to buy stocks. Market was too pessimist and it was clearly oversold. It wasn't a normal market and there was real fear out there.
Almost 11 months later, I'm afraid we're in the other side. Markets got higher and I think people out there, forgot all the problems that arose last 2 years.

The main cause of this crisis was (and still is) a huge level of leverage of the whole economy. This caused an abrupt meltdown of financial system triggered by bankrupcy of Lehman Brothers (4th biggest US bank).

So the solution for this crisis is DELEVERAGE and offshores forbiddance. No doubt about this! Forget protectionism measures, financial regulation, financial fees or CEO bonus restrictions (adopted by Obama and Sarkozy). These are just populist measures to get some votes with a slightly impact in the economy. If politicians want to solve financial system main problem, they just need to print less money (deleverage) and ban offshores. The first one, I guess they will adopt it otherwise US would risk hiper-inflation... it could be called United States of Zimbabwe! ;-) The second one, offshores forbiddance, it's simply impossible due to high interests of USA in army equipment transactions. How would USA sell weapons to African countries like Darfur without being catched??

As told before, deleverage is a process of print less money and absorb liquidity from the system. This is a long and painful process that will last years. I guess that this deleverage process will start really soon and will impact negatively in the economy. Less liquidity, higher rates, less money to spend, inflation under control! This is the solution of Paul Volcker (Obama's economic advisor) and it seems to be the way chosen by USA.

As you can imagine deleverage will lead companies to less revenues and obviously to less profits.

Anyway let's get some statistics about major world indexes in the last year and let's show some charts with a resumed opinion.

Dow Jones:

- bottom 06/03/2009: 6469 pts

- top 19/01/2010: 10729 pts

- 66% gain

Eurostoxx 50:

- bottom 09/03/2009: 1823 pts

- top 11/01/2009: 3044 pts

- 67% gain

Some technical analysis of Eurostoxx 50.

Daily Chart (first chart):

- our indicator ZFV Eng Pais Vieira gets negative. This is a sell signal in the short term. In terms of Fibonacci Retracement we made almost a 50% retracement since 9th March 2009 bottom. We have a gap in 2861 that must be filled. Our recomendation is to wait a few sessions and open short positions in the range 2860-2900 pts.

Weekly Chat (second chart):

- our indicator ZFV Eng Pais Vieira still positivo. We're still in an upper trend (not for so much more time I guess). Regarding midpoints it's clear that in the near future midpoint of 50% of bar of 17th July 2009 will be achieve. This means that Eurostoxx will have to pullback near 2372 level. This means a 16% correction guaranteed.

So as conclusion, expect a lower stock market in the near future.

Regarding other markets, avoid investments in commodities (gold, copper, silver) and think about buying US dollars (sell euro).

Regards,

Filipe Vasconcelos

If you're fear, don't hesitate... BUY!

2009-03-02T22:03:00.003Z

One year ago, we started Bear Market. Stock Markets plunged and economic health is trully damaged.
As I stated one year ago, this Bear Market will last 3 years. Let's say, stock markets are in a obvious downtrend 2 years more. A recovery will arise lately in 2010.
But, as always, we will get some rebounds. In this case a B-wave is expected this year. I don't know the precise timming, although we maybe near the beginning of this wave.
As you can understand this rebound will bring us to much higher levels and some analist will tell that the worse is gone. Wrong!!! I think that this rebound will be an excelent opportunity to sell stocks. After this, we'll have to wait an year to start buying.
The key point here is when will it start, this rebound? The best indicator to identify this point is the level of fear. If you're fear at this point, don't hesitate, buy!

regards,
Filipe Vasconcelos

Uau... it hurts!

2008-03-17T18:28:00.002Z

Bear market is completely installed in global markets. Financial stocks are authentic falling knives! 5th biggest bank in USA (Bear Sterns) has just got broken. Bear Sterns was bought at a symbolic 2$ share (it was at 100$, 3 months ago) by JP Morgan.
The problem is not bear market, the problem is the domino effect that can arise from leverage positions taken years before from Private Equities, Hedge Funds and even individuals. While assets devaluate, these investors with leveraged positions are called to increase margin.
Who can save us? Well, the FED is doing its job giving liquidity to the system and easing interest rates but I would focus in Sovereign Wealth Funds. These funds are managed by governments and most of them are from big exporters. Countries that export raw materials like crude oil and natural gas (Russia, Arab countries, Norway) and other countries that export labour (China, India). These funds are completely full of money due to the increase of the raw materials price and energy prices.
It's quite surprising, but I'm affraid that these countries that were forbidden of make investments in occidental companies, will now be called to inject liquidity in troubled financials.
Dubai has started with an incredible injection of 6bln usd in Citigroup.

