Blood on the streets? Oil on the water? It might be time to buy BP
Companies selling bananas, baguettes, drugs and virtual pets could be hot stock buys, says Roisin Burke. Not to mention BP shares
Published 20/06/2010 | 05:00
DILBERT cartoonist Scott Adams hates oil giant BP for what it's done to our blue planet -- but he's putting his money on it.
Writing in a recent Wall Street Journal piece, the famous graphic artist said: "When I heard that BP was destroying a big portion of earth, with no serious discussion of cutting their dividend, I had two thoughts -- one, I hate them, and two, this would be an excellent time to buy their stock. So I did."
The terrible reality is the perpetrator of the massive pollution disaster in the Gulf of Mexico just might be a great speculative share punt. You'll go to hell for it, of course, but you could score a nice cash windfall to smooth the way first.
Then there's the investment bank scion Baron Rothschild's advice to a panicking investor during riots in 19th century Paris: "The time to buy is when there is blood on the streets." Or oil in the water, as the case might be in the 21st Century context.
The Rothschild quip is often used to argue that, when markets tumble, like the rapid spiral seen on the Dow Jones Index this past week, and when investor sentiment is gloomy -- buy. The Dow Jones fell at a speed only seen once in 80 years during May.
The author of One Up On Wall Street, Peter Lynch, has a 'perfect stock' checklist. It includes buy pointers like "if it sounds dull, or, even better, ridiculous" or "it does something dull" or perhaps "it does something disagreeable" or if "the rumours abound: it's involved with toxic waste or the Mafia" -- it's a perfect buy.
Then, of course, there's the more traditional stock-vetting methods -- looking at long-term performance, well-managed companies, getting expert advice.
We quizzed the big stockbroker houses on what stocks might be a good bargain if you had a bit of spare cash. (And some people do -- stats show people are loosening the purse strings a bit on their savings lately).
We asked them for both 'safe' bets and speculative ones with longer odds, and a mix of both Irish and international listings.
We're not recommending you put your nest egg into any one share, or indeed any share at all, of course. As some of those signed up to managed funds that are faring as well as those oil-covered storks in the BP disaster aftermath photos might tell you, the experts do not always get it right either.
Safer bargain bets
You could do well by going a bit bananas with your money and buying Fyffes shares. The tropical fruit distributor "has a fantastic entry price", Mike Butler of Bloxham Stockbrokers said of its current 34¢ a share.
"It was really badly hurt on the back of the euro-dollar move," said Mr Butler, "but it has an experienced management team that's been there for more than 15 years and a fantastic business model. It has a huge dividend yield -- over five per cent."
Like many Irish stocks, Fyffes' price has had a terrible time in the past couple of years, now trading at a fraction of its price a few years back. Its foray into the property market in the form of a 40pc share of Blackrock International cost it nigh on €28m in losses.
The Irish-listed company is one of the biggest distributors in Europe of bananas, melons and pineapples.
BLUE CHIP tech STOCK
Shares in the cash-rich technology gigantors are looking good, according to Stephen Taylor at Dolmen Stockbrokers. "Intel and Microsoft have billions in net cash and no debt," he said. "Both are trading at 10 or 11 times' earnings. It's looking good for them in the next couple of years."
This week Microsoft launched a new games console for wireless, handsfree gaming called Kinect for Xbox 360, and its recent Windows 7 and Office 2010 gave profits a shot in the arm. "Then there's the upcoming corporate PC upgrade cycle due in the next 12 to 18 months," Mr Taylor added.
There could be dough to be made from the Cuisine de France French stick and croissant maker.
"Last week saw the company release a better-than-expected trading update," said Goodbody Stockbrokers' senior equity analyst Laura DeVoy. The leading frozen bread and pastries specialist also announced plans to make more than $1bn (€0.82bn) worth of acquisitions.
"Together these saw our profit forecasts for the company rise by circa four per cent for 2010 and circa 25 per cent for 2011," Ms DeVoy said.
"Aryzta is trading at a substantial discount to its European peers," she said.
"This would appear unwarranted given the company's strong track record of profit growth and synergy extraction on acquisitions."
"While the share price responded well to the announcements, it is still trading over €2.00 lower than the levels reached in mid-April," she added. Aryzta was trading at €30.32 a share at close of business on Friday.
Speculative bets that might go big
This is a long view one that Dolmen's Mr Taylor thinks could pay off in about four years, if the oil behemoth cleans up its disastrous pollution act in Florida.
"It's riskier, and there are all the political ramifications, but if BP does get through these shares could do well," he said.
"The stock is on its knees, 40 per cent down," he added. It is also in the throes of a fight about whether to give a dividend in the light of the disaster. "It hasn't said it will cut dividend yet, but even if it does it is likely to renew it within 12 months," Mr Taylor said.
"There are a lot of political mind games going on with the US mid-term elections approaching, but BP has a guaranteed €30bn per annum in cashflow and should be able to withstand this in the long view," he concluded.
How you feel about this ethically might be a whole different kettle of oil-coated fish. BP was standing at $31.98 on Friday, with perhaps more to fall.
"It's one of these things that could double in value in two or three years if things go well," said Bloxham's Mr Butler.
The small Irish pharma and giant international Novo Nordisk, the world's biggest maker of diabetes drug insulin, have teamed up on a new drug delivery technology called GIPET which massively increases absorption rates for oral medicines, potentially meaning no more injections for diabetics.
"It's a tiny little company on the cusp of something big," said Mr Butler. "It has patented the technology and nobody else can touch it. It's a huge story all around the world and a pretty big deal."
The Merrion Pharmaceutical's invention could work for other drug delivery such as cancer medications, too.
Merrion recently announced it had been granted a further US patent for its cancer drug, Orazol, which Mr Butler said should bear fruit in the next year.
Its share price stood at €3.55 on Friday.
Goodbody sees promise in investing in a recovery in global unemployment figures. It likes the look of this international recruiter, trading at $45.33. It's the third largest in the world, providing temporary staff to industrial sectors in the US and Europe.
"Having traded as high as $62 (€50.53) post the release of better-than-expected Q1 results in April, its share price has sold off sharply in recent weeks on worries that the turmoil in European debt markets will spill over into lower economic growth," said Ms DeVoy.
"Underlying trading, however, appears to be strong," she added. "Despite weak headline employment data in the US, the temporary staffing component has shown a strong and consistent recovery. In addition, industrial production in Europe remains very strong and recent euro weakness will benefit the industrial areas of the economy, to which Manpower provides its staffing services."