The Comprehensive Guide to Gold ETF Investing – ETF News And Commentary
Gold made a strong start this year, but it has been sliding for the last four months, due to a combination of various factors. However, if we look at the longer term, for the last eleven years, gold has been gaining popularity and seeing regular price increases.
Lingering economic concerns, the relentless Euro-zone debt crisis and a still high American unemployment rate is expected to continue to support the prices of precious metals this year also. Rising inflationary expectations due to continued easing of policies from the central banks and low interest rates across various developed and emerging economies are making investors shift towards precious metals like gold for safety in these uncertain times.
Acting as an inflation hedge, a gold investment is considered a safe haven investment in both the economic upturns and downturns. It offers diversification benefits for the long-term investors making it the most valuable and attractive metal in the world. (Read: Gold ETFs Surge On Fed Outlook)
Demand/Supply Balance
Gold is poised to benefit from the lack of other alternative sources of investments. Foreign exchange reserves are generally concentrated in the top rated fixed income assets and gold. At present, investing in U.S. treasury notes offers little in terms of yield and euro denominated debt is risky. As a result, the central banks, particularly in the developing countries, are increasing their holdings in gold reserves given the risks involved in the fixed income assets amid uncertain economic growth.
China has been the largest consumer of gold followed by India, which has trailed since last year. Both countries accounted for about 40% of the annual consumption on a combined basis. A slowdown in these countries would have an adverse impact on the demand of gold.
Finally, gold prices are inversely related to U.S. dollars since the global gold trade is priced in greenbacks. A sharp uptick in U.S. dollars can led to a decline in gold prices and vice-versa. (Read: Gold ETFs May Continue to Shine in 2012)
Given the increasing traction of gold as a safe haven, investors should include it in their portfolios. The development of gold ETFs had made this even easier for investors, as these products are liquid and can often come with lower expense ratios when compared to what investors usually see in gold bullion investments.
Types of Gold ETFs
Gold ETFs are divided in three categories: Futures, Physically Backed Gold ETFs and Gold Mining ETFs Equity. Each of which we will breakdown for investors looking to get in on this increasingly important market segment:
Physically Backed Gold ETFs
These ETFs seek to match the spot price of gold, net of fees and expenses, and own gold bars to back the shares. Each share represents a fractional interest in the trust. The two largest gold ETFs in the space are SPDR Gold Trust (GLD) issued by State Street and COMEX Gold Trust (IAU) issued by iShares. Two more options come from ETF Securities via their Physical Swiss Gold Shares (SGOL) and Physical Asian Gold Shares (AGOL). Although they are smaller funds, both trades with good volume, giving investors another option to trade in this category.
With total assets of $67.86 billion, GLD tracks almost 100% the physical price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. Each share represents about 1/10th of an ounce of gold at current prices.
On the other hand, IAU having AUM of $9.5 billion is backed by physical gold under the custody of JP Morgan Chase Bank in London. Each share represents about 1/100th of an ounce of bullion at current prices.
Though not a low-cost choice due to its 40 bps expense ratio, GLD does have a lower bid ask spread which could make total costs slightly less for this popular fund. IAU charges only 25 bps in fees a year making it the best low-cost choice in the entire gold ETF space. The product allocates 100% of its assets to gold on a daily basis, ensuring a good tracking error. While this is good, the bid/ask spread is worse than what investors see in the State Street product.
The other options have similar fees to GLD although they both beat it by one basis point. In terms of securing the commodity, SGOL holds physical gold bullion bars of secure vaults in Zurich, Switzerland while AGOL holds bars of secure vaults in Singapore under the custody of JPMorgan Chase Bank, USA.
With respect to performance, these products have delivered excellent annual returns of around 15% in the one-year period (March 2012). Being highly traded, investors might consider these products in their portfolio. (Read: Three Best Gold ETFs)
Future-Based Gold ETFs
These ETFs track the performance of the yellow metal using various derivative instruments such as futures, options and swaps. Investors seeking exposure to this category have a variety of options to choose from:
The top fund in the category was from the issuer PowerShares – DB Gold Fund (DGL) initiated in January 2007 and the three ETNs (exchange-traded notes) – DB Gold Short ETN (DGZ), DB Gold Double Long ETN (DGP) and DB Gold Double Short ETN (DZZ) launched in February 2008. These products track the performance of the DBIQ Optimum Yield Gold Index Excess Return plus the interest income from U.S. Treasury bills, net of fees and expenses.