Be cautious, this is not a correction. Bear market has just started last month. Using Elliot Wave principles, expect a 3 year correction before taking place long positions.

regards,
Filipe Vasconcelos

New year, new trend... Bull is over for a while!

2008-01-09T22:14:00.000Z

That's it, after 5 years of consecutive gains, stock markets, started 2008 with an awful pessimist sentiment.
This short comment, is just to aware you about the higher risk of recession in USA and possible efects in global economy growth. Forget the 5,5% global growth of 2007. Some analists say that emerging markets will keep the pace of global growth, due to internal demand. Maybe... I'm not so sure.
Keep investments in telecom sector, as you can see it's not hurting it at all. Deutsche Telekom and France Telecom are in a good shape. Wait a few months before getting in financial sector.

Take care.

regards,
Filipe Vasconcelos

FORTIS - Screaming BUY!

2007-10-02T08:13:00.000+01:00

Hello,
Last time I updated this blog I talked on selling in May. We sold in the peak of the european markets! :-)
Now, I write this little update because I find many opportunities in european banks.
I will post the chart latter on, but FORTIS is a incredible SCREAMING BUY!
It's quoted at 20,93€ and is quoted with a P/E of 7.5 and a PBV of 1,5.
The dividend yield is above 6%.

This is for sure one of the best picks that I found in the last years. I don't have any doubt that there are much more in european banks. But please, avoid to buy investment banks like Deutsche Bank. Take preference over retail banks like Fortis, BBVA, Santander.

PS: I keep my long term perspective in Deutsche Telekom and France Telecom. As you could see, besides the market tumoil, these stocks got higher.

Best regards,
Filipe Vasconcelos

In May sell and go away...

2007-04-29T11:46:00.000+01:00

Almost 5 months later from my last post, I come back to aware from some changes in the financial markets.

GDP growth in USA has slowdown last quarter was of 1,3% when markets expected 1,8%.

In Spain, real estate sector began to crash. Triggered by a small "valencian" real estate company, Astroc Mediterraneo, this company plumbed more than 50% in the last 2 weeks. This sentiment spread around other companies of the same sector (inmocaral, parquesol, fadesa...) and also to construction companies (ACS, Sacyr Vallehermoso, FCC, Ferrovial).

Astroc picture.

Is this spanish real estate crash going to influence the future earnings in banking sector? I would say: "Maybe... specially banks with a big exposure to Spain: Banco Popular, Sabadell, Bankinter. I think that Santander and BBVA could not be so much afected: nowadays these are global banks. :-)"

So what I would generally advice? To get out of the markets. As used to say in Wall Street: "In May sell and go away." Cash out your positions and move them to defensor sectors like telecommunications: my eterne lovers Deutsche Telekom and France Telecom :-)

Enjoy your trading!

Regards,
Filipe Vasconcelos

Welcome 2007!

2007-01-08T23:54:00.000Z

New year, new investments!
Let's have a look to a summary of my advices last year:
-14th September - buy Deutsche Telekom at 11,67€ and France Telecom at 17,44€

I said and I keep saying that Deutsche Telekom should be trading around 30€ and France Telecom at 46€. I expect this market distortion to be corrected, next 2-3 years.

I keep my very positive opinion about BBVA and BCP. For bank lovers, these are my choices! :-)

This year, if you ask me what to buy, I maintain my opinion ->> telecoms, specially Deutsche Telekom and France Telecom.

I studied another two spanish companies that are trading at very low levels:

Baron de Ley: 2nd biggest wine company of Spain, with a great management, trading at cheap levels of PE=14,6 and EV/EBITDA=7,7.
Focused in aged wines (Crianza and Reserva), Crianza is 62% of their sales, Reserva is 27% of their sales. As a little detail, Pope Ratzinger, was served with a special Reserva from Baron de Ley last time he was in Spain (in 2006).
I really like the way management uses anual profits ->> share buyback. It's great in terms of fiscal policy to all shareholders. So don't get bored if you don't receive any dividend. Management will buyback 5% of the shares available in the market. You will increase your company stake by 5% without paying any comission or taxes.

Service Point Solutions: Document management and Digital Reprographics. My opinion about this company is very simple. The turnaround is taking place. Net profit jumped 400% last year and technically speaking, we've already seen the bottom. Maybe that's why UBS increased his stake to 5,1%, last December 2006.

Keep an eye on Porsche and Essilor. I had no time to study those, yet. I like them very much but I just don't know if they are quite expensive or not. I will keep you in touch about them.

Enjoy your investments!

Regards,
Filipe Vasconcelos

Is the correction over?

