CONTROLLED GREED.com

Happy New Year!

Here's wishing all Controlled Greed.com readers everywhere a Happy New Year!

I know 2007 has already arrived for some of you while it's still a few hours away for others, depending on where you reside around the globe. I hear the year has gotten of with a real bang in Bangkok. Or a few bangs, though not the kind certain districts of the city are famous for. Let's cross our fingers that won't be an omen of things to come.

I hope the past 12 months were great for you and those you care about and that the next dozen will prove even better in every respect.

I'll spend New Year's Day indulging in the Southern tradition of feasting on black-eyed peas with stewed tomatoes. I think doing this is supposed to bring good luck. Or at least that's what I've always been told. Regardless, the hunt for value will continue in 2007 when the markets reopen.

In the meantime, you might enjoy Mark Steyn's consideration of New Year's songs -- especially Auld Lang Syne.

Happy New Year, folks.

More on Molson's Turnaround

On the heels of my post the other day about portfolio holding Molson Coors (TAP/NYSE), comes this Associated Press story about the company:

While Molson Coors investors may not have seen spectacular gains in 2006, the world's fifth-largest brewer did improve profitability and sales amid a weak domestic beer market.

The AP report, courtesy of the Houston Chronicle, describes the challenges the company faced this year. Then things started to turn:

The company weathered flat sales volume in the third quarter and reported a 25.5 percent increase in profit. After excise taxes, net sales totaled $1.58 billion, beating Wall Street expectations. President and CEO Leo Kiely told analysts the company expects to achieve the $175 million of cost savings promised when Adolph Coors Co. and Molson Inc. merged in 2005.

"Overall, we believe our third-quarter results demonstrate we're making consistent progress and strengthening the fundamentals of our company, even while we face tough competitive and cost pressures in all of our markets," Kiely said.

Like I said in the earlier post, things could always go wrong with this holding. Or any holding, for that matter. But it looks like Molson Coors will be a steady (if not spectacular) contributor to the portfolio.

Then again, since I'm confident of that, who knows how far south it will go? ;-)

Wagoner and Lutz Keeping Their Heads

In his Forbes column, Jerry Flint ponders the state of Detroit auto executives and their hold on their jobs.

Because I own stock in General Motors (GM/NYSE), I found this bit interesting:

If there's an exception to the head-rolling, it's General Motors . Despite all its troubles over the past dozen years the GM management has been amazingly stable. The board of directors has been willing to accept any disaster without shaking the management tree. Even Captain Kirk (meaning Kirk Kerkorian, who owned 10% of the stock) wasn't able to shake the tree.

And this part further down the piece also catches my eye:

Which brings us to the questions I am always asked: Will General Motors and Ford survive? GM's chief executive is the financial type. Costs are his strengths. But he is ably assisted by that well-traveled car guy, Robert Lutz. GM is doing better. It has arrived, if not at a turnaround, at a solid improvement. If there is no real slowdown in the industry--a really big "if"--the GM revival should continue.

You know I think the GM revival will continue. And, as I keep reminding people, for GM to work as an investment does not depend on it regaining its dominant status of several decades ago.

If I'm right about the company, the investment will work because of the price paid for its stock. I know I bought early. Whether or not I bought too early remains to be seen. I bought GM in 2005. We're at the end of 2006. I anticipate holding it for a while yet. If that changes, you'll read about it here.

Can Buffett-Style Value Investing Be Applied in Malaysia?

Yes it can, according to Tan Teng Boo, CEO of Capital Dynamics in Malaysia, in his opinion column in the Malaysia Star Online. His article gives a good overview of Warren Buffett and the influence of Charlie Munger, and points out that their approach has evolved from that of Benjamin Graham.

So, in that respect, Tan's column isn't telling us anything we value folks don't know already.