DGL is a simple and highly traded fund with average daily volume of $7.9 million. With total assets of $386.2 million, the fund charges low 50 bps in fees per year with good tracking error and a small bid/ask spread. Further, its impressive performance makes it a better strategic fit for investment as it delivered annual returns of more than 14% as of March 2012. On the other hand, DGZ with total assets of $38.6 million has an inverse relation to the movement of gold prices.
DGP, having AUM of $511.4 million, delivers twice the return of the index performance on a monthly basis while DZZ, having AUM of $97.5 million, delivers twice the inverse (opposite) return of the index performance. DGP initiates a long position in the gold futures market while DZZ initiates a short position. Trading with good volume, these products charge a fee of 75 bps per year and are suitable for risk tolerance investors. The DGZ and DGP delivered excellent returns of more than 20% in the one-year period (as of March 2012) while DZZ generated unimpressive returns—to say the least-- of negative 40.2% in the same time frame. (Read: Precious Metal ETFs Slump On Bernanke Testimony)
Second comes the ETFs issued by ProShares – Ultra Gold ETF (UGL) and UltraShort Gold ETF (GLL) in December 2008. These funds seek to deliver twice the return of the daily performance of gold bullion in U.S. dollars; the gold price is fixed for delivery in London. The former has a direct relationship with the price of gold while the latter has an inverse relationship. GLL makes profit when the market declines and is suitable for hedging purpose against the fall of gold prices.
UGL holds AUM of $374.8 million while GLL holds $138.3 million. The ETF does not invest in gold bullion directly, rather it uses financial instruments (swap agreement, futures contracts, forward contracts and option contracts) to gain exposure to the precious metal. This indirect approach might introduce additional tracking error leading to extra cost. Already, investors need to pay 95 bps in fees per year, which is higher than the other gold ETFs but below the category average of 110 bps.
Despite the high costs, UGL trades with a good average daily volume of about $27.8 million and generated more than 24% in annual returns (as of March 2012). On the other hand, GLL has underperformed, producing negative returns of 37.4% per annum (as of March 2012).
In October 2011, another issuer VelocityShares initiated two similar ETNs – 3x Long Gold ETN (UGLD) and 3x Inverse Gold ETNs (DGLD) but with three times (3x) exposure. The products seek to replicate the daily performance of the S&P GSCI Gold Index Excess Return plus returns from U.S. T-bills net of fees and expenses. UGLD, having AUM of $23.4 million, provides long exposure to 3x the daily performance of the index while DGLD, having AUM of $2.4 million, provides 3x the inverse exposure.
Since the products can be extremely volatile, it is suitable only for traders and those with a high risk tolerance. Trading in small volumes, both ETNs charge investors higher fees of 135 bps per year each and had delivered negative returns of about 10% since inception.
Gold Trendpilot ETN (TBAR) is another future-based gold ETN, issued by RBS in February 2011. Unlike other products in the space, the index utilizes a systematic trend-following strategy providing exposure either to the price of the gold bullion or the cash rate depending upon the relative performance of the gold price on a simple historical moving average basis.
If the gold price is at or above the historical 200-Index business day simple moving average for five consecutive business days then a positive trend is established. Alternatively, if the gold price is below such average then a negative trend is established and the index will track the cash rate, which is the yield derived from a hypothetical notional investment in T-bills.
The former strategy will cost investors 100 bps in fees while the latter strategy will cost 50 bps per annum. Despite being the high-cost choice in the space, the fund generated impressive annual returns (as of March 2012) of 11.5%. This practice seems to attract investors seeking safe exposure during the turbulent times in the gold market.
Investors expecting a rise in gold price relative to large-cap U.S. equities in a day or less can find FactorShares 2x Gold Bull/S&P 500 Bear (FSG) an intriguing option. The fund seeks to replicate twice the daily return of the Gold Bull/S&P500 Bear index. Actually, the product tracks the spread, or difference in daily returns, between gold and U.S. equity market segments primarily by establishing a leveraged long position in the gold futures contract and leveraged short position in the E-mini S&P 500 stock price index futures. Launched in February 2011 with AUM of $9.3 million, FSG generated negative return of 4.1% over the past year (as of March 2012). This ETF is useful for value or alternative investing and hedging purpose. It is generally less expensive and more efficient than trading and managing a comparable spread portfolio.
