Portfolio changes: Valneva, Philip Morris, Veoneer, Vinda & Kirkland Lake Gold

Time for some portfolio changes again.  I have continued to contemplate what I’m comfortable with in my portfolio and have come to some conclusions:

Philip Morris & Kirkland Lake Gold – Swapping my defense

PM International was bought as a highly defensive holding in my portfolio, a way to get a higher return over time than sitting on cash when I was negative on the market. I have slightly re-evaluated how defensive PM is. Partly because of declining tobacco sales (which I did know about), but because Corona obviously shows the need for healthy lungs, which perhaps will speed up this process. The other part is the debt load that PM is sitting on. Instead I decided to move into the ultimate defensive – gold. My thesis is that all this money printing by FED, ECB and other central banks in combination with banks actually at the same time lending more, will over time devalue fiat currencies. Most likely we will see a short deflationary shock initially, but I think this will turn to inflation for a number of reasons. First the mentioned money printing, secondly because supply chains and just in time delivery is going to revised – at a cost, which also adds inflation. On top of that air cargo will probably be more expensive as well, at least for a few year. With interest rate near zero, the “cost” of holding gold becomes very low at the same time as fiat currency is devalued. I’m not putting on a tin foil hats here going all in on gold, but a small allocation to gold feels good in this case. Kirkland Lake Gold is as close to what I can find to a well run gold mining company in an industry full of crooks. They don’t have mines in countries with problems and have a track record of building a good business creating shareholder value even without gold price going up. So, I’m selling my full holding in Philip Morris as of today, basically around the same levels as I bought it. This gives me some 2.4% of my portfolio in cash. I allocate 3.5% of my portfolio to Kirkland Lake Gold as an Opportunistic holding. Opportunistic because this is more of a mid/short term hedge, than necessarily something I planned to hold 5+ years.

Veoneer – Sell

Another opportunistic holding was car safety company Veoneer. It’s been a hell of a ride these past month, but now I’m back to flat. They have written of parts of their business recently, showing me that things I thought had value seems to have almost none. This was speculative, I can’t say I have been right, neither wrong. But the stock was apparently not as undervalued as I thought when I bought it. The revaluation might come later, but the probability of Geely bidding for Veoneer I think has gone down as well. I choose to move on to other holdings as my conviction is not so high anymore, I sell my full Veoneer holding as of close today, which releases 1.6% cash.

Vinda – Reduce

This stock has had a fantastic performance year to date (up +58%). The stock surge is partly warranted, but partly just hype in Asia around the whole toilet paper thing. I decide to take some profit here and reduce my position from some 7.5% of the portfolio to 5%. There is nothing more sophisticated about it than that I think the valuation is somewhat stretched short term, I think it’s still a great long term holding.

Valneva – back in the portfolio!

Finally Valneva, the company I previously owned, made a quick buck on and then sold. Here is my write-up: Valneva Microcap Vaccine Producer. Later when I sold I wrote: “If I had a strong belief they would succeed with the launch of a Lyme disease vaccine, I would be happy to hold this company through the 5 year process they have in front of them. Instead I will sell my full holding as of today’s close.”. Basically what has changed is that they have landed a good agreement with Pfizer to develop the Lyme vaccine. Thanks to that I know feel the company is investable again, unfortunately I have to pay the price of having this information known. I sold at ~3.4 EUR per share and today I will have to pay ~4 EUR per share. But I feel this is reasonable given that the company might have a revenue share in a new block buster vaccine. Again to weave in the Coronavirus into this case (it feels like you should mention Corona in every stock pick you do nowadays), I think the anti-vaxxers will be less loud when the whole world has got use to taking another vaccine here in the next year or so. It will raise the awareness of how important vaccines can be, and Lyme to be honest is also such a case. This is an important point, because the previous Lyme vaccine was discontinued due to loud anti-vaxxers. I take in Valneva at a 3% position of the portfolio.

 

 

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Buying TGS & Veoneer, Add Dairy Farm and Selling Irisity

I wrote about a month ago about my take on the Corona virus from a Asia perspective, basically my worst case scenario has come true and then some. The virus is more or less out of control in Europe and large parts of the developed world is staring into two scenarios: Either they do a shut-down like China and suffer the economic consequences of that, or they keep things running as per usual and the spread will just continue. Two horrible options to choose from. And on top of that we have a highly political situation between Saudi, Russia and USA, which knocked oil completely. My timing of buying my first oil holding ever into the portfolio Tethys Oil, could not have been less well timed, but such is investing life. I have managed to time things horribly before and I will do it again.

