Statistics Lesson

I did graduate work on statistics and therefore know exactly what went wrong with some of the FAANG stocks. Blame The Law Of Large Numbers which applies to Netflix, Facebook, and now Twitter and Intel.

The law of large numbers, in probability and statistics, states that as a sample size grows, its mean gets closer to the average of the whole population. In a financial context, the law of large numbers indicates that a large entity that is growing rapidly cannot maintain that growth pace forever.

CARS

We got our first unaudited results from Veoneer in the sidelines today as VNE, its active electronic safety systems arm only was spun off by Autoliv in late May. It reported "unexpectedly strong order intake" with 5 orders in that period and hinted that it may have to raise its 2022 sales target above the $4 billion set then. However its 4.1% rise in operating profits was below forecasts and operating losses came in at $48 million, quadruple what it was in Q1, because of rising costs, but did greatly beat the Reuters consensus forecast of minus $31.6 million. It said its organic sales dropped 4.5%, double the forecast but that it still expects to hit its close-2018 target of 3% organic, The issue is the phase-out of some contracts. It expects to reverse the sales drop by the end of next year. This is a lumpy industry and we are seeing ballet moves between the EU and the US over tariffs on automobiles, which is where VNE systems go. The conference call  told that VNE components mostly come from Canada. But the share nonetheless gained 5% to 433 Swedish krone in Stockholm trading.

Former parent Autoliv, maker of passive safety devices, also reported lower organic growth post-spinoff because of auto industry confusion and "headwinds" from tariffs on raw materials. It expected that raw materials (including steel and aluminum) will incur increased tariffs of $30 million this year vs an earlier estimate of a $16 million increase, near double.

It is much bigger and much more integrated globally. In Q2 ALV sales grew 11.5% from prior year to $2.212 billion, of which organic growth was up 7.3%, a sharp rise from last year. For the full year it now expects organic growth at 8%, down from prior estimates. It also expects growth below earlier forecasts next year.

Happily, it had major new markets, starting with China which grew 18% y/y plus India, ASEAN, and Latin America which now account 24% of sales up from 21% a year ago. The main rise was in seat belts rather than airbags. Operating margin was 10.4%.and operating income jumped 4.2% to $229.1 million. Diluted EPS from continuing operations rose 48 % to $2.22 from a restated $1.50 in Q1 (to remove VNE). CEO Mikael Bratt cited continued "strong order intake" thanks to "a 72% rise in new product launches". He also promised to be :fully focused on occupant safety products and delivering value to our shareholders." Apart from costlier inputs ALV also ran into higher than expected launch costs, However Mr. Bratt stressed that global auto demand is growing despite "NAFTA renegotiations and various trade barriers on raw material and automotive parts."

The troubles of Takata now merged into Joyson Safety Systems are not over because autos have a long lead time between orders and actual sales. ALV lost 0.75% here

Final automobile note. In the Banco Santander conference call Jose Antonia Alvarez Alvarez revealed that Fiat-Chrysler's late CEO Sergio Marchionne told the bank wanted to re-fund FCAU US$ financing but now SANUSA is not sure what will happen. SAN is up 1.8% after Q2 results.

ENERGY & MATERIALS

BP plc is buying US domestic shale assets from BHP plc for $10.5 billion, marking its return to this country big-time after the Gulf disaster, giving it assets in the Permian Basin, Eagle Ford, and Haynesville. Jefferies brokers love this move. BP also announced a 2.5% rise in it dividend to 10.25 cents/ADR to shareholders of record Aug 10 payable Sept. 21.

Orocobre, the Aussie developer of lithium production in Argentina which is part owned by Japan's Toyota is becoming more international. It will invest C$5 million to maintain its 33.5% stake in Canada's Advantage LithiumAVLIF is now now in a capital increase at 77 loony cents a share and OROCF is subscribing 15,064,886 of them. Then it will sell 8,571,450 of the shares to a third party for the sale price. It owned 46,325,000 AVLIF shares before the deal today. Plus 2,550,00 warrants expiring next March to buy more shares at $1 (probably C$s rather than US or Australian ones.) It is unclear if Toyota is the eventual buyer. OROCF is buying them as an investment. Its lithium beds are adjacent to AVLIF's and it is helping bring them on.

Cosan fell 2.6% today in Brazil, dumped over concern about the sugar harvest and the pricing of fuel for truck drivers.

Canadian Cameco's target price was upped to C$18 from $16.50 by TD Securities today. It mines uranium.

Mexico's market saw Cemex stock up 4.5% today after it posted good results reported Thursday.

HEALTH

The EU Committee for Medicial Products for Human Use, or CHMP, okayed Glaxo Smith Kline's Nucala for treatment of children aged 6 to 17 with severe refractory eosinophilic asthma. This is the same drug that was turned down by the US FDA for treating chronic obstructive pulmonary diseases yesterday..

