Shesa's JUN/JULY 2016 INVESTMENT BLOG

        4 July 2016

JUN/JULY 2016 Investment Blog

Shesa Nayak

Wishing all the readers in USA “Happy Independence Day”. Apologize for not able to publish my JUN blog on time due to BrExit phenomena. As I wrote to my investment group members, I wanted to study and analyze the impact before publishing my blog. Thanks for your patience.

U.S. Stock Market Commentary: There were a couple of major events those took place in last few weeks. First, the Fed meeting on June 17, as expected there was no interest rate hike. Second, the Brexit poll that took place on 23^rd June wherein Britain voted to get out of European Union. After the vote, more than $3 trillion in world equity values were erased. However, the markets have bounced back nicely in last few days. What are the consequences BrExit? What does it mean for our investment? I will pen more but let’s first take a look to the U.S Stock Market Indexes.

U.S. Indexes	4-Jan 2016	Friday Close	Year-to-date change	YTD % Change	52 Week High	Change from 52 Week High (%)
DOW	17425.03	17,949.37	524.34	3.01	18,167.60	-1.20
S&P 500	2043.94	2,102.95	59.01	2.89	2,132.82	-1.40
NASDAQ	5007.41	4,862.57	-144.84	-2.89	5,231.94	-7.06

Economic Reports

Interest Rate: In June Fed official decided not to hike interest rate as expected. Now after BrExit, no body knows what will be the economy consequences. Despite the fact that U.S. economy seems to be doing better than other major economy, it would be immensely risky for Fed to raise interest rate. Hence, I feel there would not be any interest rate increase in the foreseeable future.

Second Quarter earnings will be release by the corporate world in next couple of weeks. This will give us further input on how corporate views BrExit consequences. Today, it would be a long blog, I suggest the readers to visit the following link for more economic reports:

http://www.marketwatch.com/Economy-Politics/Calendars/Economic

Source: Marketwatch.com.

BrExit – What does it mean for Investment?

The world is currently going through a weak-growth and high-debt global economy. Thus, Brexit was enough to start a financial panic. The good news is that markets have bounced back in last few trading sessions. But let’s do an impact analysis and see the negative and positive impacts for U.S market.

Negatives: There are many countries those may follow Britain and look for Euro Exit in next few months or years. The U.K. itself may face an additional exit referendum from Scotland. There could be GrExit (Greece), Sweden, Hungary, Netherland, Denmark and more importantly France.

Though, U.S. economy and stock market seems to be stable comparing to other parts of the world. However, we must understand that there are macroeconomic consequences of Brexit. U.S. manufacturing sector seemed to be recovering but now it could put serious pressure, as U.S. dollar could get much stronger against the euro. This puts additional downward pressure on typically weak U.S. growth momentum. This could also put pressure on emerging markets, particularly China. Strong dollar could impact commodities as well. Gold has been an exception due to the uncertainties across the world. We will discuss more later on.

BrExit could push capital away from that region and towards other markets including the U.S and Japan. The European Central Bank will be compelled to raise its quantitative easing and that could further put pressure on other European nations. Yesterday, there was news that U.K would reduce its corporate tax in order to attract foreign investment and keep the existing ones.

There is high possibility that business spending and hiring could potentially put on hold to see where the dust settles. The interest rate could come down further in many parts of the world, even U.S. Low interest rate can be better until certain point as long as it does not create deflationary environment. There could be many other impacts, which is difficult to write on a blog.

Now let’s see some positives.

The U.K. accounts only 2.4% of global GDP. That means even a full-blown recession there should not create havoc on the World market. The actual disengagement from the EU is more than two years away. As a matter of fact, it’s difficult to see out that far. However, by then, Europe and Britain could possibly be in the midst of a robust recovery.

Brexit may prompt many wealthy foreigners to sell U.K. real estate and think of investing in stable market like U.S. That could increase demand for U.S. real estate.

U.S market is still enjoying low inflation, rock-bottom interest rates, strong U.S. job creation, cheap energy and rising corporate profits. Investors should think long term and ignore short-term market fluctuations. When emotions run high securities get mispriced. That can create bargains. The risk is, these same securities may be even further mispriced next week. From a long-term perspective, this isn't terribly important. However, if we are a trader than that’s very important. I look in terms of investing, though some trading at times is important too.