First my overall portfolio strategy right now, is to stay defensive and I think I have many such holdings (Swedish Match, Philip Morris, Diageo, Greatview Aseptic, etc..), the second thing is more short term tactical. We have seen a multi-year out-performance of Developed Market stocks vs Emerging Markets, just like the growth/value spread I have been wondering, when is it time for EM to shine again? Given the Corona spread in developed markets, I think this will exaggerate a mean reversion of returns (which was bound to happen anyway)  in favor of EM. So I’m happy that my portfolio already has a strong tilt to Emerging Markets and I intend to keep it that way. Thirdly currently I’m mostly worried that this virus will kick-start a (also overdue) cyclical downturn with rising un-employment. So although EM might on relative basis fall less than developed, it might all come down more from here. Finally, a market like this creates opportunities to build positions in things you would not normally consider, so I will use this opportunity to make some portfolio changes.

Selling Irisity

This was a speculative holding with a lot of potential upside, unfortunately the company has not been able to deliver what the promised. I have full respect for that things take longer than planned, but you also need to decide at some point that you waited enough. That time has come and I choose to sell my full holding. Unfortunate and I realize a loss of 50% on this holding, but I knew the risks when I invested.

Buying TGS Nopec and Veoneer and Adding to Dairy Farm

I don’t have very much cash right now in my virtual fund, which is a bit ironic going into this downturn, given that I held larger cash levels for quite a while before. With the Irisity sell I have about 6.2% of my NAV in cash. So these 6.2% needs to be spread into these three holdings:

TGS Nopec – 2.5%

My favorite blog buddy valueandopportunity has for a long term held TGS and he recently added to it in this downturn. It is a oil exploration services company, please check his blog for more info on the company. The stock is down some -60% is a short time. I think this is exaggerated, the company is very well managed, asset light operations and is debt free with some cash in the bank. Previously when oil price hit $30 the company had one single quarter with losses. I’m happy adding TGS as a new long term at these levels. I realize just like my fellow blogger said I might be early here and I’m catching a falling knife, but I don’t really care. If oil doesn’t stay at these levels for years TGS will recover. On the downside oil might stay low for years given an significant economic downturn is in the cards but then most of my other holdings will also be down more from these levels. The risk reward looks very good at these levels in my view.

Veoneer – 1.5%

This is speculative case, again looking like catching a falling knife. This company is the spin-off from Autoliv which produces the next generation safety equipment for cars. More or less everything has been going against the company lately. Car sales declining, then corona, then some delayed contracts and lost contracts to a competitor. Due to all this, its easy to forget that this is a big tech company, with a lot of skillful engineers and a lot of patents. The company recently raised 420 million USD at 17.5 USD per share, its now trading below 9 USD. So the short term capital raising risk is gone, although down the line another one might be needed in a about 2 years time. This company is now deducting cash from market cap trading at Enterprise Value of 500 million USD, for a company with a good pipeline of products, 700 staff, which to a large extent are engineers and having revenue of some 1.9bn USD this is cheap. My belief is that someone like Geely will just come and snatch this up very soon.

Dairy Farm – 2.2%

I thought long and hard about this holding, I know it very well by now. I considered to throw it out for a while as well when I feared that the company would be loss making for the coming years, due to the situation in Hong Kong (protests not Corona). The report for second half of 2019 was released and the company is not in as bad shape. I was quite positively surprised and they are executing fairly well on their turn-around in other markets. After all, this is a very defensive company, running 7-elevens and supermarkets in the Asian region. Longer term it has many things going for it. The general population growth in Asia and a larger middle-class being the main investment case. Right now with the HK situation and Corona shareholders have just decided that this is almost un-investable, which I fully understand, short term. But now the stock is so cheap, I decide to take a long term perspective again, although it might fall more before it recovers. I only hold a 1.8% after selling this down recently (at 5.71 USD per share),  now I get to buy that back at 4.33 USD per share. Going back to some conclusions I made around my investment skills, this is another example where I have to say I traded this stock very well:

November-17 buy @ 8.2
December-17 buy @ 7.91
January-19 sell @ 9.44
October-19 buy @ 5.83
December-19 sell @ 5.71

Fully invested – but..

So I’m as of today’s close fully invested, for the first time in a long while. But I do have something which I see as an alternative to cash at that is BBI Life Science, which is the buy-out event I invested in some months ago. The stock is flat lining here waiting for the offer to go through, I could sell out to a small profit and use that cash for other investments. BBI Life Science is a bit over 6% of my current portfolio.

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