Portfolio Review of the week - February 6th 2010

A tough week for the Contrarian Investor UK portfolio this week as global markets fell heavily on sovereign debt concerns in countries such as Greece. The DOW Jones Industrials briefly fell as low as 9850 yesterday before staging a strong recovery in the last hour of trading to finish higher and back over the 10,000 level. Unfortunately, some long bets on the DOW were closed out at the lows , which was frustrating given the rebound. As I talk about shortly, the investment thesis for the holdings in the portfolio are robust and news flow is expected for most of the holdings in the coming weeks which should be a catalyst for share price appreciation. A sell off in the market that we have seen in the last 2 weeks is a positive development given we are now back in the “good value” zone after the rises in January looked unsustainable and stretched the prices of many stocks. The portfolio is now positioned for any change to a more positive sentiment.

Coal of Africa (CZA) – Finally the news that has been awaited for the last 4 months came through with the South African Government granting the new mining order for the Vele coking coal project. Although the share price initially responded well with a 23% one day rise to 148p, the large falls in global stock markets throughout the latter part of the week and rumours that fellow Coal stock, GCM, were selling down their holding meant that CZA finished the week at 133p, barely unchanged. Based on fundamentals CZA looks very solid – rising prices for metallurgical and thermal coal, increasing production coming on stream from Mooiplaats and now Vele, the acquisition of NuCoal brings on stream further capacity, good off take agreements with the likes of Arcellor Mittal (who own a stake in Coal of Africa). Continuing to hold.

GW Pharma (GWP) - Remarkably robust given the overall market picture, with a small fall to 87p. Sativex Cannabis spray regulatory approval in Europe in final stages. News expected in Q1 2010.

Falkland Islands Oil Shares (Falklands Oil and Gas (FOGL), Desire Petroleum (DES), Borders and Southern Petroleum (BOR) ) - A strengthening in the U.S. dollar this week due to fears about debt default in Portgual, Spain, Italy and Greece sent commodities into free fall this week with WTI Crude Oil dipping below $70 on Friday (after being above $80 in January). In addition, posturing by the Argentininian government about the ownership of the Falklands added to the general uncertainty. The Ocean Guardian Rig hired by Desire Petroleum is due to arrive in the Falklands in the next week or so with drilling due to start mid-February. News from Falklands Oil and Gas (which has a farm in deal with BHP Billiton) on a potential sharing of Ocean Guardian is expected in the next couple of weeks with further news on a deep water rig needed to drill in the deeper waters of the South Falklands basin also on the horizon. Despite heavy falls in the Falklands Islands shares this week, with the rush out of oil stocks and riskier assets, imminent news from the drilling campaign should drive prices higher.

ITV (ITV) – TV company, ITV dropped to 53p this week on the general market weakness. The outlook for TV revenues is solid in 2010 and the management team of Crozier and Norman is looking to streamline the business and review the ongoing strategy of the business. Holding.

Nighthawk Energy (HAWK) – HAWK broke through the long term resistance of 30p this week on the weakness in the oil price and now stands at lows last seen during the March 2009 lows at 27p. Despite reasonably positive news from the Jolly Ranch project last week, and confirmation that substantial news on the field would be released this week, the shares continue to take a tumble. The fundamental investment thesis for HAWK, namely the Jolly Ranch and Revere prospects is unchanged. Though Contrarian Investor UK is disappointed in the short term performance, I will continue to hold as news flow does not support this continued erosion in the share price.

Amgen (AMGN) - The stock price fell from close to $60 earlier in the week to finish at $57.5 as sentiment on pharma stocks was not helped by disappointing results from Pfizer (PFE) and Astra Zeneca (AZN). News on osteoporosis drug, Prolia, is expected in Q1 or early Q2. Holding.

Intel (INTC) and Micron (MU) – Semi conductor stocks took a hammering early in the week with Micron falling close to $8 and Intel dipping below $19. Despite the short term weakness, long term fundamentals look positive for chips consumption in both the consumer and business enterprise segments.