Shesa's FEBRUARY 2015 INVESTMENT BLOG
8 February 2015
FEBRUARY 2015 Investment Blog
Shesa Nayak
U.S. Stock Market Commentary
Hello and Welcome to
my February 2015 investment blog.
The DOW Jones Industrial Average closed last Friday
at 17824.29, S&P 500 closed
at 2055.47 and NASDAQ closed at 7444.40 points. The good news is that, after enormous volatility in January there was
some sense of optimism in the stock market due to positive economic news. So let’s
discuss some of the critical factors impacting the stock market in last few
weeks.
U.S Economy News: The Labor Department
said Friday that 227,000 jobs were created in January, which was more than the analyst
expectation. It can be noted that, the US economy has created more than one
million jobs in last 3 months. However, the unemployment rate went up to 5.7%
from 5.6%. Why did the unemployment rate go up despite more jobs addition? It
looks little strange. Basically, the hiring spree prompted some of the sideline
workers in the country to start looking for new job causing the unemployment
rate to rise. On January 30, US GDP growth increased at an annual rate of 2.6
percent in the fourth quarter of 2014, comparing to real GDP increase of 5% in
the 3rd quarter. This was a major shrink. There was some news on oil front that
triggered some rally in the market. We will discuss that little later.
Economy news around the world: The economy stimulus keep coming one after another. Last
week, Australia’s central bank
slashed its benchmark interest rate to a fresh all-time low of just 2.25%. This
is the first move for the central bank in about a year and a half. On February 4th,
People's Bank of China trimmed a half percentage point off the reserve
requirement ratio, freeing up an estimated 500 billion yuan, around $81
billion. That’s the extra money that China banks are now free to lend. On January 15th, Reserve Bank of
India lowered its interest rate by 0.25-percentage point to 7.75%. This was the first rate reduction
in nearly two years. Greek
markets tumbled after the European Central Bank raised the pressure on the
country's new government; ECB said that it would no longer accept junk-rated
Greek government bonds.
Now let’s talk about Oil. Is it time to buy? The stock market saw some relief rallies I n
the oil sector for last few days. Why was this rally? Baker Hughes, a leading supplier of oilfield services said U.S. rig counts plunged by a record
amount last week. They are now down by 24% from their peak in October as the
oil producers have started cutting costs and
reducing drilling activity due to low oil price. In addition, violence in Libya helped oil prices to bounce up
to some extent this week. Is it going to continue its bullishness? I don’t
know. But I think we could see the oil price coming down again. Why is that? Here
is my thought. Shutting down rigs
does not necessarily bring the production down instantly. According to Yardeni
Research, U.S. oil production actually increased to a record of 9.3 million
barrels per day during the week of January 23. I believe it was about 288,000 barrels per day more than the previous
week’s average. This is piling up the inventories of oil. It’s estimated that supply is
almost 1-1.5 million barrel per day more than the demand. So I may not be
surprised to see oil coming below $40 range once all these inventories piles
up.
However, it makes sense to start taking a small
position and keep adding on further fall. I have bought some leaps but no stock
or ETF position as yet! A cautious but judicious investment decision is of
immense significance.
Watch List on
Oil/Energy: USO,
OIH, XLE
Now, let’s talk about this month’s addition to Blog
portfolio. Today, I will be writing about a very promising biotech company
which could be a game changer, provided their technology deliver what they are
projecting to deliver. So let’s talk about that.
Alnylam Pharmaceuticals, Inc. (ALNY)
ALNY is a biopharmaceutical
company, engaged in discovering, developing, and commercializing novel
therapeutics based on RNA interference (RNAi). The company is currently developing cures for serious diseases based
on RNA interference that provides an entirely new approach to treat patients.
It enables the body to silence disease-causing proteins, which in turns open up
new treatment options for a wide range of diseases. For example, stopping
cancer cells from reproducing would be a tremendous breakthrough. The new
genetic treatment, if succeeds, that could revolutionize the whole
industry. As I understand, RNAi is a messenger that copies genes from an old
cell to a new cell. In the aging process, our original cells split to create
new cells as replacements and that replacement cells have imperfections. This
causes catastrophic diseases and that’s what this company is trying to address.
It has several products in clinical trials and if the early result is any
indication then it looks very promising.
My Investment Logic:
What I said above may take years and years. But ALNY has already few product trials
those have come with excellent Phase I and Phase II results in last few months.
Many others are in the pipeline. The
company is expediting its drug by targeting the diseases with low number of
patients that can go through quick approval process. Alnylam co-founder Dr. Phillip Sharp, a
Nobel Prize winner in medicine also co-founded Biogen, currently known as
Biogen IDEC (BIIB), which happens to be one of the top biotech companies in USA.
It also has collaborations with many
large biotech companies, such as Genzyme
Corporation; The Medicines Company; Cubist Pharmaceuticals, Monsanto, Takeda Pharmaceutical,
Novartis, MIT, Biogen Idec etc.