2006-12-16T09:51:00.000Z

I think so...
The spanish index Ibex 35 made the A-B-C correction with lower point at 13551. We closed last Friday at the highest close of the last years at 14387. We felt some dificulties to move forward above 14400 pts.
I think we are in the 5th wave of Elliot Waves, and I expect new highs in the coming sessions.
A few remarks from my last recommendations:
- DT made a correction with the lowest point at 13.07€. I failed! I told you that the correction it was expected a correction to the range 12.80€-13.05€ :-) . We are now near 14€ and I expect that DT will close this year above this 14€ mark.
- FT continues in an uptrend and I have to tell you that is performing much better than DT. We keep my positive point of view regarding France Telecom.
- BBVA made a suddent and very quick capital increase of 3000 mln euros. It's obviously preparing an acquisition. In a rational point of view the targets should be an italian bank (after last year BNL buyout failover) or an english bank like Barclays or Loyds TSB (due to a non-oposition of the entities of foreign acquisitions in UK). But if they decide to buy portuguese bank BCP? Portugal it's a natural market to Spain and BBVA's presence in Portugal is very weak.
We think that BBVA it's an exceptional bank with an outstanding ROE of 33%!!!!
- BCP is a portuguese bank with the highest market share in Portugal (30%) with an important presence in Poland and Greece. It's in a clear uptrend and I still think that is the cheapest bank from Iberia. Beside that, it's a bank with a weak shareholder structure without any core shareholder so it's a potential target for a big bank like BBVA or Deutsche Bank.

Happy Christmas and a Bullish 2007!

Kind regards,
Filipe Vasconcelos

We're breathing...

2006-11-28T22:48:00.000Z

One month later... but we're breathing. :-) The correction took place in stock markets, with high pressure in sell-side.
The question that most of traders are facing is... "Should I buy? If yes... what could be a nice entry level?"
I can tell you my opinion... we're in a correction and we should wait a little more for an entry point. Please take care, I think this correction will be in ABC with high volatility, so be carefull with stop losses and please control your emotions! Never think that market will runaway from you!
I bet for Deutsche Telekom at 12,80-13,05€. At these levels, it's a great deal!

Enjoy your investments!

Regards,
Filipe Vasconcelos

Ready for a correction? Take the advantage....

2006-10-27T22:28:00.000+01:00

In my last article, in early October, I gave my opinion why stock market were getting higher and higher - that was: slump in housing market of US. Although, today we got a surprising commentary of Alan Greenspan (ex-chairman of FED - Federal Reserve) that said that the correction in housing market is nearly the end and that maybe we're getting a stabilization in house prices. That's for sure good news for financial sector (we're not heading a credit crunch in mortgages!) and very good for US economy, but not so good for stock markets! Why? Very simple, the flow of money from real estate to stockmarkets will be lower! :-)

My big worry is that stockmarkets are getting higher without a correction, and in my point of view that is very dangerous. Please check bellow the weekly chart of IBEX (spanish index):

This chart is incredible, we got sequence of 7 weeks in a row with green candles (positive). What can we expect from now on? Well, first of all, let me tell you that I'm BULL in the long term. But in the short term, I would not buy any stock! We're overbought, it's a question of time... markets must take a breath! They must make a correction!

Talking about sectors, I insist in Telecoms and in banks. If there is a market correction soon, I would take the advantage and I would buy Deutsche Telekom and France Telecom in the telecom sector and BBVA and BCP in bank sector.

Last time I told you about DT and FT they were trading at 12,60€ and 18,41€ respectively. Today (27th October) they closed at 13,52€ and 20,56€. In my fundamental analysis they still have a lot of upside potential.

DT trading at 13,52€ has an ev/ebitda=5,14.

FT trading at 20,56€ has an ev/ebitda=5,50.

If DT and FT adjust to the telecom sector average of ev/ebitda=9, they have an upside potential of 30,5€ for DT and 45,5€ for France Telecom. I think that this market distortion takes time to be corrected but I expect in 2 or 3 years, they will trade at those levels.

Enjoy your investments!

Filipe Vasconcelos

Why are stock markets heading higher?

2006-10-04T23:00:00.000+01:00

That's right, stock markets are higher and higher and we can't see a top for all this euphoria.
Today, in Europe, the rumour was the possible bid of Citigroup for a big european bank: BBVA, Société Generale, BNP Paribas and Barclays Bank were the top bets for this movement.
I face stock markets as simple movement of capital: in and out. If the capital gets in the market, the markets go higher and vice-versa. It's always like that! Now that real estate is getting flat or even negative in USA, it's natural a flow of money from real estate to stock markets (that's my interpretation of record highs in Dow Jones Industrial Average).
When markets go higher, there are sectors that underperform or even slump and others that outperform indexes.
Last year and 1st half of 2006, we heard about basic resources (commodities related companies)and little later on energy sector (sectors like telecoms were completely forgotten). We accompanished hostile bid of Mittal over Arcelor, bid of Arcelor over canadian Dofasco, and runaway quotes of stocks like Rio Tinto, BHP Billiton, Thyssen Krupp.... All of these were related to higher commodity prices like crude oil, steel, copper, sugar, coffee....
Special enphasis was given to crude oil (because of the weight in inflation data) and subsequent energy stocks: Exxon, Conoco Philips (oil related) and EDF, Endesa, Iberdrola, E-On, RWE...
Now, that crude oil is getting lower (now it's below 59 usd), I think we're starting to see a rotation between sectors.
I think that it's a good idea to sell energy and basic resources stocks and buy telecom and bank stocks.
As I said in my previous posts, I would bet for Deutsche Telekom and France Telecom in telecom sector and in banks I think that BBVA (with an incredible ROE above 33%) and portuguese BCP would be an excelent stock pick.
These (telecoms and banks) due to natural rotation between sectors will be the next drivers for stock markets.