But let's keep in mind that he's writing for a primarily Malaysian audience -- one that I gather isn't overly familiar with value investing. Or is wondering whether the value approach can be applied to Malaysian stocks. That's why this part pops out at me:

Can we apply the Buffett-Graham-Munger approach to Bursa Malaysia? Yes, except that one has to be very patient, disciplined and do the necessary homework. For whatever reasons, many claim to be a follower or non-follower of Buffett without really knowing his philosophy and methodology. 

Many investors have blamed the Bursa Malaysia for losses or poor returns. Many have said that the Buffett-Graham-Munger investing style cannot be successfully applied to Bursa. Many investors do not realise that the real culprit of their losses or poor performance is themselves. Do not get us wrong. i Capital is not saying that Bursa and the listed companies are perfect. There is an endless list of things that can be improved and there are plenty of companies (probably the majority of them) that do not deserve an inch of support from genuine investors. But part of the fault also lies with the investing style of investors. Have they ever asked how they would perform if they had used the same method and invested in Tokyo, London or New York? Would they have the patience or the discipline?

Nigerian Oil and ArmorGroup

The "Nigerian Oil" section of the Breakingviews column (scroll down) in today's Wall Street Journal Europe doesn't mention portfolio holding ArmorGroup International (ARG/LN).

But it's relevant to us shareholders:

The explosion of a pipeline in Nigeria that took at least 265 lives hasn't moved the oil price, or the shares of foreign oil companies that do business there. It turns out that the pipeline supplied petrol for domestic consumption, and wasn't used for foreign energy exports. But as foreign companies increasingly bet on Nigeria to expand their bottom lines, the blast is a reminder that doing business in the country is risky.

The piece, which I encourage you to read, ends with this:

The tragedy in Lagos highlights the dangers of doing business in a country where the people are so poor that they are prepared to take extraordinary risks to make some petty cash. But if political and social instability gets any worse, foreign oil companies could find the costs of investing in Nigeria don't justify the returns.

Well, sure. And that's why firms like ArmorGroup are finding work outside supporting the US and UK military. If the much-anticipated long-term commodities boom is underway, ArmorGroup is positioned to benefit. That doesn't guarantee anything, of course. But it's a nice add-on to the business of helping over-stretched armies and providing security to NGO humanitarian missions.

You can see a case study of ArmorGroup's activities in Nigeria on the company's website.

BCE Enters 2007 in Good Shape

Catherine McLean writes in the Globe and Mail about portfolio holding BCE Inc. (BCE/NYSE):

Bell forecast revenue growth of between 3 and 5 per cent next year, accelerating from 1 to 3 per cent in 2006. Bell is also targeting 2007 earnings before interest, tax, depreciation, and amortization (EBITDA) growth of between 4 and 6 per cent. BCE opted at the same time to boost its annual dividend by 11 per cent to $1.46 a share.

Analysts from Genuity, Haywood Securities Inc., RBC Dominion Securities Inc., and UBS Securities Canada Inc. responded by raising their price targets for BCE's stock.

They believe rate increases for various services will play a key role in helping Bell meet its higher-than-expected forecasts.

It's all part of a strategy, headed by Bell's chief operating officer George Cope, aimed at boosting profitability. At the conference, Mr. Cope outlined areas where prices will rise next year, including long-distance plans and the ExpressVu satellite service.

BCE will become known as Bell Canada in early 2007. It recently sold its satellite business for more than anticipated. But its legacy phone business will decline -- as it will for all legacy phone companies. The key will be how well Cope and his team take advantage of high growth opportunities. Such as its wireless, high-speed internet and video services business.

We're still really early with this pick. Let's see where we are with it a year from now.

Molson Coors: Like Watching Beer Dry

You've heard the old saying about value investing being like watching grass grow or paint dry. When it comes to portfolio holding Molson Coors (TAP/NYSE), we can add that value investing can be like watching beer dry.