It’s extremely difficult to
analyze the fundamentals of such biotech companies at the early stage. But this company has the technology, solid
management team, collaborations and institutional backup behind it. I have been following this stock for last several
months. Its share was recently down about 20% since the company issued approximately 4.74
million shares of its common stock at a price of $95 per share, raising about
$450 million. Currently, it has a Market Capitalization of about $7.3billion. If
we see the institutional holdings then Fidelity and Wellington Capital hold
almost 27% of the shares. It has Revenue of paltry $38 million at this point.
But if we need to invest in this company then we invest for the future.
Risks:
Biotech stocks are highly volatile and high risk associated. There could be
some failure in the drugs. Also, the high-flying biotech sector can have some
corrections in future. However, the rewards could also be enormous. Hence I
would not be putting more than 2-3% of my portfolio value and use my strategy
of buying in phases. Currently, it trades at $89.10, a 20% discount to its 52-week high.
I have already bought some and keep accumulating with corrections. I
will also put a 25% trailing stop to get out of this stock in case it
falls below that level. The readers should do their own due diligence before making
the investment decision.
After an
aggressive biotech stock now let’s take a look at a Mutual Fund that invests in
China Region.
Fidelity China Region (FHKCX)
This month I am going to do some portfolio
adjustment. I am selling most part of my OBCHX mutual fund that I recommended
in June 2014. Why am I doing that? Because I have another good mutual fund that
is performing better in last few years and has a very low expense ratio. After
doing a lot of analysis, I did decide to make the adjustments. Please note that
I still have some OBCHX in my portfolio but will not be there as part of my
Blog portfolio. There is no harm in keeping both funds. Fidelity China Region mutual fund is from Fidelity. This fund normally invests at least 80% of assets in
securities of Hong Kong, Taiwanese, and Chinese issuers and other investments
that are tied economically to the China region across different China region
countries.
Why do I like this fund? As I wrote in my January Blog, this year I am expecting that
China and India market would perform better. U.S market is expected to remain
volatile and investors could look for growth outside US stock market. Though
China’s GDP growth has been shrinking for last couple of years, it’s still
expected to grow around 7.3% in 2015. In comparison, U.S GDP growth projected to
be 3-3.5%. Federal Reserve has already cut the interest rate
and next step is to increase it. But China will
continue to cut interest rate to stimulate their economy. Oil
is one of the major components of the budget for emerging counties and thus far, they are overall positives.
This mutual fund provides diversification to emerging market
particularly China Region of Asian counties. Now let’s see the performance of
the fund and why do I like this over OBCHX.
Year-to-date
|
1 Year
|
3 Year
|
5 Year
|
10 Year
|
|
FHKCX
|
0.88
|
4.46
|
16.20
|
8.08
|
11.32
|
NAV: 30.36. NTF: No Transaction Fee.
Fund Inception: 11/1/1995
Morningstar Rating: ***** (5 Star)
Minimum Investment: $2500
Load: No Load in Fidelity. No Transaction Fee in Fidelity.
Expense Ratio: 1.01% (LOW).
Beta: 0.93 è Risk: this is less volatile comparing to
market move.
Fund Manager:
Bobby Bow since 10/1/2011
From the aforesaid
fact, we could see that it might not have given exceptional return unlike some
of my earlier mutual funds, but it is still a very good fund that gives us
diversification and growth prospect in Asian Market. Also the fund is trading
at about 15% discount to its pick. As such, it may be right time to allocate
some portion of the portfolio for better return. As I say, Mutual Funds are
long-term investment but sometime we need to amend our portfolio to take
advantage of better opportunity rather than justifying our stand.
