Our Best Picks 9/10/2012
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Andrew P
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I got onto AMM pre-consolidation and again at the 80c range but recently sold part of my holdings – with a current PE of over 20, the company is being priced for strong growth, which is always dangerous. No longer flying under the radar IMO.
david klumpp
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Roger, you correctly pointed out in response to my comment, that there are 2 forms of IV calculated in Skaffold (average and actual). The one upon which I based my comments was the actual, and this showed all 5 of your selection appeared to be way overpriced relative to IV. If I use the other form of IV, then the “overpriced” tag is even more obvious. However, I realise you use other factors in your judgements on shares (as you have pointed out), indeed as we all should. Agree with David M that EAX looks good, its in the right space of energy management and has a good record (ROE 50-60% in past 2 yrs) so far. Its been on my buy watch list for some time; my only concern is as far as I know there are no analysts covering it.
David Martin
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Roger, don’t know if you missed this one – EAX ROE 36%, no debt, 3% div yield. The price may be consolidating after a good run.
Roger Montgomery
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We like it. Lists are never exhaustive.
Elizabeth Kitchen
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Hi Roger,
Thanks for sharing some of your (our) investments. Some of the money invested is mine, so I’m interested. I looked up the 5 in the Mont. Fund on Skaffold, and I found that all 5 were trading at above the Intrinsic value on 17 August. AMM was a B3 with an ROE of 9%. What do I not understand? You taught us to look for businesses trading at a discount to IV. By the way, Skaffold gave us an exercise the other day, using filters and cutting from the Table screen, and I finished up with 7 companies with Safety Margin above 20%, all A1 or A2, all with good forecast EPS, and all but 2 connected with mining in some way. They are: HOG, MYE,FLT, LYL, NST, CWP, ASL. Do you reckon it is a good idea to invest in mining-related companies at the present time? (I got rid of my BHP and MGX some time ago.)
Roger Montgomery
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Hi Elizabeth,
Skaffold is the largest part of our investment process because so much as gone into producing its results. We also have a couple of other herbs and spuces (for example we do our own work on earnings expectations) and that might produce a different outcome such as a faster rate of IV growth.
Regarding mining and mining services, there are many ‘experts’ who now think commodities will rise substantially next year. That is possible and if it happen’s then we will probably see minings services and mining business rally. I have previously expressed my concerns about mining services and commodity prices and subsequently seen Iron Ore fall from $140/t to $87/t. I don’t know what happens to prices in the short term, but longer term I think the price of commodities like iron ore could fall a lot further.
In such scenarios we simply stand aside. We own FLT and CWP. That is not a recommendation of course for you to go and buy them of course, you must seek and take personal professional advice.
Simon Stewart
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Hi Roger,
Looking at your five best performing stocks in the retail fund, according to Scaffold and value.able principles I would be making a sell recommendation. Take your profit and run. As David says all well above current and predicted intrinsic values. Unless of course you know more than the information contained in Skaffold?
Simon Stewart
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Hi Roger,
I notice in your private fund you mention Silver Lake Resources as one of your top 5 biggest holdings and your preferred gold related stock. I also hold SLR in my portfolio in addition to Northern Star Resources and Saracen Minerals. No doubt gold related resource companies have performed well lately. The following summary is how these three have performed since I added them to my portfolio.
Company Skaffold Date Buy Price Current Price % Change
NST A1 10/08/2012 0.980 1.250 27.550
SAR A4 06/08/2012 0.385 0.550 42.750
SLR B2 29/08/2012 3.110 3.900 25.400
The reason I added these to my portfolio was based on discount to projected intrinsic value in Skaffold looking forward over the next 3 years. Other factors considered was the current debt levels, the current mine developments and ore grades and predicted gold price due to global monetary policy.
So far so good……but it is just a prediction and deserves close monitoring.
Simon
Phil Morton
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Roger, I am still trying to understand skaffold and best how to use it … is it possible to give an idea of the approx. date you purchased the shares mentioned above in the private fund (SEK, TRS, CSL, MMS) so I can review available skaffold data (I appreciate some data is updated). Thanks.
david klumpp
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Roger thank you for sharing this list. My comments to promote discussion are as follows. With the aid of Skaffold I can see that most of the 5 from your Retail Fund are high quality companies (A1, A2) except for Big Air which is B3, and as such most have good returns on equity (except UXC and Amcom ROE 9%) and low debt, and with expected good growth in IV (14% Big Air to 43% /y for Integrated Res). Interestingly all are in technology (medical or communication/IT) and in exciting, high- growth areas. No doubt you have done well to pick them given the recent surges in share price. However, if such a list was extracted by me now, I would be reluctant to invest because they are all distinguised by large negative margins of safety (-37 to -47%). Even with projected growth in earnings over next 3 years, at current share prices all five appear quite expensive. Of course this is dependent on accuracy of analyst forecasts of future earnings, upon which Skaffold is based. Nevertheless it provides a list of interesting companies to watch in the event of a market sell down.
Roger Montgomery
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Note Skaffold does produce a couple of valuations for each company.
Michael
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Interesting that CCP isn’t mentioned for either fund. I have been keen on this for a while, but have been waiting for a decent fall to buy in. Interested to know your teams thoughts on this stock going forward, especially the upcoming AGM.
Roger Montgomery
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We didin’t every stock Michael but CCP is currently held and we’ll watch with interest.
Andrew Legget
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Roger,
Don’t worry about dfisagreements (i know you don’t anyway), what is the fun of having a blog where everyone agrees with eachother all the time? It is far more fun and interesting when there are differing views as that is when you learn and maybe you have even learned something from past comments by some of our educated commentators.
Interesting groups of companies in the two portfolio’s, i particularly liked the private fund portfolio. Don’t really know much about the smaller ones, i will have to have a think about what i think of them as i have never looked at them in the past. I think they may not fit inside my portfolio criteria.
I am a big fan of Seek and have been for a long time, i think i had it rated as number two on my list of internet list companies behind REA. Seek definitley is the must use platform in the recruitment industry from my experience and has a nice little network loop working for it although other platforms such as Linkedin are being used for the more headhunting side of things.
The more i learn about investing related areas companies like CSL are looking more attractive to me as the goods in some cases are neccesities and have very few substitutes. Some of the pharma and biotech products going around through different companies are about as inelastic in the demand side as possible which allows it some very decent pricing power. Still on my “need to learn more” list.
Nigel Stemson
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I’m curious why you had chosen Integrated Research
Looking at Skaffold I see that although it has no debt, it ticks that box,
But, you teach us to that great candidates are those that retain earnings to accelerate growth, however it is paying out most of its earnings as dividends, and not retailing earnings for growth, hence equity is fairly flat over the years and forecast change in value is 2.75%, hence it doesn’t tick that box.
Roger Montgomery
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Companies that pay all their earnings and yet still grow earnings are worth exploring further..