I received an extraordinary offer from a UK website, a chance to win an award as a top quality newsletter by paying a mere £4000 for the “honour”. Global-Investing.com does land a few real kudos, most recently from The Investor's Digest of Canada (a publication of MPL Communications of Toronto) and Wall Streets Best Income Stocks (a blog from Cabot Corp. of Massachusetts). Both came as a result of stock picks doing well in 2016. We do not pay for praise. The best praise of all comes from our happy subscribers whose letters are posted under “kudos” on the www.global-investing.com website. My newsletter is a hobby for me and I just closed the accounts for 2016 showing that my company lost a few thousand dollars last year. I wouldn't go on but for the fact that I make money with my stock picking, alongside my readers. Without them I would not have the access I need to get analysts and companies to talk to me.

Friday we had good macro-economic news in the US and Europe. US unemployment fell to 246m, nicely below forecasts. Non-agricultural production beat forecasts rising by 1.3% in Q4. These numbers came before Pres. Trump did anything. In Europe producer prices rose 0.7% in Dec, higher than expected.

And the UN, five countries (Britain, France, Germany, China, and Japan) set new sanctions on Iran for its missile test last week—under the terms of the treaty which the US now threatens to tear up. We have a company which reported after the close Thursday and news from the Dutch Antilles, Canada, Brazil, Mexico, Bermuda, Finland, Britain, Germany, and a few other places. Readers may have noticed that of late I am writing more about daily stock price movements. This results from a different presentation at E-trade, my brokerage, about which I am not altogether pleased. While it wants to generate lots of day-trading which pays off for your broker, we are really buy and hold folks.

*Validus Holdings (VR) reported a drastic drop in net income for the final quarter of 2016, $7.8 mn or 10¢/sh vs prior year's Q4 $69 mn or 81¢/sh. Full year income came to $319.2 mn or $3.88/sh vs $409.7 mn or $4.74 the year before. It is a Bermuda reinsurance company which for a fee takes onto its own books risks from crop insurers, life, and P&C insurance companies.

Operating income dropped by a third to $105.4 m in the quarter and by nearly a quarter to $319.2 mn for the year. The quarterly return on equity was 6.9% this year compared to 11.6% last, and the annual was 9.7% compared to 10.3% for 2015. Net operating return on equity was 6.9% this Q4 and 11.6% last and for the full year 8.6% compared to 11.3%.

VR CEO Ed Noonan stated that “Validus had another strong year. Despite the global insurance market growing more competitive, we were able to deliver an 84.2% combined ratio and grow our book value per diluted share (including dividends) by 9.5%. We continue to position [VR] to weather the soft market while building the foundation to capitalize on better conditions down the road.” 

Insurance metrics being weird, I sought comment from our contributor, Harry Geisel, MBA. He wrote: “The 80¢ beat expectations and the shares hit an all-time high. For the year, the combined ratio was 84.2 vs 79.7 in 2015. Lower is better.

“Why the enthusiasm? Because the insurance business is bad right now as premiums keep falling and interest rates are low. Validus continues to do better than anyone else.” He will report more from the conference call on Monday if CEO Noonan gives away any secrets. The stock is down fractionally.

Sellers

*Building his case on insider sales and worries over the debt incurred to buy Cameron, John DiCecco writes in seekingalpha.com that we should take profits on Schlumberger Ltd, (SLB). Its new focus on North American drilling (with Cameron) should pay off as the US shale break-even price is now below $50 (according to specialists Wood Mackenzie). And the oil price is ~$54.

*While the consensus rating of Vodafone (VOD) hitherto was buy (8) vs hold (7), with good names in the former column like Goldman Sachs (Jan. 10) and Barclays (Jan. 29). It reported its Q3. However Beaufort Securities (of Britain) reacted to the Q3 trading results of VOD by switching to a hold rating. Its Ben Maitland worries that revenues are falling in high-margin countries it cites as Germany, Britain, and India. Actually India is a zero margin country for VOD. The brokerage also argues that the FY 2018 outlook is mixed “with positives and negatives, country by country” but warns about “the intensely competitive nature of the industry.” It uses a 6.5x EV/EBITDA calculation to work out a new target price for VOD of 185 pence while the stock is at 194.

