In the January newsletter – Ferrari spin-off, Delclima gain 92.4%, three interesting ideas including a bargain Japanese company

//In the January newsletter – Ferrari spin-off, Delclima gain 92.4%, three interesting ideas including a bargain Japanese company

dear fellow investor (blue)



I would like to use this first newsletter of the year to wish you all the best in 2016.

I hope it’s a good investment year for you.

And to help you make it a good year, as always, I will send you only the very best quality undervalued investment ideas I can find each month.


2015 returns

2015 turned out to be quite an uneventful year in terms of investment returns. The S&P 500 returned only -0.7% and the European STOXX 600 index only +6.8%.

This was not really surprising if you think of the nearly uninterrupted upward – movement of the markets since March 2009, the low point during the financial crisis.

This huge increase has led to the market becoming fully valued, which has made it very difficult to find attractive investment ideas for you.

So much so that you saw that for North America I was unable to find any attractive investment ideas for a large part of last year, including this month.


What about other ideas?

A few subscribers wrote to me and asked why I did not recommend more European ideas, seeing that there were no attractive North American companies.

That’s a good question and the simple reason is that even in Europe it has not been easy to find good quality undervalued companies to recommend to you.

Japanese idea included

Because of these difficulties, this month I looked at all the developed markets worldwide to see if any other interesting ideas could be found.

I did find something very interesting – a small company in Japan.

As you will see below, the company is very undervalued, especially when you see that it has 85% of its market value in cash on its balance sheet. More importantly, it has recently started buying back shares, which is probably the best investment the company can make given that its shares are so undervalued.

This is definitely one of the most interesting ideas I have found recently.


European recommendations again outperformed the market by 5%

Last year the European recommendations again substantially outperformed the index returning 11.7% (nearly 5% better than the index).

The North American ideas did only slightly worse than the S&P 500 losing 5.3% compared to the 0.7% loss recorded by the index.

This is really frustrating since I have been spending a lot of time trying to find worthwhile North American companies to recommend.


Four companies held up the S&P 500

The truth is that it would have been impossible for you to beat the S&P 500 in 2015 if you did not own the four largest companies in the index.

If you did not own the so-called FANG companies (Facebook, Amazon, Netflix and Google) – which went up by 73% in 2015 – you would have done worse than the index, as the other 496 companies declined by 3% in 2015.


The best strategy to beat the S&P 500 in 2015

Your best strategy to beat the S&P 500 in 2015 would have been to buy the four FANG (see above) companies and short the equally weighted (all 500 companies have the same weight) S&P 500 index.

This strategy would have given you a return of 82.8% in 2015.

This is what the performance of the FANG companies compared to the S&P 500 looked like graphically:


Globo PLC goes bankrupt

You may have seen Globo PLC, the company I recommended in the June 2015 newsletter and that I recommend that you sell again because the stop-loss was triggered in July 2015 (loss 18.2%), declared bankruptcy on 3 November 2015 after it was discovered that its financial statements were fraudulent and that management had reported completely inflated sales and profitability numbers.

Because something like this can happen, this is why I recommend that you don’t put any more than 2% of your total portfolio in any one of the newsletter’s ideas. This is to prevent complete losses like this one leading you to lose a large part of your capital.


The Delclima buyout – profit of 92.4%

If you are an investor in Delclima SpA (+92.4%) I am sure you saw the 25 August 2015 press release which said that Mitsubishi Electric Corporation (Mitsubishi Electric) had made an offer to buy Delclima at a share price of €4.44.

The transaction is subject to clearance from antitrust authorities and the sale of DL Radiators S.r.l., an indirect subsidiary of DeLclima.

As the sale of DL Radiators S.r.l. was completed on 10 December 2015, Mitsubishi Electric announced on 23 December that it had completed the purchase of 74.97% of Delclima.

Mitsubishi Electric will shortly make a tender offer to buy the remaining 25.03% of Delclima at a price of €4.5271.

Sell at the current market price

As the tender price is only 0.4% higher than the current price I recommend that you sell your investment in Delclima at the current market price of €4.51, for a total profit of 92.4% in just over 6 months.


Fiat Chrysler spin-off of Ferrari

If you own Fiat Chrysler Automobiles NV (Fiat Chrysler) – recommended in February 2015 – I am sure you know that Fiat Chrysler on 3 January 2016 spun off Ferrari NV (Ferrari) into a separately listed company. As a Fiat Chrysler shareholder you received one Ferrari share for every 10 shares you owned in Fiat Chrysler.

As the Ferrari share price is expensive, trading on a price to earnings ratio of 26.4, I recommend that you sell the Ferrari shares you received.

In the North American portfolio you will see that I included the sale of the Ferrari shares as a dividend paid by Fiat Chrysler.



Now for this month’s recommendations:

This month’s recommendations

In Europe, I am recommending two French companies; one is a large luxury consumer goods company (Price to Earnings = 11.5, Earnings before Interest and Taxes (EBIT) to Enterprise Value (EV) = 17.2% Dividend yield (DY) = 3.6%), and the other a television media company (EBIT/EV = 12.2%, DY = 5.5%).


In Asia, I am recommending a very undervalued electronic component trading company (EBIT/EV = 45.2%, FCF/EV = 40%, PB = 54%).


In North America, after looking everywhere, I was unable to find any attractive investment ideas for you.


Overall performance still outstanding

The overall performance of all the newsletter’s ideas is still a very respectable 31.4% in Europe and 16.9% in North America.


Wishing you profitable investing

Blue writing_signature option 2




Head Analyst

By | 2017-05-21T07:19:00+00:00 January 14th, 2016|