Tuesday, March 6, 2007

Add Nomura to the Portfolio

I read today that Jimmy Cramer thinks the momentum investors are behind all the whipsawwing of the markets... I don't buy it.

I think it's the lemmings.

The funny thing about the lemmings is that their membership extends to the "smart money." For all we know, the lemmings are mostly from the smart money set... hedge fund managers... investment banks... and the like. I mean, are there really enough Ma and Pa Kettles out there trading momentum portfolios to tank the entire global equity markets in one week?

I doubt it.

That being said, our usual suspects rallied hard today with the broad markets. SLUP is up 4%... Kookmin Bank is up 5%... and CECO is up almost 6% on today's trading. And to no one's surprise, our old friend CTEX rallied to almost 0.006 before falling back into its band at .0045.

It's good to know we can count on CTEX to never, ever surprise us. This company is kind of like our mentally challenged Uncle Vern... Yes he's embarrassing when he gets drinking at family reunions, but he never does anything too silly like set fire to the porch... Instead he just keeps scratching his hairy belly in the lawn chair and scaring the kids.

Disturbing but predictable, that's CTEX.

And now we're adding a new position to the portfolio that promises to do a little better. It's part of the Dow Jones Sustainability Index. It's a pure play on the recovery in Japan.

The company is Nomura Holdings (NYSE: NMR).

I like Nomura because it is a pure play on Japan's recovery, and shouldn't be as affected by something important brewing in the global currency markets. I'm talking of course about the unwinding of the yen carry trade - where big investors borrow in yen, then use the yen to hold higher-yielding currencies like the Aussie dollar or the Loonie, collecting the spread between the two interest rates.

When rates rise in Japan, as they surely must, the billions of dollars in short yen positions will have to be covered. To do so, the yen carriers will have to buy yen. And that will drive the yen higher. When this happens in a major way - and there are signs it has begun already - Japanese exporters like Sony and Canon could be hampered by a strong yen.

Nomura: A Member of the DJ Sustainability Index

That's why a pure Japanese play like Nomura makes sense to me. It's not dependent on exporting, and the fundamentals are all there:
  • Annual net income of $1.95 billion...
  • Market cap of $39 billion...
  • Operating margins at 43% (compared to Merrill Lynch's at 30%)
  • Now the stock is a tad pricey compared to competitors, with a P/E of 16.75, versus the industry average 16.15.
But as far as big Japanese banks go, this is a solid institution... and of course it has the Green Investments advantage of being part of the Dow Jones Sustainability Index...

The company has a track record for doing business the right way, and sustainably. According to the Dow Jones Sustainability Index website, Nomura is among the leading sustainability companies in the world. Here's some info from the site, defining what that means:

"Leading sustainability companies display high levels of competence in addressing global and industry challenges in a variety of areas:

"Strategy: Integrating long-term economic, environmental and social aspects in their business strategies while maintaining global competitiveness and brand reputation.

"Financial: Meeting shareholders' demands for sound financial returns, long-term economic growth, open communication and transparent financial accounting.

"Customer & Product: Fostering loyalty by investing in customer relationship management and product and service innovation that focuses on technologies and systems, which use financial, natural and social resources in an efficient, effective and economic manner over the long-term.

"Governance and Stakeholder: Setting the highest standards of corporate governance and stakeholder engagement, including corporate codes of conduct and public reporting.

"Human: Managing human resources to maintain workforce capabilities and employee satisfaction through best-in-class organisational learning and knowledge management practices and remuneration and benefit programs.

"Corporate sustainability performance is an investable concept. This is crucial in driving interest and investments in sustainability to the mutual benefit of companies and investors. As this benefit circle strengthens, it will have a positive effect on the societies and economies of both the developed and developing world. "

ACTION: Add Nomura Holdings (NMR) to the Evergreen Portfolio at $20.60. We'll place a 25% trailing stop on this position, meaning we'll sell the next day if NMR closes below $15.45. But watch as the stop follows the stock price and adjust your stop accordingly.

Good trading,


1 comment:

Anonymous said...