Highlight of the week of January 20, 2014

stock-market-down1Gold up

Dear PGM Capital Blog readers,
In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of January 20, 2014.

  • Unilever reported better-than-expected full year 2013 results, on Tuesday, January 21st 2011.
  • Venezuelan Bolivar in free fall
  • Global Stock Market Rout, Gold rallies.

UNILEVER REPORTED BETTER THAN EXPECTED FULL YEAR 2013 EARNINGS:
Unilever (AEX:UNA.AS or NYSE: UN), the Anglo-Dutch Consumer goods maker, reported on Tuesday January 21st, 2014, better than expected earnings.

Unilever Products

Full year 2013 highlights:

  • Turnover down (3.0)% to €49.8 billion with foreign exchange (5.9)% and net acquisitions & disposals (1.1)%
  • Underlying sales growth 4.3% with volume 2.5% and price 1.8%.
  • Emerging markets underlying sales growth 8.7% with volume 4.8%.
  • Core operating margin up 40bps at 14.1% driven by gross margin up 110bps.
  • Advertising and promotions up 50bps an increase of around €460 million at constant currency.
  • Free cash flow of €3.9 billion; core earnings per share up 3% to €1.58.
  • The Boards have declared a quarterly interim dividend for Q4 2013, payable on March 12, 2014, with a record date of February 7, 2014 as follows:
    • € 0.2690 per Unilever N.V. ordinary share.
    • £ 0.2222 per Unilever PLC ordinary share
    • US$ 0.3654 per Unilever N.V. New York share
    • US$ 0.3654 per Unilever PLC American Depositary Receipt

Source:

Based on the above mentioned Q4-2013 dividend declaration and Unilever N.V. ordinary share closing price of Friday, January 24th 2014, in Amsterdam of € 28.98 a share, the company’s stock has a dividend yield of 3.71 percent.

About Unilever:
Unilever N.V. which was founded in 1927 and is based in Rotterdam, operates through four segments: Personal Care, Foods, Refreshment, and Home Care.

The Personal Care segment offers skincare and haircare products, deodorants, and oral care products. The Foods segment provides soups, bouillons, sauces, snacks, mayonnaise, salad dressings, margarines, and spreads. The Refreshment segment offers ice cream, tea-based beverages, weight-management products, and nutritionally enhanced staples. The Home Care segment provides home care products, such as laundry tablets, powders and liquids, soap bars, and various cleaning products. Unilever N.V. offers its products under various brand names, such as Axe, Becel, Flora, Ben & Jerry’s, Bertolli, Blue Band, Rama, Brylcreem, Cif, Clear, Comfort, Domestos, Dove, Fissan, Heartbrand, Hellmann’s, Amora, Knorr, Lifebuoy, Lipton, Lux, Omo, Pond’s, Radox, Rexona, Signal, Closeup, Simple, St Ives, Sunlight, Sunsilk, Surf, TRESemmé, Timotei, VO5, and Vaseline.

As can be seen from below all time chart, the Unilever NV shares have appreciated from May 1985 up to Friday January 24th 2014, with approx. 2,400 percent.

Unilever all time chart

VENEZUELAN BOLIVAR IN FREE FALL:
Less than a year ago Venezuela shocked the world by devaluing its currency, the Bolivar, from 4.30 to the USD to 6.30 as can be seen from below chart.

On Wednesday, January 22nd 2014, Venezuelan Oil Minister Rafael Ramirez declared that the country was revamping its 11-year-old currency controls with the creation of a dual-exchange system that authorities vowed would limit rampant embezzlement of oil dollars, but critics pilloried it as a disguised devaluation.

The exchange rate for essential goods such as food and medicine will remain at the regular 6.3 bolivars per dollar. However, Venezuelans traveling or buying airline tickets will be faced with an extremely unfavourable rate of 11.3 bolivars.

The move aims to crack down on the black market rate which now stands at about 10 times higher than the preferred rate, according to Oil Minister Rafael Ramirez. Billions of dollar in savings could be used for purchasing basic needs.

Oll Minister Ramirez and Bolivar devaluation

Although this measure  looks like a devaluation, quacks like a devaluation, and hurts like a devaluation, because it is a devaluation, Oil Minister Ramirez, however, insisted it was not a devaluation of the bolivar, but a measure to avoid a crisis, and boost the economy.

GLOBAL STOCK MARKET ROUT AND PRECIOUS METALS RALLY:
On Friday, January 24th 2014, U.S. stocks fell, pushing the Dow Jones Industrial Average (INDU) toward the biggest weekly decline since May 2012, as equities slumped worldwide amid a selloff in emerging-market currencies.

Markets Down

The Standard & Poor’s 500 Index (SPX) retreated 38.17 points or 2.09 percent to close the week at 1,709.29. The benchmark index has declined 2.89 percent this week to the lowest since Dec. 17. The Dow slid 318.24 points, or 1.96 percent, to close the week at 15,879.11.

The 30-stock gauge is down 3.25 percent this week, as can be seen from below chart.

DOW30 5days

Gold hit its highest in two months on Friday as the dollar fell, the yellow metal soared with USD 4.40 an ounce 0r 0.35 percent to close the week at USD 1,269.00 a Troy Ounce as can be seen from below chart.

PGM CAPITAL COMMENTS:
Unilever:

We weren’t surprised by earnings report of Unilever; since August of 2013 we have a BUY to STRONG BUY rating on the stock and are accumulating the stock in our own portfolio. We believe that based on the company’s fundamentals it will continu to outperform its peers.

Venezuela:
We believe that the move by  Venezuela to introduce an dual currency exchange rate will result to be largely meaningless and purely optical, because there is still an 85% differential between the official rate, and what one can get for a dollar on the black market.

Below chart shows that currently on the black market people have to pay 78.38 Bolivars for 1 US-Dollar.

VZ dollar parallel

 

Stock Market Rout and Gold Rally:
Since early December of last year we have been warning our readers based on fundamental research that all markets in the west are extremely overvalued and  that a stockmarket crash is imminent.

We have also advised our clients to accumulate Gold, because the yellow metal is extremely oversold and undervalued.

The questions most investors will be asking themselves are:

  • How sharp will the correction in the markets be and how much upside potential does Gold have?
    • PGM Reply:
      Our fundamental analysis combined with history is telling us, that we can expect a downward 20 percent correction in the USA markets and that Gold has an upside potential of approx. 50 percent from its current level.

Regarding Gold-miners stock we are even more bullish, as you can see from below RSI Technical Chart for the Gold mining stocks. Since the beginning of 2014, there has been very much positive activity (green bars) in the gold mines. Moreover, the RSI indicator shows a positive divergence, which indicates a new upward trend with the next resistance at a Goldmine to Gold ratio of 0.3.

RSI Gold Miners

Last but not least we herewith want to stress once more the two following applicable quotes that describe the current market situation the best:

THE MARKET CAN REMAIN LONGER IRRATIONAL THAN YOU CAN REMAIN SOLVENT!
John Maynard Keynes

BE GREEDY WHEN OTHERS ARE FEARFUL AND FEARFUL WHEN OTHERS ARE GREEDY!
Warren Buffett

Until Next Time,

Eric Panneflek

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