Investors seeking exposure to a portfolio of commodity futures through a single investment may consider ETRACS UBS Bloomberg CMCI Gold ETN (UBG). The ETN seeks to replicate the performance of the UBS Bloomberg CMCI Gold Total Return index, net of fees and expenses. The product delivers collateralized returns from a basket of gold futures contracts, which are diversified across five constant maturities ranging from three months to three years. This is the low-cost choice in the space and generated attractive returns of about 16% over the last year (as of March 2012).
Equity-based Gold ETFs
The fund in this category mainly tracks the index consisting of gold mining and exploration companies. There are 8 ETFs available in this category:
Gold Explorers ETF (GLDX)
The fund, issued by Global X in November 2010, is one of the largest and actively traded funds. This fund seeks to match the performance and yield of the Solactive Global Gold Explorers index, before fees and expenses. The stocks in the index comprise liquid international stocks involved in gold exploration and are considered to be the largest in the space.
With total assets of $26.4 million, the product is more than 50% concentrated in top 10 companies, which include Chesapeake Gold Corp. (CHPGF), Pretium Resources, Inc. (PVG) and Seabridge Gold, Inc. (SA). The fund mainly consists of small cap companies of Canada and holds 26 stocks in total.
The product charges investors 65 bps in fees per year. The performance of the fund has been negatively impacted by the slump in the overall market in the second half of the last year, thereby delivering negative 45% returns over the last one-year period (ending March 2012). However, it pays out a descent dividend yield of 2.84% per annum. (Read: Has The Junior Gold Mining ETF Lost Its Luster?)
Market Vectors TR Gold Miners (GDX)
This fund is the largest in the gold mining category with AUM of more than $6 billion. Launched in May 2006, the product provides exposure to worldwide stocks involved primarily in the mining for gold. It uses a full replication strategy holding 31 stocks in the NYSE Arca Gold Miners index.
The fund is more concentrated in the top 10 companies, as these account for more than 77% of the assets. The stocks in the fund represent a diversified blend of small, mid and large capitalization stocks. Barrick Gold Corporation (ABX), Goldcorp Inc. (GG) and Newmont Mining Corporation (NEM) are the top three holdings.
The majority of companies are based in Canada followed by the U.S., South Africa, Mali, and Peru. The ETF had given lackluster performance, generating negative returns of 17% over the last year. However, it is inexpensive given low fees of 53 bps per annum, small bid/ask spread and good tracking error. The fund also yields small 0.33% of annual dividend.
Market Vectors Junior Gold Miners ETF (GDXJ)
Launched in November 2009, GDXJ provides exposure to global small and mid-cap stocks that generate a minimum 50% of revenues from gold/ silver mining, hold real property that produces at least 50% of revenue from gold/ silver mining when developed, or primarily invest in gold or silver. The fund is highly volatile, less liquid and trades in lower volume.
With AUM of about $2 billion, the product tracks the price and yield of the Market Vectors Junior Gold Miners index. It uses a full replication strategy holding 86 stocks and puts about 27% of assets in top 10 firms. Top three holdings include B2Gold Corp (BTO), Perseus Mining Limited (PMNXF) and Silvercorp Metals Inc. (SVM).
Canadian companies hold the top spot in the basket followed by Australia, Latin America, Europe, U.S., Asia and Africa. This ETF delivered negative 33% annual returns and charges investors a fee of 56 bps a year. However, the fund yields an attractive dividend of 5.40% on an annual basis, making it a relatively safe investment for the long term.
Global Gold and Precious Metals Portfolio (PSAU)
The fund, issued by PowerShares in September 2008, tracks the NASDAQ OMX Global Gold and Precious Metals index. It measures the overall performance of the largest and most liquid stocks globally that are involved in the mining of precious metals. With 86 stocks in total, the fund puts more than 50% of its assets in the top 10 companies, including Barrick Gold, Goldcorp, Newcrest Mining Limited (NM) and Newmont Mining.
The fund allocates more than 40% of its assets in Canada while South Africa and the U.S. also have a major asset base. PSAU is also quite expensive compared to the other gold mining ETFs and generated unimpressive negative returns of 18.41% per year (as of March 2012). The product yields about 1.38% of dividends annually.
MSCI Global Gold Miners Fund (RING)
Investors seeking exposure to gold mining companies in both developed and emerging markets may find the most recent launch, RING, an interesting play. With AUM of $$20.2 million, the fund seeks to replicate the performance of the MSCI ACWI Select Gold Miners Investable Market index, holding 42 stocks in total. The stocks in the fund do not involve gold hedging but operate gold mines.
