As I wrote two weeks ago, I bought Rio Tinto (RIO), BHP Billiton (BHP) and Boart Longyear (BLY) at what I thought – and still think – were attractive prices. That BHP and Rio are even cheaper today to me makes them even more attractive. Boart Longyear is already starting to run away.
Not everything has been rosy in my portfolio. In the last couple of months I took a big hit on the chin when Cochlear (COH) had a recall. As regular readers of my column would know, I had a big holding in Cochlear (for me) that I had bought over a number of years at an average price of $61.78. It was $72.18 at the close on 9 September before the market was informed of the recall. The stock immediately plunged to $57.50.
I could have sold out with no big loss when dividends are taken into account – but I didn’t. To me Cochlear has a great story and the pre-emptive nature of the recall could well stand it in good stead in the future. It got as low as $45.77 on the market bottom on 4 October. Already, it is above $60 again. To me, news of this nature causes panic selling. It may not get back above $80 again anytime soon. I just didn’t want to get lost in the panic.
Current broker forecasts have a median target price of $57 and a range of $43.75-$80 for Cochlear. That is, the brokers on average expect its stock price to fall from here and their recommendation of a ‘3.3’ supports that.
Previously, I have written that I wouldn’t buy a stock with a poor broker recommendation (read, What not to buy: Part 4 – what the brokers say), but I also wrote that I wouldn’t necessarily sell. Had the downgrade been due to general factors, I might have sold by now, but it wasn’t.
Because I have followed this stock closely each day from my first buy in June 2007 to the present, I feel I can make an informed view on the impact of a recall. Had I held 50 or more stocks, I probably wouldn’t have been as confident. Had I not had an SMSF, a fund manager may have sold me out at the wrong time. To me, it is now at least a hold – that is, until I learn more.
In the meantime, I think things are going to get better for stocks.
After two brutal months in the market, the rally that took us back over 4,200 on the ASX 200 could have the legs to take us through to Christmas. I don’t believe in Christmas rallies and such stuff, it is just that the stars are aligning.
Let’s look at the positives:
1. Obama came up with the Jobs Bill. It’s getting nowhere in Congress, but it was the thought that counted. The market rallied.
2. Double dip fears of recession for the US have gone for all but the committed. Recent economic data kept surprising on the upside. Companies like Caterpillar in the US not only reported strong earnings and revenue, they are very optimistic about their future – and Caterpillar’s future is based on growth in infrastructure and agriculture around the world.
3. As the US elections get closer, there is now talk of a third quantitative easing package (QE3). Remember, it was QE2 that fuelled the last big rally from September 2009 and the recent correction back down was without any QE.
4. Fears of China’s hard landing melted away as its data – including inflation – improved.
5. India overtook Japan to become the third largest country in the world (by GDP) behind the United States and China. Our region continues to gain in strength.
6. The EU missed getting its act together by last Sunday (23 October) as promised, and won’t have it all together by today, but it seems they will have at last got the ball rolling. Markets rallied very strongly last Friday and Monday on the strength of these rumours.
7. There is now hope – and certainly reason – for the Reserve Bank of Australia to cut interest rates soon, if not on Melbourne Cup Day. I spoke about why I believe we should get a cut on SWITZER last week, and you can watch a replay on Super TV.
8. The G20 (Group of 20 Nations) is expected to present a global approach to solving the European debt crisis when it meets on 3 & 4 November. Even China is expected to throw its hat in the ring.
Of course, those on the sidelines have missed the first 10% of the rally, but such is life. Although I have remained reasonably confident throughout the last two months – and only sold to reduce risk in my margin loan – no one (including me) was certain that we would be at this stage by now.
It is so important to ignore lost opportunities and focus on the future.
Woodhall Investment Research Pty Ltd
ABN 17 141 486 160
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