Enjoy your investments!

Kind regards,
Filipe Vasconcelos

Deutsche Telekom and financial ratios

2006-10-01T01:45:00.000+01:00

Last post, I spoke about Deutsche Telekom (DTE.DE). That's right, the stock picked up from 11,67€ to 12,54€ of last Friday. It's a good valorization (+7,4%), but in our point of view, still very cheap.
Let's see from 11,67€ to 12,54€ the ev/ebitda increased from 4,71 to 4,91. That means that a company that makes a bid for Deutsche Telekom will take worth of 5 years to pay the company with his EBITDA. :-) (if any bank finances me, I make an offer for Deutsche Telekom, I will pay my purchase in a few years...)

Now lets compares this ratio with other companies or sectors:
Deutsche Telekom AG (dte.de): quote 12,54--> ev/ebitda=4,91
France Telecom (fte.pa): quote 18,10€ ---> ev/ebitda=5,15
Portugal Telecom (ptc.ls): quote 9,85€ ---> ev/ebitda=9,10 (under Sonae's bid process)
Telecom Italia (tit.mi): quote 2,24€ ------> ev/ebitda=6,66

You maybe think that ratios are very close each other... Wrong! For Example, to Deutsche Telekom to get a ratio of Portugal Telecom (ev/ebitda=9,10) it needs to trade at 30 euros!
If France Telecom to trade as expensive as Portugal Telecom it would be trading at 46 euros! Let's say that in both cases, quotes would have to double!!!

Incredible and most of all, not understandable!

If we compare telecom sector with other sectors like energy, there we will get much more differences.

Endesa (ele.mc): quote 33,55 ----> ev/ebitda = 9,42
Iberdrola (ibe.mc): quote 35,30--> ev/ebitda = 10,80
EDP (edp.ls): quote 3,42 ---------> ev/ebitda = 9,45

But if we talk about growth stocks, like Inditex (itx.mc) (owner of Zara, Massimo Dutti...) or a Gamesa (gam.mc) wind tower generators, we get ev/ebitda=12,66 and 12 respectively.

The key for our investments is very trivial. We have to decide if we like to acquire a company cheap undervalued by the market (value investing methodology) or a company with a great potential but for the present financial data, is an expensive enterprise (growth stocks methodology). I prefer the first way to invest but we can always, spread the money along both.... :-)

Enjoy your investments!

Regards,
Filipe Vasconcelos

Value Investing: Deutsche Telekom

2006-09-14T00:33:00.000+01:00

The european giant of telecommunications (nr 1 in revenue) is under pressure due to the strong competition in domestic market (in this case, Germany). The lost of 1 million wired lines in the first half of this year confirms the difficulty that DT subsidiary, T-Com, had to increase revenue and in the limit, cut the expenses.
The social state, very strong in Germany, makes difficult the employees reduction and the german government, that is the biggest shareholder with more than 34% of the company, keeps the eyes shut to a company with more than 249 thousand workers worldwide which of those are 129 thousand in the wired line network, T-Com.

Although, we think that all these 'bad news' are already incorporated in the stock price and we hardly think that Deutsche Telekom is trading at a level extremely low, let's see:
- ev/ebitda (regarding forecasts for 2006) is at 4,65, beating consecutive yearly lows
- Telefonica's acquisition of O2 was made at an ev/ebitda=10,7
- Belgacom's acquisiton of 25% of Proximus to Vodafone was made at an ev/ebitda=8,7
- Sonae's bid offer to Portugal Telecom is at an ev/ebitda=8,94

In a perpective of "Value Investing" this is undoubtly an unique opportunity. Maybe, that's the reason why the biggest private equity firm, Blackstone Group, has bought to the german state 4,5% of DT at 14 euros in the last days of April. This private equity firm of NY, has for the last years, earned 60% anually.

The weird thing, is that analist now talk about energy stocks and depreciate telecoms. In 4 to 6 years the process of "commoditization" of energy and the strong regulation will show us the same investment opportunities in the energy sector, that now we're getting in telecom sector. Let's wait and see...

Best regards,
Filipe Vasconcelos