The fund concentrates on the top 10 companies, holding about 70% of the shares. Barrick Gold, Goldcorp, and Newmont constitute the top position in the basket. Giant and large companies hold a substantial 50% of the assets and the rest are governed by mid and small cap stocks. The fund charges a low fee of 39 bps per year. (Read: Top Three Precious Metal Mining ETFs)
Pure Gold Miners ETF (GGGG)
Similar to GLDX, this fund tracks the Solactive Global Pure Gold Miners index. With total assets of $4.5 million and holdings of 27 stocks, the fund allocates more than 50% of its assets in top 10 companies. Koza Altin Izletmeleri, Eldorado Gold Corp (EGO), and Alamos Gold Inc. (AGI) are the three biggest holdings. The fund mainly consists of mid-cap companies, the majority of which is based in Canada.
Unlike GLDX, the product charges a low fee of 59 bps and generated lower negative annual returns of about 24%. Additionally, the fund pays out 2.18% of annual dividend.
In addition to these gold mining and exploring ETFs, Direxion Shares initiated two leveraged ETFs – Daily Gold Miners Bull 3x Shares (NUGT) and Daily Gold Miners Bear 3x shares (DUST) in December 2010, which provide three times exposure to the underlying index. These funds seek to replicate the price and performance of the NYSE Arca GoldMiners index. NUGT having AUM of $14 million, has a perfect correlation with the returns of the index while DUST having AUM of $15.1 million, has an inverse correlation with the index returns.
These products are expensive relative to the other ETFs in the gold space. NUGT had delivered dull negative returns of more than 50% in the past one-year period (as of March 2012) while DUST delivered an impressive annual returns of 11%.
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POSCO-CFPC Advances Its Operation – Analyst Blog
POSCO-CFPC, a processing entity of Korean steel maker POSCO (PKX), recently declared a positive end to its efforts to provide various high quality services to its clients through its self-sufficient platform.
The center, located in Huanan, China, started its operation in 2004 with a capital base of $22.3 million, and it has several functional units such as Production, Carbon Steel Sales, Stainless Steel Sales, QSS Innovation and Management.
POSCO-CFPC’s sole purpose is to enhance the company’s presence in China by establishing a supply chain for POSCO’s manufactured steel products, along with lending support to its clients through several types of financial and operational assistance. Moreover, POSCO-CFPC has the capacity to process 100,000 tons of STS materials and 120,000 tons of carbon steel yearly through its two well-managed processing lines.
POSCO-CFPC is engaged in the promotion of numerous local brands in the Huanan province through establishing strategic partnership agreements with various major companies of the electronics industry, such as Midea, HITACHI, GLANZ and Vanward. Apart from the business perspective, the company is also highly dedicated to creating social awareness across the region.
The company’s brand acquisition strategy, sales execution, marketing and innovation capabilities helped to establish itself as the world’s third largest steelmaker and market leader in the industry. In addition, the company is continuously strengthening its foothold in the Chinese market through expanding its operations; it currently has 20 processing centers across China.
Steel demand in China is expected to grow by 4.0% year over year both in 2012 and 2013, according to the World Steel Association. To meet this end, the company will soon be launching a new processing center focused on galvanized steel sheets and steel alloy sheets in Foshan, Guangdong Province. For 2012, the company anticipates a 2.5% increase in revenue to KRW 70.6 trillion. Crude steel production is projected to rise 3.0% while investments should rise by 10.0%. However, it faces stiff competition from rivals such as Grupo Simec S.A.B. de C.V. (SIM), CLARCOR Inc. (CLC) and Shiloh Industries Inc. (SHLO).
The Zacks Consensus Estimates for 2012 and 2013 are at $7.61 and $8.66, respectively. These represent a year-over-year decline of 29.14% in 2012 but a growth of 13.80% in 2013. We currently maintain an ‘Underperform’ recommendation on POSCO. The steel giant has a Zacks #4 Rank, translating into a short-term (1-3 months) ‘Sell’ rating.
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Honeywell in Blooming Natural Gas Market – Analyst Blog
Recently, Honeywell International Inc.'s (HON) group company, UOP LLC, opened a manufacturing and operations center in Penang, Malaysia for production of natural gas membrane elements.
This is part of the company’s initiative to support the flourishing natural gas market. Honeywell is engaged in development of technologies for production of clean sources of power supply.
