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Value investing, finding value this month.


Although I mainly write about education and technology I have an avid interest in finance especially value investing in the manner of Graham and Dodd. As I spend a lot of time scouring for value in the global markets, I thought it may be of interest to some of you to begin writing a monthly brief showing what I am looking at; areas and industries where I am finding what could be good value!

Read on for this month’s list

Obviously these ideas are not solicitations to invest, you should do your own research and get advice from a professional that can take into account your personal circumstances. I have lost money on many investments and will again in future.

With developed markets so high at the moment many investors following a value investing strategy are finding it difficult to find anything at a good price.  I see many potential areas of interest but they are so hated and despised that most people, even supposed contrarians are still turning their noses up.

Uranium

My favourite hunting ground at the moment is in the Uranium sphere, even as gold and other commodities have rallied Uranium keeps on dropping. I am interested in the fundamentals for this energy source, the depressed prices of the equities also mirror the commodity. I recently invested in one of the largest producers of Uranium which trades well below book value. 

Agricultural Minerals

The minerals that go into fertilisers are also still depressed, there are some reasonably well run companies in this space that are suffering tremendously and are trading very cheaply. Production seems to be being cut back and crop prices could improve in future.

Nigeria

The Nigerian market is trading at very depressed levels (at the time of writing cheaper P/E than Russia). Yes it’s corrupt and oil has taken a beating but will it be like this forever? Nigeria has one of, if not the largest, economies in Africa with a developing middle class.

I see a P/E ratio of 6.21 on the Global X  msci Nigeria etf at the time of writing. I do not own this but may invest shortly.

 

Russia

Russia also has a tremendously cheap market. I noticed a little time ago that UBER was being valued higher than the global behemoth Gazprom. Yes it’s corrupt, capital is grossly misallocated, the market has rallied, oil is up, but the market is still extremely cheap by global standards. I was told by a very intelligent friend that they would never invest in Russia due to the unpredictability and political interference. I asked them “Would they buy Gazprom for £1?” he replied that he wouldn’t, so I asked again  ” You wouldn’t buy the whole company for £1?” Although this may seem silly it shows that risk can be reduced through a discount. My friend knows that the company is worth far more than £1 even with all it’s problems. The individual investor should try and work out what discount they need to invest somewhere so troubling. 4x earnings, 7x perhaps? 

 

2 comments

  1. Interesting stuff Tom, I invested in uranium a while ago via Uranium Participation Corp based on the looming supply/demand imbalance but have been hit by the drop in CAD in the past couple of years. This year, despite the rally in many commodities and widespread dollar weakness, uranium prices haven’t lifted – any thoughts why? The fundamental picture and coming supply crunch don’t seem to be causing any alarm, what do you think could be the catalyst for a turnaround? Thanks, Bill

    1. Hi Bill, great question. I don’t think there is one specific catalyst that will move things up and I actually hope prices stay weaker for longer so I can build up more of a position. Having said that the wind is turning. The price of uranium is below the cost of production so the majors are actually cutting supply back, you can watch the CEO of Cameco comment’s regarding this on their website. No money is going into new discoveries. There are a lot of new reactors coming on line over the next few years and they will need to source supply. The Russians have also stopped turning their warheads into fuel. There is also the possibility of an inflationary shock and or speculators returning to sector. The future supply/ demand as you have mentioned is great. As to timing I’m not so concerned. If Uranium only doubles in three years time to around $50 you could have an annualised return of around 25% a year and that would still only be around the cost of production. Personally I’m expecting a larger move but as to timing I’m fairly clueless, something has to change though within the next 2-3 years or the lights will definitely go out.

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