Sectors

Sector Review

Oil, gas and mining are good in future when oil prices bottom out, but not now. Regardless of what King Salman of Saudi Arabia does, he will most likely continue to out-compete shale oil to maintain market share for OPEC and hence, his kingdom. For this year, I shall not look at oil, gas and mining.

Banking and finance may benefit from rising interest rates (not bailouts) in future, though non-performing loans to oil and gas-related companies may be a concern, so Standard Chartered, HSBC are out for me, but maybe Aviva or Barclays look better with lesser exposure to 'bad markets'. Rationally, they are worth holding.

Telecoms are always stable. In the long run, telecoms stocks may benefit from ecological-friendly innovation, advancement in fiber Internet, particularly Google Fiber in the United States and Broadband Connection Voucher Scheme in the United Kingdom. If they partner with other organizations to create a super-connected economy, even better for them. With substantial capital investment, I expect the telecommunication companies to do even better than most of the other sectors in future, and the most innovative telecom may earn bigger monies. Similarly, engineering stocks that build the future of our economies, especially those that support telecoms' businesses, will grow faster than the average listed company.

Pharmaceuticals are subjected to patent revocation and government policies to 'lift' patents to lower healthcare costs, as seen in India. Also, alternative medicine could lead to some diversion away from chemical drugs, particularly from governmental efforts in China and South Korea. There will be no dominant pharmaceutical firm in the future. I do not favor this sector.

'Sin' stocks as a whole interest me. There will always be great demand in alcohol, tobacco, gambling and, relating to our never-ending desires for more, consumer goods. Demand for this sector is particularly fickle, but there is consolidation here. I do not think we experience the full impact of  restructuring in this sector so far.

Property stocks may hurt from rising interest rates. Those that do not handle decreased market demand well, with worse cash flows, may be hurt in future. However, there are property developers who may use the window of opportunity to snap properties, hence they will grow in future. For now, though, I look at companies that deal with industrial space, and not companies that deal with commercial and especially residential spaces.

Noble Hit Iceberg! Sell It!

Noble Group hits the Iceberg. Today, share prices of Noble Group dropped by 9%, in light of a report by Iceberg Group that Noble is the next Iceberg.

We should have read the signs - actually, I think I did, but who will ask others to sell stocks they do not hold?

I do not understand the world of commodities, and I never will. I do not know the people behind Iceberg Research, who claimed Noble is the next Enron. But I know a few pieces of evidence why Iceberg may be right:

(1) Management-auditor conflict. 'Ernst and Young retire' in Page 76 of their 2013 Company Report. Unless forced by regulators, there is no good reason why a reputable company like EY would not continue do auditing for a listed company.

(2) Higher-than-optimal financing costs. They are at US$400 million, which is almost 1.6 times more than the stated profit of US$238 million. When financing costs are much more than profit, they are really sensitive to various market factors, from the drop in prices of commodities to a rise of interest rates. Both already happen because of the end of quantitative easing and the increase of production by OPEC lately.

(3) Loss of control of Noble in its associates, due to the Difference in scale of the main company and its associates and Joint Ventures (JVs). If Noble's associates have larger losses (associates lose US$107 million) than the main company (with a loss of US$66 million), then I do not know whether Noble really has control over the associates.

Regardless of who is making such statements that Noble is the next Enron, even if s/he may not be credible as we do not know the people behind Iceberg Research, the facts above from its previous company report show that Noble is indeed in deep trouble.