Now, let’s discuss two stocks that I have included in this month’s blog.

Barrick Gold Corporation (ABX)

Barrick Gold produces and sells gold and copper located in Toronto, Canada. It conducts mining, development and exploration, and other activities in various countries, including USA, Canada, Australia, Argentina, Chile, Peru and many other parts of the world. ABX happens to be one of the largest gold mining comp-any in the world. As I write this blog, gold is trading at $1350.21 per ounce. The company stock is trading at $22.21, almost at 52-weeks high. Why do I still like to add to my Blog Portfolio at its pick?

There are various reasons why I think gold price could still go higher:

• Reduction in Global gold production: Despite the rise in gold prices, gold production is coming down. It is expected to decline over the next several years even as prices increase, as miners have become much more disciplined after experiencing terrible gold prices for last several years.
• BrExit, Global Monetary and Fiscal Policy Outlooks: Gold has started gaining further momentum after BrExit due to increased risk and uncertainty. It’s expected that more countries may follow BrExit route. Also, there could be further economic stimulus from Europe, Japan and Fed may not increase interest rate soon. This bodes very well for gold.
• Indian and Chinese demand for gold may continue to rise: Indian demand unexpectedly dropped due to jeweler’s strike to protest against a proposed government excise duty. The recent increase in gold prices has lowered jewelry demand in China. These may not last long and again the consumers of these countries could potentially start buying sooner or later.
• Central Banks may increase gold position due to continued uncertainties in the world

Why do I like ABX?

In addition to being one of the largest gold producers, ABX has substantially lowered its mining costs in last few years and making consistent effort to reduce debt. The company has witnessed a remarkable turnaround in just a few years. Barrick Gold has lowest all-in sustaining cost projection this year, at around $785 an ounce. It has also been very prudent in expanding only its highest-grade ore mines and selling some of its expensive mines. As bullish sentiment in commodities continues, ABX will likely to hit new 52 weeks high. It seems institutional buyers are accumulating this stock. Now let’s see the fundamentals:

Market Cap: $25.88 Billion

Revenue: $8.71 Billion

Quarterly Revenue Growth: -14.0%

Gross Profit: 2.12 billion

Earnings Per Share (EPS): -2.56

PE Ratio: N/A

Forward PE: 29.61, Price to Sales: 2.85

Institutional Holding: N/A

Return on Equity (ROE): -29.45%

Total Cash:  2.32 billion

Debt: 9.13 billion, Beta: -.20

52 Week High: 22.32, Low: 5.91

My thoughts/Risks: Fundamentally, it looks more like the Banks after 2009-mortgage crisis. Hence, it may not look exciting from fundamental point of view. However, if gold prices continue to rise as expected then this stock is going to make new highs. Please note that gold stocks are very volatile like biotech stocks. So caution is warranted. However, ABX is one of the high quality stocks in the group and I am willing to take some risk. Most of the time, I buy in a phased manner, do dollar cost average and don’t hesitate to take profit when required. Also, it’s a good idea to put a 25% trailing stop to avoid any major downturn.

Intrexon Corporation (XON)

Interxon operates in the field of synthetic biology. The company, designs, builds, and regulates gene programs, which are DNA sequences that consist of key genetic components. Synthetic biology is a new branch of science, which combines biology, biophysics, genetics and engineering, enabling the redesign of existing biological systems. It also fabricates new biological components that do not already exist in the natural world. XON is creating biotech products in healthcare, energy, food, environmental services and consumer goods. It’s the publicly traded leader in the sector. Most of its products are still in the development stage with major partners, including University of Texas MD Anderson Cancer Center, Johnson & Johnson and drug giant Sanofi.

Intrexon acquired a company known as Oxitec, a company that aimed at controlling agricultural pests and mosquito-borne illnesses, such as dengue, malaria, and yellow fever. A few months ago, the emergence of Zika virus brought the company to the front pages of publications across the globe. The company came out with robotic mosquitos. It’s being tested in Brazil and had a plan to test it in Florida. Florida is on hold due to some legal issues and that’s when the stock was beaten down heavily.