CHMP alo aproved Novartis's Tafinlar to treat cancers cancer associated with a BRAF gene mutation which deregulates cell growth. NVS signed up to use Shyft, from a sub of Medidata Solutions, its existing digital partner there for finding therapies for Europe. For the US the Swiss firm uses Pear Therapeutics software.

Teva fell over 2.5% today while Tel Aviv was closed and it is now back to being down by more than a third from its 52-wk high. The ructions are over its $9 million lease for its US HQ Parsipanny where it is moving from Philadelphia. The sum doesn't include the construction changes it will have to make, according to Fierce Pharma newsletter which says Teva is collecting $40 million in NJ aid for the move.

I bought more ESALY after Eisai fell over concern that the breakthrough in Alzheimer's disease worsening was oversold by its partner Biogen. I paid $91 and it is now $91.54.

HOTELS

A counterbid against Thai group Minor International's plan to buy up the NH Hotel chain of Spain (which we sold years ago after its real estate sub went wrong) has now come from the USA, from Hyatt Hotels. If NH still owns properties in Cuba (as it did when we owned it), there may be some problems for Hyatt, which moreover is run by people who supported Barack Obama. MNILY.

TECH

Despite Israeli Tower Semiconductors (TSEM AKA Tower Jazz) guiding lower for Q3 sales, Q.Tung Le of Crédit Suisse has reiterated his outperform rating but cut its target price to $28.5 from $30.5 The analyst was surprised that TSEM expects to gain traction from the rise of demand for radio frequency chips only in Q4, he still expects growth from RF, silicon-germanium, power, and imaging chips globally. He says Q3 guidance "is likely a final reset" with growth in Q4 now likely to be 10% y/y to balance the mere 5% growth for Q3. TSEM margins are rising in tandem and Mr Le expects before tax earnings this year to hit $200 million and margins to hit 14.8%.

Next year earnings are pegged at $230 million and margins are 16.4%.

Big customers Panasonic, and Maxim will keep orders flat this year but will breakout net year. They account for over a third of sales.

Nokia NOK fell another 0.2% after losing 7% earlier despite D.M Martins's bullish forecast for the Finnish telephone equipment maker because he thinks 5G will work out. He says the drop is "overdone." I agree.

Vodafone gained 1.7% in UK trading today. VOD.

Naspers is considering listing and spinning off some of its tech and media assets outside South Africa in part to better capitalize its early stake in Tencent. NPSNY accounts for over 19% of the Johannesburg stock exchange and investors have to sell as it goes up. If different bits are listed separately this can be avoided. Its investments include travel agents in India, food delivery in Brazil, internet in Russia, and most recently mobile payments firm Zooz in Israel.

We got into Naspers thanks to Africa handHarry Geisel and only bought TCEHY later.

Harry just sent me a promo for a newsletter from Agora Inc called Dollar Trade Club, presenting "This Chinese Tech Juggernaut is Ste to Soar... and NOW is the Time to Buy". It's TCEHY, called "China's FANG wrapped into one." Agora's Bill Bonner funded my newsletter startup but after a year sold it to me because such promos didn't work in global-investing.

BAKING

Grupo Bimbo lost 1% today in Mexican bolsa trading The bakery giant reported a good Q2.

FUNDS

Japan Smaller Cap (JOF) in invested mostly in materials, machinery, construction, and medical small caps but its largest stakes are in retailing and trading companies, according to a filing with the SEC.

Eaton Vance Global Equity Income Fund, EXG, will declare its dividend Aug. 1. So will Advent Claymore Global Convertible Fund, AGC, which we put a sell on because it is being merged with its US-investing counterparts. So is Pimco Dividend Income Fund, PDI. Thanks to John Cole Scott for tracking them so well.

Disclosure: None. Subscribe to Global-Investing for more updates.

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Comments

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David Reynolds 4 years ago Member's comment

Good read.

Vivian Lewis 4 years ago Author's comment

do I want to share a page with Dough Casey? I am the child of immigrants of a different language, religion and culture to that of the US mainstream. Of course had they not left Nazi Germany when they did my parents would have been killed and I wouldn't be here. But to limit migration to people called Casey who want to better themselves would also exclude religious refugees like my mom and dad; people who had helped the USA in Vietnam who feared being killed by the Communist takeover; Cuban refugees from Castroland; Russian amd East European Jews banned from studies or jobs under Stalin and his allies. If you only allow Christians with white skin who speak English already, who can find jobs or start companies now, are you going to ask the offspring of these other groups to return to their ancestors" homelands? What will Mr Casey do about the native Americans who were here before the Caseys disembarked?

BreakingBad News 4 years ago Member's comment

Was this response to a question I'm not seeing?

Vivian Lewis 4 years ago Author's comment

ad for Casey posted on talkmarkets letter to me yesterday so I reacted

BreakingBad News 4 years ago Member's comment

Thanks for clarifying, I had no idea Casey had such views.

Vivian Lewis 4 years ago Author's comment

me neither. but the book is out