Telecom picks

I added two telecom stocks to my portfolio: China Mobile (NYSE: CHL) and Vodafone (Nasdaq: VOD). In China Mobile there are three main things that make it attractive to me: 1) first it is a telecom stock (defensive), 2) it is Chinese stock, 3) by any standard ít is doing excellently.

I use Swedish TeliaSonera as benchmark for all telecom sector stocks. Not many can raise to the same level but China Mobile can in terms of ROA/ROE/ROI and margins.

Vodafone is not doing so fine, but it is low on valuation and I am betting on Verizon resuming dividend by 2012. Vodafone owns 45% stake in Verizon.

Doubled bet on CHNG

China Natural Gas (Nasdaq: CHNG) is selling below $5,40. I took a real good look at Q2 results and don't agree with the market valuation. I do not see any fundamental reason for the sell-off. So I bought more of it. If it was a good by at higher price, it is more so at the current price. At least I think so.

It is not ofter that you can get a growth stock at P/E below 7 (my estimate for 2010 EPS is $0.80).

Soros and Gold

I browsed through the latest SEC filing from Soros Fund Management and found out that Soros has quite big exposure to gold and gold miners: 17,5% of the whole portfolio.

The biggest position is by far the SPDR Gold Trust (638 MUSD). The rest of 890 MUSD gold related position is invested in gold miners. As the list of holdings is quite long (hundreds of entries), I may have missed something. I basically browsed through all with word "gold" or "resource" and found these:

ALLIED NEVADA GOLD CORP
BARRICK GOLD CORP
FREEPORT-MCMORAN COPPER & GOLD
GAMMON GOLD INC
GOLD FIELDS LTD
GOLDEN STAR RES LTD
GREAT BASIN GOLD LTD
IAMGOLD CORP
KINROSS GOLD CORP
MARKET VECTORS ETF TR GOLD MINER ETF
MARKET VECTORS ETF TR JR GOLD MINERS
NOVAGOLD RES INC
SPDR GOLD TRUST GOLD SHS
SEABRIDGE GOLD INC

From the gold miners. Soros has by far the largest positions in Novagold (90 MUSD) and Kinross Gold (66 MUSD).

The Oracle of Omaha increases JNJ position heavily

It seems that Warren Buffett increased dramatically Berkshire Hathaway's position in Johnson & Johnson during the last quarter. He also seems to think it is a good buy after drop of about 10% in May. JNJ is one of my biggest positions at the moment.

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Becton, Dickinson & Co.

I took a new position in Becton, Dickinson & Co. (NYSE: BDX), a global medical technology company. I added this company to my fairly long list of companies to study when I noticed that Warren Buffett (Berkshire Hathaway) has been steadily increasing Berkshire's position in this company and the company happens to operate in a sector that interests me. It was added to Berkshire's holdings in Q2/2009 and subsequently the position was increased in both Q4/2009 and Q1/2010.

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What really got me interested in this company was in-depth presentation on Becton Dickinson by East Coast Asset Management published in Seeking Alpha by Market Folly. They basically argue that the company is worth $90-$95 a share. This range comes from several valuation methods, which I won't dive into here. It is worth to mention that valuation using 8% discount rate and assumption of no growth in free cash flow gives valuation of $65.

At first look BDX does not appear to be very cheap (P/E 13,6 and P/B 3,1). However, I tend to keep in mind a quote from Buffett: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price". I think this actually comes from Charlie Munger, who introduced this thinking to Buffett at some stage. At any rate, after reading the East Coast paper and looking into the company, I can understand why Berkshire has a position in this company.


In short:

• steady increase in demand is there making it hard to believe that company can not increase free cash flow
• company has multiple competitive advantages
• margins are excellent and have been improving last 5 years
• ROE average over last 5 years is 22.2%
• 37 consecutive years of dividend increases
• the company has been purchasing it's shares back using more money per year than for dividends. Therefore, the current not-so-high dividend yield has great potential to rise also in the future (in 2009 the company used 550 MUSD for share repurchase and 317 MUSD for dividends). The company could easily pay dividend which would give over 5% yield at $70 share price.