Tuesday, January 30, 2007

Little Boys Fighting Inside a Sack

Something is afoot but it is not clear what.

In the past six months W.R. Grace & Co. a big chemical company has increased in value by 140%. Its market capitalization has gone from $600 million to $1.47 billion. That is a LOT of money to increase on no increase of earnings. Its p/e ratio has risen to 80, unthinkable for a big industrial company. One of the things Grace makes is catalysts which make heavy crude into light crude. They also make chemicals for desulfuring petroleum. It may be that Bush's decision, announced in his State of the Union address, to double the size of the emergency reserve was made months ago and known to some but not to all. Could that happen? Is the pope a Texas oilman?

Anyway, here are my stock picks for today, based on best balance between volatility and appreciation -

GRA - W.R. Grace. Though a huge old line company, it has to be considered dice-y with that high a p/e ratio, and because it has already appreciated so much. It might be worth a small flyer.

TRA - Terra, another chemical company, makers of nitrogen products. Has a big facility in Trinidad and Tobago. Up 90% in last six months. A very smooth low volatility chart since August.

CHL - Chinese Mobile Phone company - up 91% over last 12 months, 48% over last 6. Not a US company so lower beta to NYSE.

PCP - Precision Cast Parts - High-tech metal fabricator. Sells to aircraft industry, military, and many others. Another huge old company. Up 79% over 12, 50% over 6.

HAS - Hasbro - makes toys, children's books, and media. A big old line company. Up 33% over 12, 51% in the past six months. Notice that it went down over the first six months. Not a good sign but not too significant since the market was generally going down until the August turnaround.

DB - Deutsche Bank - The largest bank in Europe, it also does business in the US. Most of its assets are Euro-denominated so, assuming that the shares are in the whole bank and not just the US branch, its appreciation represents in part the decline of the dollar. It is up 32% over the year, and 27% over six months. That is not as large an appreciation as Grace or Terra but it has been amazingly steady since the turnaround. Its chart since August has been an almost straight line.

This is a perfect example of the value of the buy-low-volatility strategy. Since the price range is so narrow, any price move outside the range will be instantly obvious and should be followed by immediate sale.

Logically, the safer the investment the larger it can be. The scarier it is, the smaller the bet. A buck on Deutsche Bank, a dime or a nickel on Grace?

3 comments:

  1. Badda Bing9:25 PM

    It all fits so well....Jimmy Carter defends the Palestinians and Jack Kessler invests in a Nazi Bank. Remember, you're the one who brought the Toyota dealer to my house so I wouldn't by Kraut car.

    ReplyDelete
  2. You underestimate me, my dear Bing (Weren't we on The Road to Morocco together?). Of the two main companies I have invested in, one eventually sank like a stone and the other ultimately went out of business entirely. I would invest in an Arab Bank if they were publicly traded.

    ReplyDelete
  3. In the end cooler heads prevailed and I bought shares on margin in an Anglo-American fertilizer company with its main plant in Trinidad & Tobago. What could be saner or more obvious?

    ReplyDelete