As a small biotech company it does not have a great fundamentals. Most of it is dependent upon how the company succeeds. A few notes on fundamentals:

Market Cap: $3.12 Billion

Revenue: $183.19 Million. 

Quarterly Revenue Growth: 28.30%

Profit: N/A

Institutional Holding: 82.90%

Total Cash:  260.49 Million

52 Week High: 69.45, Low: 18.52

My thoughts: Currently, it’s trading at $26.37. It had a 52-week high of $62.45. As such, it’s trading 62% discount to its high. I have already bought a good number of shares. The stock is very volatile and has the risk of coming down further or moving up faster. I have invested keeping long-term perspective, though some shares can be traded on swing. I believe that the company holds a very good future in long term. But I don’t forget to take profit when required. It’s always better to buy such stock in a phased manner and do dollar cost average, as it’s prone to volatility.

Risk(s): At this time, neither it has any profit nor going to make profit soon. It will be diligent to carefully invest and be ready digest volatility, otherwise better to avoid. Risk and reward both are high and it’s difficult to predict which way it goes. However, I am invested for longer term and may put a trailing stop at 25% from the buy price.

Shesa’s Blog Portfolio

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)
STOCK
AAPL*	54.09	95.89	1/25/13	77%	HOLD
BIDU	86.43	165.19	4/18/13	91%	HOLD
SLW*	21.8	24.78	10/1/13	14%	BUY
FB	47	114.19	11/13/13	143%	HOLD
TSLA	135	216.5	11/13/13	60%	HOLD
MA*	78.06	88.85	12/12/13	14%	HOLD
AMZN	311.73	725.68	4/12/14	133%	HOLD
GILD*	100.92	84.86	1/11/15	-16%	HOLD
ALNY	89.1	61.44	2/6/15	-31%	BUY
MO*	52.03	69.02	9/13/15	33%	BUY
ILMN	171.15	140.73	1/15/16	-18%	BUY
SKX	31.88	29.38	2/21/16	-8%	BUY
BABA	67.28	79.65	2/21/16	18%	BUY
JBLU	20.44	16.64	4/24/16	-19%	HOLD
JD	23.45	21.31	5/22/16	-9%	BUY
ABX	22.21	22.21	7/4/16	0%	NEW BUY
XON	26.37	26.37	7/4/16	0%	NEW BUY
ETF
GDX*	26.88	29.05	4/1/13	8%	BUY
INDA	31.94	28.28	3/15/15	-11%	BUY
ASHR*	28.46	23.59	3/15/15	-17%	HOLD
INCO	34.46	33.74	5/15/15	-2%	BUY
IHF*	139.1	127.14	8/16/15	-9%	HOLD
XLY	77.76	78.87	8/16/15	1%	HOLD
PJP	69.43	64.1	10/18/15	-8%	HOLD
EEM	32.5	34.69	11/15/15	7%	BUY
MUTUAL FUND
FBIOX	117.73	172.87	3/1/13	47%	HOLD
PRHSX	55.17	63.43	2/2/14	15%	HOLD
FSCHX*	135.91	138.62	4/12/14	2%	BUY
FSCRX	27.3	27.68	10/25/14	1%	HOLD
GASFX*	28.31	29.58	12/20/14	4%	HOLD
PRMTX*	63.38	70.41	12/20/14	11%	Accumulate
MINDX	26.94	27.18	6/14/15	1%	BUY
MCDFX	14.11	13.47	12/9/15	-5%	BUY
FSRPX	95.46	106.36	1/15/16	11%	BUY
FBSOX	38.78	39.21	3/20/16	1%	HOLD
* Indicates dividend adjusted

Positions closed in after my last blog:

Equity	Sales Price	Buy Price	Date Sold	Gain / Loss (%age)
SFUN	5.55	9.57	6/3/16	-42%

Company Updates

None.

That’s all for today. Wish you good investing! Stay tuned for my AUG 2016 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 merely my own opinions and some of the information provided may not be correct. 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.