With increasing environmental awareness, the demand for natural gas as a clean burning fuel has risen. Demand for such clean burning fuels has increased in developing economies as well, led by development of infrastructure and rising populations.
Natural gas streams contain impurities that are required to be removed before being used as fuels. Honeywell's UOP Separex membrane systems are effective in making the natural gas streams free of impurities. Furthermore, in comparison with other membrane systems, UOP’s Separex membrane systems consume less energy. They also require fewer capital and operating costs. The system requires less space for installation due to its modular design, which allows easier installation on off-shore applications, such as Floating, Production, Storage and Offloading (FPSO) vessels, and remote locations.
Honeywell has expanded its expertise in production of natural gas and has also widened its reach globally. By 2035, the consumption of natural gas is expected to reach 160 trillion cubic feet with 35% of the demand being generated from Asia, as per the U.S. Energy Information Administration.
Last year, the company expanded its scope in this technology by forming an alliance with the Netherlands-based Twister B.V. Through this alliance, the company offered the UOP-Twister® Supersonic Gas Separation System. This separation system is used to remove water and heavy hydrocarbons present in natural gas when it comes out of the ground.
Furthermore, in 2008 a gas processing design center was formed by Honeywell’s UOP in Kuala Lumpur, Malaysia. Other gas processing technology design centers of the company are in Des Plaines, Ill. (headquarters), and Antwerp, Belgium, and it manufactures membranes in Anaheim, Calif., and Littleton, Colo., in the U.S.
Honeywell expects to deliver solid results in 2012, despite the macro uncertainty. The positive outlook is driven by the company’s strong hold in good industries and continuous effort to undertake new ventures. In order to expand further, the company remains focused on its growth factors, i.e., investments in new products, technology demarcation, expansion in the emerging markets and initiatives in key processes. Honeywell’s growth is supported by its five Initiatives – growth, productivity, cash, people, and enablers.
UOP LLC, based in Illinois, is a leading supplier and licensor of process technology, catalysts, adsorbents, process plants and consulting services to the petroleum refining, petrochemical, and gas processing industries, globally. The company is a wholly-owned subsidiary of Honeywell and is part of Honeywell's Performance Materials and Technologies strategic business group.
During the latest reported quarter, Performance Materials and Technologies sales increased 19% to $1.6 billion, led by good sales from UOP and licensing. The segment revenue was partially offset by unfavorable pricing and low demand in Asia and Europe for Specialty Products.
Honeywell International is a diversified technology and manufacturing company serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals and energy efficient products and solutions for homes, business and transportation. The major competitors of Honeywell are BorgWarner Inc. (BWA), United Technologies Corp. (UTX) and Johnson Controls Inc. (JCI).
We currently maintain our longer-term Outperform rating on Honeywell.
Honeywell currently has a Zacks #3 Rank (implying a short-term Hold recommendation) over the next one-to-three months.
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Neutral on Amphenol Corporation – Analyst Blog
We recently reiterated our Neutral recommendation on Amphenol Corporation (APH).
Earnings estimates for 2012 have moved up after the company reported better-than-expected results for the first quarter of 2012 and upgraded guidance for full-year 2012.
Amphenol posted a net income of 77 cents per share in the first quarter of 2012, up from 69 cents in the fourth quarter of 2011 and 72 cents in the year-ago quarter. The reported net income beat the Zacks Consensus Estimate by a penny.
Sales came in at $982.0 million, up 4.4% year over year and 3.5% sequentially. Management’s guidance range was at $960 billion to $970 billion. The favorable movement in foreign currency exchange rates positively impacted sales by approximately $4 million in the first quarter of 2012 compared with the year-earlier quarter.
For 2012, Amphenol now projects revenues between $4.105 billion and $4.190 billion, up from its earlier estimate of $4.05 billion to $4.15 billion and an increase of 4% – 6% year over year. Earnings per share are expected between $3.30 and $3.38, an increase from the previous estimate of $3.23 and $3.34 and up 8% – 11% year over year.
Amphenol serves a variety of end-markets and the diversification in end markets enables the company to post strong results even in an uncertain economic environment. Amphenol is optimistic about the accelerating proliferation of new electronics in most of its end markets, which the company believes will propel demand with time. The ongoing revolution in electronics continues to create opportunities for Amphenol.
Meanwhile, the company recently increased its quarterly dividend to $0.105 per share from $0.015 per share. In the first quarter, Amphenol repurchased 1.5 million shares for $82 million, which leaves it with about 5.1 million shares remaining under its 20 million stock repurchase program, which expires in January 2014.
