Monday, January 29, 2007

BHP Billiton on the way up

BHP Billiton broke out of the falling wedge on 13 January. Last week its share price has been rising, accompanied by increased volume.

THe fundamentals of BHP are sound: the demand for base metals from China and India continues to rise; metals prices are still strong compared one year ago. It has a diversified resources portfolio. It continues to buy back its own shares. Its earnings per share this year is likely to be 20% to 30% up from last year. Its PE is quite reasonable relative to Anglo American. Plus, it is a rand hedge stock, its rand share price will benefit from any rand weakness.

Investors should buy at R130 - R134 and hold. Traders may get in now, or buy at price dips, with a minimum target of R140.

Goldfields presents buying opportunity

Goldfields’ price has been falling since July 2006, making a new low of R117.50 today. While it is still in a downward trend, the weekly chart suggests positive divergence.

According to my valuation, Goldfields presents value at these levels. Investors may buy into Goldfields at R110 - R118, using a small portion of their portfolio (gold stocks are by nature volatile).

Aggresive traders may buy at further dips in share price.

Thursday, January 11, 2007

Sasol - more downside to come

Sasol has been following the oil price weaker over the last two weeks, and its chart points to further weakness. My analysis (inspired by Simba, I must mention this!) shows Sasol’s fair value is about R230, at which it is currently trading. Buy when it falls further to around R220 for a rebound. Short-term traders please have stop loss in place.

Telkom - upside potential

In my article on our 2007 yearly model portfolio, I commented that Telkom had gone nowhere last year, and yet it is still fundamentally sound and undervalued.

From its price chart, it appears it has completed an inverse head and shoulder pattern and subsequently broken out, pointing to a medium-term target of R173. I would not be surprised if its share price exceeds this target this year. Traders buy and hold until at least the target is reached.

Monday, January 8, 2007

At what level should the JSE Alsi index be?

I remember that, in the second half of 2006, The Citizen/Moneyweb had a business headline "JSE to reach 25,000 by year-end". Well, it came close, with the JSE Alsi index closing the year at 24,915, up a staggering 37.7% for the year.

So what does 2007 hold for investors? More of the upside, or time to be cautious?

If you have been following my articles, you will know that it is time to be very cautious. I have recently performed an extensive analysis, based on the JSE Alsi index since 1960, as well as economic data. My analysis shows that:

- The current market PE is 17.7, which is 65% above the 46-year average of 10.7. Even if we take into account changes in the inflation and interest rate regime and use a "reasonable" PE of 12, the current market PE is still 48% above where it should be.
- The market PE was as high as it is now during 1968 - 1969 and again 1993 - 1994. The market performance immediately after these two periods was pedestrian to dismal.
- Using various measures, the market is currently between 30% to 40% overvalued.

So, although the market could continue to run for a while, the bias is now to the downside.

What does this mean for investors?

  1. Take profits, if you have already made handsome profits and are still in the market;
  2. Be selective in the stocks you invest. There are few companies that offer value at the moment;
  3. For traders, go short Alsi 40 when it reaches 22,500 ~23,000. Wait for a reversal signal.

Friday, January 5, 2007

Older posts at

Investors and traders who are interested in reading my older articles can find them at