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Dovre Insight: Good News Overdose

Spekuliantai.lt | 2012-01-17 | Kitos | perskaitė: 602
Raktiniai žodžiai: Rinkos
Dovre Insight: Good News Overdose Dovre Insight: Good News Overdose

U.S. macro data has blown all expectations in the winter and pessimistic equity investors are hardly to be found anymore.

According to AAII's weekly sentiment survey, only 17.2 percent of U.S. private investors are adverse to the exchange. This is the second-lowest level in five years.

What caused the significant improvement in mood? The Christmas holiday is a reason. The mood is generally better when you get a chance to recharge your energy.

Stunning macro numbers

Citi Economic Surprise Index for the United States is currently at the second-highest level in ten years. This index measures how the economic reports come in compared to the expectations and is calculated on a three-month rolling basis.

The message from this index is that overwhelming majority of the U.S. macroeconomic data came in better than expected in the winter and it is easy to imagine that this has pumped up optimism.

A signal to sell?

For the many unemployed it is of course good that the economy is doing better than expected. For stock prices it’s another story. Historically, the positive extreme fluctuations in Citi Economic Surprise Index often coincided with short-term market stops. This confirms the old rule that the best time to buy is when everybody is in fear.

While the U.S. economy has surprised positively in the winter, it is worth noting that the same cannot be said about the euro zone and China. Citi Economic Surprise Index is close to zero for both these economies which shows that the macro figures on average have come in as expected.

Uncontrolled immigration

In Dovre portfolio we release this week in Fornebu Utvikling. The company provides a great exposure to the red-hot housing market in Oslo. With uncontrolled immigration, a bright high oil prices that is fueling the Norwegian economy and low interest rates it is difficult to improve such market conditions.

Despite good prospects the valuation of the company is attractive. Oslo Stock Exchange has priced Fornebu Utvikling only at 63 and 48 percent of book value and net asset value respectively.

What will it take to close the discount in relation to the underlying values? The most obvious is an acquisition. Orkla is the main shareholder and it will sell only if price is right.  To know whether and when an acquisition takes place is difficult in advance.

Monopolist

Last week, Statoil said that the use of EM technology played a key role in the Turn Farm and Sea Ice discoveries in the Barents Sea. This is good news for EMGS because it means that EM technology has gained industrial acceptance.

EMGS is virtually monopolist in EM technology, a growing niche in an early growth phase. This together with good prospects for the offshore industry and the company has the least price-sensitive customers, EMGS flashes as a long-term stock market winner and obvious takeover candidate.

Dovre-portfolio

• Morpol
• Subsea 7
• BW Offshore
• Sevan Marine
• Fornebu Development
• EMGS

In: Fornebu Development, EMGS
Out: Statoil, Kvaerner

 

Figure 1: USA Citi Economic Surprise Index

Figure 2: USA share of pesimist investors

Figure 3: Citi Economic Surprise Index for Eurosone and China

 

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