However, we would like to wait for a better entry point. Hence, we maintain our Neutral recommendation. In the short run, we have a Zacks #2 Rank on the stock, which translates into a short-term rating of Buy driven by the recent increase in outlook by management.
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Polo Stays Neutral – Analyst Blog
We maintain our long-term Neutral recommendation on Polo Ralph Lauren Corporation (RL) with a target price of $160.00 per share. However, the company has a Zacks #4 Rank, implying a short-term Sell rating.
Polo Ralph Lauren is one of the leading specialty retailers of premium lifestyle merchandise in the U.S. Moreover, the company commands a strong portfolio of globally recognized brands, which provides it with a competitive edge and strengthens its well-established position in the market.
Polo’s fourth-quarter 2012 earnings of $0.99 per share surpassed the Zacks Consensus Estimate of $0.85 and surged 33.8% from $0.74 posted in the prior-year period. The robust performance was primarily driven by solid top-line growth, a lower tax rate and a reduced number of shares outstanding.
Polo Ralph Lauren expects net revenue in fiscal 2013 to increase by a mid-single-digit percentage due to the company’s anticipation of a low-single-digit decline in wholesale sales and low-double-digit growth in retail sales. Moreover, the company expects moderate operating margin expansion which will be mainly driven by gross margin expansion, partially offset by the negative impact of continued investment in long-term growth initiatives and overall channel mix.
The company aims to strategically expand and elevate its international presence, particularly in Asia. Polo Ralph Lauren recently took direct control of operations in Asia from its licensee in order to effectively capitalize on opportunities in emerging markets such as China, South Korea and India. We believe Polo’s initiatives to capitalize on opportunities in Asia spurred by reduced long-term debt augur well for future operating performance.
Moreover, the company has a very strong balance sheet with cash and investments of $1,187.3 million and long-term debt-to-capitalization ratio of just 7% at the end of fiscal 2012. We believe a solid cash position provide Polo Ralph support in times of dividend payout, share repurchase and strategic acquisitions. This offers Polo Ralph Lauren financial flexibility to drive future growth.
However,Polo Ralph’s financial performance may be substantially affected due to its significant presence in international market (almost 36% of net revenue in fiscal 2012), which exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits.
Moreover, consumer confidence and spending behavior may dampen due to macroeconomic factors including increase in fuel and energy costs, credit availability, high unemployment levels, and high household debt levels, which may negatively affect their disposable income, and in turn, the company’s growth and profitability.
Above all, Polo Ralph Lauren operates in a highly fragmented market and competes with a number of well-established players, such as Estee Lauder Companies Inc. (EL), Coach Inc. (COH), V.F. Corporation (VFC), and Kenneth Cole Productions Inc. (KCP). The company primarily competes on the basis of fashion, quality and service. To retain the existing market share, Polo Ralph may have to reduce its sales prices, which could affect its margins.
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CAT Sells Bucyrus’ South African Biz – Analyst Blog
Caterpillar Inc. (CAT) is selling the equipment, distribution and support business, formerly operated by Bucyrus International in South Africa and Botswana, to Barloworld for $115 million. Caterpillar has also assigned to Barloworld its agreements with Eqstra NH Equipment (Pty) Limited and Eqstra Botswana (Pty) Limited for the purchase of Eqstra’s South Africa and Botswana Bucyrus distributorship and mining services businesses. The total deal is valued at $175 million.
The transaction pursuant to customary closing conditions and regulatory approvals is expected to close in the third quarter of 2012. On completion, Barloworld will provide sales, service and support for all of the former Bucyrus mining products in all its dealership territories in southern Africa.
The business was included in Caterpillar’s purchase of Bucyrus Inc., a South Milwaukee-based manufacturer of surface and underground mining equipment, in July 2011. The $8.8 billion buyout was the biggest deal ever in Caterpillar’s history. It capitalized on the rising demand for coal and minerals triggered by growth in emerging nations.
Caterpillar is systematically divesting the Bucyrus distribution businesses, preferably to its dealers having mining activities in their territories. Caterpillar, however, will operate the Bucyrus distribution business until the transitions have occurred in any given territory.
Last month, Caterpillar announced the sale of Bucyrus’ distribution and support unit in Western Australia, Australian Capital Territory and New South Wales to WesTrac Pty Limited for $400 million and Bucyrus’ distribution and support business in Peru to Ferreyros S.A.A. for $75 million.
