The Month In Review: July 2009
Kristian Dibble
The trades keep coming…
Short Term Trades
We all ploughed into July with our ears pinned back on account of Asciano Group (AIO). AIO has shaped up to be an excellent investment, although not entirely for the reasons we anticipated!
To refresh your memory, we initially bought $500 of AIO on the expectation of a capital raising. $500 is the minimum trade size on the ASX for an initial investment in a stock, and this gave all of our members a very cheap foothold on the share register. More importantly, the risk was incredibly low; on the very slim chance AIO went bankrupt, the maximum downside was $500.
The AIO capital raising eventuated and existing shareholders could apply for new shares at $1.10. The share price was then around $1.32, producing an instant profit of 20%.
The only problem was that we were heavily scaled back in the initial capital raising, however AIO quickly announced a secondary capital raising (via an SPP) allowing shareholders to apply for up to $10,000 in additional new shares, again at a price of $1.10. We advised members to apply for these new shares, and we’re now awaiting allotment of these shares before we can sell them.
Regardless of the capital raising, AIO was still undervalued, so we recommended members buy more on market at $1.32. The share price quickly moved up and we took a fast trading profit at $1.59 on half of the shareholding, producing another profit of 20% in a matter of weeks.
Our strategy is to stay ahead of the curve and trade in and out of these situations before others see it.
Another example is Graincorp Ltd (GNC), which we closed out mid month. This trade generated a profit of $670 on a $7,600 cash outlay. GNC not only provided a great profit, but proved to us again that these capital raising opportunities are often too good to pass up.
We have seen two more opportunities present themselves, the first being GRD Ltd (GRD), which at the moment is floating somewhere around the buy price of 53c, and not looking for the time being as though an arbitrage will eventuate.
Amcor Group (AMC), our second capital raising expectation, is firming up to be a cracker though, up over 10 per cent from our original recommendation and still looking like a rights issue is on the cards.
Selling is always hard to do
We sold Premier Investments Ltd (PMV) at $6.15. We initially entered PMV through the takeover of Just Group Ltd (JST), and we re-recommended PMV at $4.80. Along the way, shareholders collected a dividend of 37c, so we’ve seen a return of 37% in 10 months.
Blue Chip Holdings
Our existing long term, blue chip recommendations are trading as if the worst has passed, continuing to creep upwards throughout July. Rio Tinto Ltd (RIO), Woodside Petroleum Ltd (WPL), BHP Billiton Ltd (BHP) are examples of this, with RIO being the best performer, up a little over 17 per cent for the month.
Dogs Portfolio
We re-balanced the July Dogs portfolio, which was initially bought in July 2008. With the exception of Goodman Group (GMG) being the real ‘dog’ of the group, the performance has otherwise been quite good comparatively speaking. The idea of the portfolio was always to be long term and to outperform the index, so while the S&P/ASX 200 was down 26 per cent, the Dogs were down only 18 per cent.
Looking Forward
This month (August), we bought Elders Ltd (ELD), which has moved up beyond our entry price in quick step and there are a number of trade ideas our team is working on.