The key negative is marginally lower revenues and EBITDA (cash flow) in euros, which is now VOD's reporting currency. Offsetting that is a higher cash flow margin, which he sees at 29.1% this year vs 28.2% last year and a 7-fold rise in euro EPS. I am not convinced. VOD lost all of 0.8% on the switch which now means its consensus rating is hold.

*My dump of Australian Benitec Biopharma (BNTC) at $4.44 after the stock rose so sharply last week that a trading halt was called, turned out to be smart. It was crashing down again last week. The company is essentially bust. I still own some of BNTC common but mainly its warrants which should gain if, as I expect, the company is bought out by a major drug firm because of its DNA-directed RNA interference using now being developed for macular degeneration, retinosa pigmentosa, hepatitis B, and other diseases. It recently won an equity and cash inflow from Nant Capital of Los Angeles, the company of Dr Patrick Soon-Shiong, the richest surgeon in the USA.

Military Aviation

*UK firm BAE Systerms (BAESY) may gain billions from a repair contract worth $1.4 trillion given to Britain and Australian firms for repairing and replacing parts for the F-35 stealth fighter. Britain is working on the most valuable components for the expensive combat plane like electronic systems and ejection seats. (Not toilet seats). The UK will be the repair site for 51 of the 65 components starting in 2025. Given Pentagon ways, analysts expect the value of the deals to be higher than the current projection. The contracts awarded account for only 8% of available work and other countries may get into the deal by agreeing to buy the plane. Dutch and Australian air forces have agreed to buy the F-35. Australia will get to provide support for 64 of the 65 components to be repaired and replaced in Pacific Rim countries

BAE CEO Ian King told the Financial Times that "the selection of the UK and Australia to undertake this activity is recognition of the advanced military aircraft support skills and capabilities we have." Other firms like to benefit include Northrop Grumman .

*CAE Inc. (CAE) had its rating cut from outperform to neutral by two Canadian banks, RBC Capital Markets and CIBC. RBC lowered its target price for the maker of aviation simulators from $20 to $19 (Canadian). I think airplane simulations are a growth market even if the aviation industry is currently grounded over the impact of the seven-country Trump ban. Canada is part of the solution, not the problem, in my view. CAE was tipped by our biotech reporter who has a pilot son. It trades at ~19x earnings which is not cheap but this technology is growing markets fast.

Trump Stocks

*Banco Santander (SAN) and big banks across the board are up on the contemplation of de-fanging Dodd-Frank and the Dept of Labor fiduciary rule requiring that retirement advisors put their clients' interests ahead of their own. They are now all Trump stocks including the UK non-cumulative preferreds from Royal Bank of Scotland, NatWest, and Barclays. Even Banco Latinoamericano de Comercio was up.

*Making nice to POTUS has boosted major drug makers, now also designated as Trump shares, unless he reverses course again. He is known for that. For now Roche (RHHBY), Teva (TEVA), GlaxoSmithKline (GSK) apparently no longer are accused of getting away with murder.

*New sanctions on Russia and a tough line from the new Secy of State took down our Russian metal company, also hurt by Chinese rate hikes and new nickel projects in Asia. MMC Norilsk Nickel (NILSY) was off 1.25%. NILSY is still up nicely for us. It is run by London-based oligarchs who avoid bugging Putin (which can be fatal) but is still a play on better US-Russia relations. The fact that there are three oligarchs plus an internationally respected chairman in NILSY helps keep reporting more honest than usual in Mother Russia.

*Our more recent Trump stock, Israeli wall-builder Magal Security Systems (MAGS), was up 2.9% in part because the new Administration is going back on its extreme pro-settler stance (probably because it causes trouble for PM Benjamin Netanyahu who has ways to contact Washington as he straddles the gap between the West Bank grabbers and normal Israelis.) Contrary to the impression he gives, the PM actually doesn't want the Naphtali Bennett hard-liners to get their way, except probably for areas near Jerusalem.

*Irish CRH plc jumped sharply in London. It is a likely beneficiary from building the physical part of the Wall. It is fluctuating almost as much as Cemex (cf below).