Blog Portfolio
Equity
|
Suggested Price (USD)
|
Current Price (USD)
|
Suggested Date
|
% Changes
|
My Opinion (see disclaimer)
|
STOCK
|
|||||
AAPL
|
56.12
|
118.93
|
1/25/13
|
112%
|
BUY
|
BIDU
|
86.43
|
211.78
|
4/18/13
|
145%
|
BUY
|
GOGO
|
14
|
16.14
|
9/1/13
|
15%
|
BUY
|
SLW
|
22
|
22.33
|
10/1/13
|
1%
|
HOLD
|
FB
|
47
|
74.47
|
11/13/13
|
58%
|
HOLD
|
TSLA
|
135
|
217.36
|
11/13/13
|
61%
|
HOLD
|
AGNC
|
18.02
|
21.55
|
12/14/13
|
20%
|
BUY
|
MA
|
78.7
|
84.16
|
12/12/13
|
7%
|
BUY
|
NLY
|
9.52
|
10.5
|
2/2/14
|
10%
|
HOLD
|
KO
|
37.33
|
41.45
|
3/9/14
|
11%
|
HOLD
|
KNDI
|
19.4
|
12.97
|
3/9/14
|
-33.1%
|
HOLD
|
AMZN
|
311.73
|
374.28
|
4/12/14
|
20%
|
BUY
|
BAC
|
14.64
|
16.49
|
5/11/14
|
13%
|
BUY
|
QIHU
|
85
|
52.68
|
6/22/14
|
-38%
|
SOLD on 2/19
|
BX
|
33.33
|
36.08
|
8/24/14
|
8%
|
HOLD
|
VIPS
|
22.68
|
22.96
|
11/23/14
|
1%
|
BUY
|
GILD
|
102.21
|
97.48
|
1/11/15
|
-5%
|
BUY
|
ALNY
|
89.1
|
89.1
|
2/6/15
|
0%
|
NEW
- BUY
|
ETF
|
|||||
GDX
|
27
|
21.33
|
4/1/13
|
-21%
|
HOLD
|
NUGT
|
27.38
|
16.11
|
9/21/14
|
-41%
|
HOLD
|
IYT
|
158.94
|
160.34
|
1/11/15
|
1%
|
BUY
|
MUTUAL
FUND
|
|||||
FBIOX
|
124
|
229.44
|
3/1/13
|
85%
|
Accumulate
|
PRHSX
|
55.17
|
70.99
|
2/2/14
|
29%
|
Accumulate
|
FSCHX
|
141.21
|
149.71
|
4/12/14
|
6%
|
BUY
|
OBCHX
|
14.26
|
13.64
|
6/22/14
|
-4%
|
SOLD
|
FSCRX
|
27.3
|
30.01
|
10/25/14
|
10%
|
BUY
|
GASFX
|
29.71
|
30.26
|
12/20/14
|
2%
|
BUY
|
PRMTX
|
63.52
|
65.81
|
12/20/14
|
4%
|
BUY
|
FHKCX
|
30.52
|
30.52
|
2/8/15
|
0%
|
NEW
- BUY
|
Note: Sold QIHU
Earnings Update
Apple
Inc. (AAPL): On 1/27/15, Apple reported Q1 revenue of $74.6 billion, up 29.5% year over year, which
blew past Street’s estimate of $67.7 billion. The EPS came to $3.06,
which was significantly higher than the Street’s estimate of $2.60, a growth of
48 percent over last year. It sold 74.5 million
iPhones last quarter. It declared a dividend of 47 cents to be paid on
February 12, 2015. Apple watch is expected to ship in April 2015.
Facebook (FB): Facebook reported fourth-quarter revenue of $3.85 billion, an
increase of 49% from previous year beating analyst estimates of $3.77 billion. It earned $701 million, or 25 cents per share, up from $523
million, or 20 cents per share, in the same period a year ago. The adjusted
earnings were 54 cents per share. Analysts had expected 49 cents a share.
Amazon.com (AMZN): After a long time Amazon came with some
earnings that excited Wall Street. It earned 45 cents a share, soaring past
expectations of 17 cents, but revenue of $29.33 billion trailed Analyst
estimate of 29.67 billion. The company projected first-quarter sales of between
$20.90 billion and $22.90 billion, compared to Street estimates of 23 billion.
Gilead Sciences Inc. (GILD): The Company generated $7.3bn in revenue and earned $2.43 per
share in the fourth quarter compared to $0.47, on revenue of $3bn a year earlier.
Analysts had expected $2.22 in earnings per share and revenues of $6.76bn. However, it said it
expected product sales in 2015 to be between $26bn and $27bn, less than the
$28bn typically forecast by analysts due to lower cost for the hepatitis C
medication.
Bank of America (BAC): It reported $3.1 billion in fourth quarter net income on $19 billion in
revenue, down from the $3.4 billion in earnings on revenue of $21.7
billion the bank reported a year ago. Earnings per share were 25 cents
compared with consensus estimate of 32 cents.
The stock took a hit. I feel it’s still a good stock for long-term
investment.
Economy News to watch next week (week
/2/9/15)
Tuesday:
Wholesale
Inventories
Thursday:
Retail
Sales
Thursday:
Business
Inventories
Thursday:
Initial
Claims for Unemployment
Also you can go to the following URL:
Source: Marketwatch.com
Folks, that’s all for today. Wish you good
investing! Stay tuned for my next month’s blog. Thanks for your time. If you
want to get alert on my action then please subscribe to shesagroup_invest@googlegroups.com. Also, feel free to send me your comments
and suggestions or alert request to shesa.nayak@gmail.com
Disclaimer: This blog is meant to
provide my personal opinion rather than professional recommendation to buy/sell
any stock, ETF, mutual fund or any other security(s). As an investor, it’s your
hard earned money and you decide what is best for you. The above are solely my
own opinions. Please contact a professional money manager to buy/sell any
security. I do not earn any commission by writing the blog. I have position(s)
on whatever security I write on my blog and avoid recommending any security
that I do not own or follow.
Note: Click on Blog
archives to read all my Blogs and
updates.
Comments
Post a Comment