Molson Coors was recommended on Controlled Greed.com in June 2005 at $60.35. The stock had dropped because the merger between Coors and Molson wasn't going as smoothly as planned. Beer sales in the US were flat (pun intended) and a price war between Coors, Budweiser and SABMiller was looming and would hurt profits. Molson, which is hugely popular in Canada, had slower sales due to the NHL being on strike (Molson is a big sponsor of hockey). The company also had some problems with its UK assets and a lousy-performing beer business in Brazil (which it subsequently sold).

All of these were short-term challenges. Molson Coors has good management under CEO Leo Kiely. The company wasn't going to go out of business. It was unloved on Wall Street, but so what.

The stock closed yesterday at $76.76. That's a gain of more than 28%, not including dividends. No, that's not a homerun. But it is a respectable, if not spectacular, return on investment. And if every stock would do as well I'd be delighted. I should point out that Molson Coors has been in the portfolio for 18 months, and with my 3-to-5 year time horizon there's still plenty of time for things to go wrong.

I don't expect that to happen. Yet with the shares recently hitting new highs, we could always see a pullback.

I'm writing about Molson Coors because, well, I haven't mentioned it much since buying it. This is a case of a company and its management quietly working things out and growing the bottom line over time. It may not be exciting. But it sure is profitable.

3i Group Keeps Doing Deals

Ben Harrington of Britain's Daily Telegraph writes of 3i Group (III/LN):

Private equity firm 3i has capped a flurry of high-profile deals by snapping up transportation group Dockwise Transport for more than $700m (£357m).

3i, which recently made a £940m recommended offer for estate agent group Countrywide, has bought Dockwise Transport from Dutch shipping companies Heerema Group and Wilh. Wilhelmsen.

The linked article reports tht Dockwise has a fleet of 15 semi-submersible vessels. These are used to transport oil rigs, bridges and cranes around the world. Which makes these investments good plays on energy and infrastructure themes.

Harrington ends the piece with this:

The deal comes as 3i strives to do larger leverage buyouts. Earlier this month, it bought VNU's European business magazines, including Accountancy Age, Computing and IT Week, for £215m.

Regular readers of Controlled Greed.com know I like this company -- and its management -- a lot. That last paragraph says 3i "strives" to do larger buyouts. I'll need to keep an eye on that. One of the things I like about the company is that it excels in doing small-to-medium sized deals. My hunch is that 3i's increased assets make that somewhat of a necessity.

And that's entirely apart from the fact that Phil Yea and his team may see bigger deals as the way to go strategically.

You can read my original rationale for owning 3i Group here, though it's not the bargain it was in the first half of 2005.

Nikko Cordial Executives Step Down

Portfolio holding Nikko Cordial (NIKOY/OTC) said its top executives are stepping down and the company named a new president after improper accounting forced an earnings restatement.

The company stated that President Junichi Arimura and Chairman Masashi Kaneko were to step down yesterday. Shoji Kuwashima, chief information-technology officer and a director, was taking over as President at that time.

Nikko's shares have fallen roughly 15% since this scandal broke a week or so ago. It may be delisted from the Tokyo Stock Exchange. I don't think that will happen -- but it could. You know I own the ADRs trading OTC. The ADRs can be somewhat illiquid and subject to sharp price movements. Last I checked this afternoon they were back up over $10.

I'm holding my Nikko Cordial position (I sold part of my stake previously, reported on this blog) and would recommend anyone else do the same. But you have to do your own due diligence and make up your own mind.

My thinking is that the company will survive, remain listed in Tokyo and continue benefiting from Japan's resurgence. I may be wrong. I may change my mind and dump the company. All I can say right now is that any moves made in this position will be reported on Controlled Greed.com. Like everything else I do.

Merry Christmas

I wish all of you a very Merry Christmas. And I hope that you and all you care about enjoy the good cheer and blessings this special time of year offers.

I plan on posting the week between Christmas and New Year's, so please visit the blog if you get the opportunity.

In the meantime, have a great holiday and Season's Greetings.