Latins

*Cemex (CX) completed sale of its reinforced concrete tubes to US Quikrete for $500 mn, plus another $40 mn if certain sales targets are met in the current half year. The money will be used to cut CX debt.

*Cosan of Brazil, maker of sugar and ethanol, gained 2.6% last week.

*Colombia's Ecopetrol (EC) was up also probably because it also can produce oil cheaply. EC only has 7 years of reserves according to Fitch's Ratings, which gave it a negative outlook BBB.

*However Vale (VALE) fell to under $10, off 5-6.6 % on worries about Chinese growth and its central bank beginning the Year of the Chicken by raising interest rates to contain capital outflows (and purchases of iron ore). On the Dalian Commodity Exchange, iron ore fell 5.4% in RMB. Other raw material producers also fell.

While I have blamed myself for selling most of our VALE stock last year as the price of iron ore recovered, I probably was right. We paid $5.45 for our shares.

*Mexichem (MXCHF) which trades by appointment rose 9.15% last week to $5.32. MXCHF was lagging the rest of the Mexicans mainly because there was no trading.

*Mexican Equity & Income Fund, MXE, was also up but not as notably because it trades daily.

*However Fibra Uno, the Mexican REIT, was down 2.6% last week. It has gotten ahead of itself.

*Both our lithium stocks Soquimich and Orocobre are down as raw materials are off in the wake of Chinese CB hawkishness about interest rates to protect the RMB from falling further because of currency outflows. SQM is Chilean and OROCF is Australian operating in Argentina.

Asians

*Costlier RMB cost Tencent (TCTZF) a few cents in trading last week.

*Infosys (INFY) is recovering from visa worries and rose last week.

*Also rising is Morgan Stanley India Growth Fund, IIF.

*However, Tata Motors (TTM), whose sales boost in India is not feeding down to the bottom line, fell about 1%. TTM is in managerial disarray and the Indian car is a bad idea from Rajan Tata, who is the chief honcho for now.

*Up too is our Goldman Sachs Active Beta Japan ETF, which unhedged small-cap focused Japan Smaller Cap CEF is down.

*A move by the Hermit Kingdom against a key advisor of the North Korean dictator after a failed missile test reassured Korea Fund investors, and KP is up.

Europeans

*Allianz SE is buying the remaining third it does not already own in the Allianz Irish Life Holdings company which is the owner of Allianz PLC, also of Ireland, for euros 160 mn. AZSEY is not in talks with QBE Insurance of Australia according to the latter.

Its Pimco US fund managing arm has added two new managers to its executive committee, who cover hedge funds, Qi Wang, and mortgage investment, Daniel Hyman. This may mark a broadening of Pimco investment offerings. It also aims to sell more funds in Europe and Middle-East-Africa, hinted by its naming Craig Dawson to the exec com, which changes annually based on votes by the managing directors.

*Roche (RHHBY) indicated that it wants to grow its diabetes business, not sell it as Bloomberg wrote, comparing the Swiss firm to Johnson & Johnson which really does want to exit insulin delivery and testing. RHHBY offers a rice-sized sensor implanted under the skin which measures glucose levels for 90 days, bought last year from Senseonics (SENS-Q).

*Nokia (NOK) recovered by 2.6% before falling back, maybe over perceptions of Apple (AAPL). NOK and the smartphone company are in a dispute over NOK patent violations. NOK is at a 23 p/e but this undervalues its patent portfolio. It reported meh earnings but was tipped by The Motley Fool which expects it can make incremental gains in 2017 and later.

Canada

*Veresen (VSN) was up 6.5% on what looks like news that it will report on Q4 Feb. 28. FCGYF is the riser while the VSN share in Toronto is up only 2.4%. It suggest arbitraging possibilities but there must be some reason not to. The real reason we hold FCGYF is that on precedent the President will end the Federal Energy Regulatory Commission's ruling last March against the Canadian firm's project for building a gas pipeline terminus and gas liquefaction plant in Oregon to send Canadian gas to Japan (whose companies have already signed up to buy half the output Jordan Cove will eventually produce) and other Asian power companies. Unlike some mid-western US pipeline projects this one is not even based on particularly disgusting sources of oil, but objected to by NIMBY locals who are not even the majority in Jordan Cove.