Earlier, in January, Caterpillar inked a deal to sell Bucyrus’ distribution and support unit in South America, Western Canada and the United Kingdom, to Finning International Inc for $465 million. In last December, Caterpillar sold a part of the Bucyrus distribution business to the Industrial Division of Sime Darby Berhad for $360 million.
The Caterpillar-Bucyrus combined portfolio broadens Caterpillar's mining equipment product line, resulting in the most expansive product offering in the mining equipment industry. Furthermore, Caterpillar can leverage Bucyrus’ strong presence in the emerging markets, its successful aftermarket parts business and support services for its equipment. The Bucyrus acquisition positions Caterpillar as the leading global mining original equipment manufacturer.
Caterpillar’s backlog is at a record level, which holds promise for the year ahead. We believe Caterpillar’s expansion plans of opening new facilities and furthering existing operations, particularly in the emerging markets, will boost its long-term potential.
However, margin headwinds, the European debt crisis and a slowing Chinese economy may affect its earnings in the near term. Thus, we maintain our Neutral recommendation on Caterpillar. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base. Caterpillar operates two divisions – M&PS and Financial Products. Caterpillar competes with the likes of CNH Global NV (CNH), Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY).
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Eni to Offload Snam Stakes – Analyst Blog
Italy’s energy group, Eni SpA (E) has agreed to divest 30% less one share in Snam SpA to state-controlled lender Cassa Depositi e Prestiti (“CDP”). This move will enable Eni to fund its major exploration and production expansion ventures.
Per the agreement, Eni will sell its stake to CDP for €3.47 a share, a 3% premium to Snam’s market price over the last 30 days. The total consideration would be €3.517 billion ($4.36 billion).
This sale comes after the Italian government issued a decree this month that forced Eni to sell at least 25.1% in Snam – the country’s largest gas network, storage and distribution company by volume – to CDP. However, the remaining stake can be sold to investors.
Under the decree, the Italian state-controlled energy company must sell its entire 52.5% interest in the national gas transmission network within 18 months. The Italian government is busy with its plan to enhance competition in the country’s gas pipeline network.
The deal is expected to be completed by the end of 2012 and is subject to antitrust approval. The sale of Eni’s entire stake in Snam will fetch the Rome-based energy operator up to €6.5 billion cash and resolve €11.5 billion of Eni’s debt.
The company aims to invest in the start-up of big projects with long-term production objectives. These include Kazakhstan's Kashagan field in the Caspian Sea, and increased exploration investments in promising basins, such as Eni's major gas discovery at the Coral 1 exploration prospect offshore northern Mozambique.
We believe Eni’s constant efforts to expand its upstream operations and endeavors in Barents Sea, Angola, Indonesia and Australia will go a long way to generate profitability in the future. Moreover, project start-ups, inputs from big projects including Junin 5 and Perla in Venezuela, the potential exploration scenarios in African countries Togo, Ghana, Democratic Republic of Congo and Mozambique, as well as the strategic position in non-conventional gas are expected to augment volumes going forward.
Eni, which competes with Statoil ASA (STO), currently holds a Zacks #3 Rank, which translates into a Hold rating. Our long-term Neutral recommendation on the company remains unchanged.
ENI SPA-ADR (E): Free Stock Analysis Report
STATOIL ASA-ADR (STO): Free Stock Analysis Report
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Zacks Investment Research
Latest Trade : Mickey Mouse Looks Good – Voice of the People
Zacks highlights commentary from People and Picks Member «RobMarketsBlind».
For more Voice of the People, visit http://at.zacks.com/?id=7872
Featured Post
Latest Trade : Mickey Mouse Looks Good
A year and a half of a public display of trades continues to show a perfect winning record: 100% winners in all trades. Check for yourself, all blog posting are still up on this site.
Acting on our own Below the Belt posting, RTMB wrote Puts on Disney (DIS) yesterday. When one writes put options, the premium is paid immediately, if the strike price is hit, the put owner can assign the stock for purchase to the put writer at the strike price.
The write put option is :
DIS JUL21 41, premium received is $59.00 per contract.
If Disney's share price drops to 41 or lower Jul 21, RTMB likely will be assigned to purchase the stock at that price. DIS is currently slightly above 45 per share.
The annualized yield for the above trade is 10.30%.
RTMB considers DIS to do well in the short term. Its currently movie, The Avengers, might be one of the top grossing movies of all time. Its next movie is Brave, a Pixar movie. All Pixar movies have been successful to date. Its TV and Parks businesses are doing quite well.
The most recent picks by «RobMarketsBlind» are:
A buy rating on Acadia Healthcare (ACHC),
a buy rating on Reading International (RDI) and
a buy rating on Aqua America (WTR).
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ACADIA HEALTHCR (ACHC): Free Stock Analysis Report
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(RDI): ETF Research Reports
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Hanesbrands Says No to Tags – Analyst Blog
Hanesbrands Inc. (HBI), one of the world’s leading intimate, underwear, sleepwear and casual apparel manufacturer and seller is geared up for promoting its tagless men’s underwear. The company recently undertook a promotional campaign for its tagless men’s innerwear.
Commercials for the product will be in expensive advertisement slots in the middle of high-profile entertainment and sports programs. The company has again roped in basketball legend Michael Jordan to promote the tagless underwear.
Hanesbrands was the first to introduce tagless undershirts in the American market. After the huge success of the product innovation, the company introduced its tagless concept to its range of briefs, boxers and boxer briefs that gave much needed comfort to its male customers.
The promotional campaign for tagless underwear is mainly targeted at affluent customers and it can be concluded that this is part of Hanesbrands’ strategy to focus more on its premium brands that are less competitive. Also, we believe this is in response to the aggressive pricing taken up by its competitors like Warnaco (WRC). The company plans to focus more on the premium and core sectors where pricing is more favorable and does not require aggressive promotional pricing.
Amidst high inflationary pressure on cotton prices, major suppliers of cotton garments are adopting competitive pricing resulting in the price of garments reaching a record low artificially. This was putting pressure on Hanesbrands’ margins. However, its recent decision to focus on migrating its business model to a more value based brand owner is helping the company to maintain profit in the innerwear category.
Hanesbrands has also taken a step towards this goal by announcing the sale of its European imagewear division and exit from the private label category in the US. It also plans to divest its Outer Banks brand.
While the company maintained its previously announced fiscal 2012 earnings guidance of $2.50 to $2.60, it expects the restructuring to reduce sales in the second half of the year by about $60 million. The company also maintained its earnings outlook for 2013. Zacks Consensus Estimates for FY12 and FY13 are $2.55 and $3.22, respectively.
Currently, we have a Neutral recommendation on Hanesbrands, which carries a Zacks #3 Rank (short-term Hold rating).
HANESBRANDS INC (HBI): Free Stock Analysis Report
WARNACO GRP INC (WRC): Free Stock Analysis Report
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Mylan Launches Generic Lipitor – Analyst Blog
Mylan Pharmaceuticals Inc., a subsidiary of generic pharma major Mylan Inc. (MYL), recently announced that it has received final approval from the US Food & Drug Administration (FDA) for its generic version of Pfizer's (PFE) Lipitor (atorvastatin). Mylan has already begun shipping the product.
Lipitor is used as an adjunct to diet in patients with primary hypercholesterolemia and mixed dyslipidemia to reduce elevated total cholesterol, low-density lipoprotein (LDL), and triglycerides and to increase high-density lipoprotein (HDL) cholesterol. According to IMS Health, Lipitor generated US revenues of approximately $8.1 billion for the 12 months ending March 31, 2012.
Earlier this month, Mylan had launched generic Lipitor in France, Belgium, the UK, the Netherlands and Ireland. In these countries, Lipitor generated total sales of $1.6 billion for the 12 months ending December 31, 2011.
As of May 29, 2012, the company had 171 abbreviated new drug applications (ANDAs) pending clearance by the FDA, targeting $84 billion in sales annually. Mylan believes that about 38 of these ANDAs are first-to-file opportunities, representing approximately $25.5 billion in branded sales. The revenue figures are, as per IMS Health, for the 12 months ending December 31, 2011.
Our Recommendation
We are encouraged by Mylan’s geographic reach and product depth along with a robust generic product pipeline. However, we are concerned about the company’s lackluster performance in the Europe, Middle East and Africa (EMEA) region.
Additionally, with most large branded drugs due to lose patent exclusivity within 2017-2018, we have little visibility on the growth prospects for generic companies like Mylan beyond that timeframe.
Thus, we prefer to remain on the sidelines and have a Neutral recommendation on Mylan. The stock carries a Zacks #3 Rank (Hold rating) in the short term.
MYLAN INC (MYL): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
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Zacks Investment Research