This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
By Rob Davies (TMFEssex@aol.com)
Bruce has covered the Unilever (LSE: ULVR) second quarter results in today's Lunchbox, and I can do no better than refer Fools to that very erudite article. Elsewhere in the portfolio there has been little to report in the way of news, although the most significant development recently has probably been the decline in the NASDAQ index.
This index of mainly technology stocks peaked at 2864.48 on the 16th of July. At the time of writing it stands at 2565.83 which is 10.4% below the top, thus making it an official correction, i.e. it has fallen more than 10%. The Qualiport only has two technology shares: Dell Computer Corporation (NASDAQ: DELL) and Misys (LSE: MSY). Both these shares have had a soggy time in the last six months and stand at a discount to the purchase price. A proper analysis should look at the comparative performances, and it seems logical to compare both with the NASDAQ. Using our fancy Bloomberg machine, on which the office staff have now received intensive training, twice, we see that Dell has under-performed the NASDAQ by 23.7% since purchase while Misys has lagged the index by 7%.
Now that the bond market has started to discount the possibility of another interest rate rise, long term money in the US now costs significantly more than it did in October last year. Then, the US 10-year bond was yielding 4.2%. Now it yields 6.1%, representing a 45% fall in the bond market. Over that period, the NASDAQ has risen 72% from its low of 1492 on the 9th of October. Normally, it is unusual for equity markets to diverge so sharply from bond markets, and maybe what we are seeing now is some reversion to the mean.
In the UK the equity and bond markets have shown a much higher degree of correlation. The FTSE All-Share has risen 30% since its low of 2209 on the 2nd of October. Over that same period, the gilt market has risen by 13%. Equities have outperformed gilts in this period, but at least the bond market has risen to make them slightly less expensive in comparative terms. The contrast between the UK and US capital markets should mean that the UK is less susceptible to a big fall than the US.
UK stocks in the Qualiport have performed tolerably well against the index. The best one has been Independent Insurance (LSE: IIG) with a relative under-performance of 7.3% since purchase. However, the recent rise in anticipation of the results next week, as discussed by Bruce earlier, has gone a long way to rectifying the situation.
Rentokil Initial (LSE: RTO) is still deeply out of favour. As revealed in our interim review of the year, Rentokil was the worst performing stock in the FTSE over the first seven months of 1999. It now stands at a significant P/E discount to the FTSE 100. On an historic basis the FTSE 100 is trading on a P/E of 26.2, while Rentokil is only 18.6. Looking forward this drops to a prospective figure of 16.6 and it can be argued that the shares offer some value -- though not in the pyad sense, I hasten to add. Compared to some heavyweight stocks like Glaxo Wellcome (LSE: GLXO), even the 15% growth rate that Rentokil is achieving looks good.
In the medium term it is clear that sentiment remains very negative towards the stock and it is hard to see what might change it. Another acquisition might do the trick, but the danger is that the market will see this as a sign that underlying organic growth is getting even harder to achieve.
Speaking of Glaxo reminds me of the strategy we postulated that the Qualiport could use to establish a position in Glaxo. It was suggested that the fund write the January 1500 put option. At the time this was suggested the stock was trading at over 1700p. Now, after the falls due in part to cautious statements from the management, it is trading at 1557p. At the time the trade was put forward the option could have been sold for 50p. Today that option it is trading at 102.5p to 112.5p. This means that to close it, by buying it back, would cost 112.5p. However, as we actually want to pick up stock this does not concern us. In fact it seems that 1500p is proving a strong resistance level and it may well be that the shares never fall below it. In which case the fund would keep the 50p and use it for other purposes. As with all investments, we shall have to wait and see what develops.
Finally, I recommend that Fools hop over to the message board to read the thread started by Odysseus 2000 on Internet Leviathans. Even with setbacks in the NASDAQ market it is clear that the Internet still has enormous potential. The thread discusses a number of issues and gives support, in broad terms, to British Telecommunications (LSE: BT.A) as an Internet player. However, some would argue that there are other ways of getting exposure to the sector. This Fool has watched Pace Micro Technology (LSE: PIC) evolve over the last year to became a major player in set top boxes (STBs) for digital TVs, first for satellites and now for cable delivery.
What may happen as cable TV and STBs become more powerful is that the new consumer will not need a PC at all -- all his or her Internet requirements could be satisfied by an STB and a digital TV. The news this week that Telewest (LSE: TWT) is to provide high speed broadband Internet access next year is clearly a move in that direction. Pace, with its crucial role in connecting TVs to the Internet, could perhaps become the Cisco of the UK. With a P/E of only 55, Pace is certainly cheaper than Cisco on a P/E of 85. Tell us what you think of this controversial view on the Qualiport message board.
Company Change Bid DELL(US)-0.40 38.60 EMA -0.06 11.43 IIG -0.02 3.13 MSY +0.14 5.63 PIZ -0.12 6.93 RTO -0.04 2.23 ULVR -0.24 5.90 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 27/10/98 755 Indep Ins 2.58 3.13 21.3% 17/04/98 169 EMAP 11.34 11.43 0.8% 22/04/99 347 Misys 5.76 5.63 (2.3%) 19/12/97 783 Rentokil 2.55 2.23 (12.5%) 04/11/98 245 Pizza Exp 7.93 6.93 (12.6%) 27/01/99 74 Dell (US) 44.63 38.60 (13.5%) 17/07/98 266 Unilever 7.53 5.90 (21.6%) Last Rec'd Total # Company In At Value Change 27/10/98 755 Indep Ins 1972.64 2363.15 390.51 17/04/98 169 EMAP 2341.32 2308.86 (32.46) 22/04/99 347 Misys 2028.71 1953.61 (75.10) 04/11/98 245 Pizza Exp 1966.34 1697.85 (268.49) 27/01/99 74 Dell (US) 2007.42 1731.15 (276.27) 19/12/97 783 Rentokil 2046.53 1746.09 (300.44) 17/07/98 266 Unilever 2052.00 1569.40 (482.60) Cash: £3,411.04 Current Total : £16,781.15 Total Invested: £18,184.62 Profit/(Loss) : (£1,403.47) Value Per Share Day Month Year Qualiport -0.72% -1.12% -10.77% FTSE 100 0.32% -1.78% 4.05% FTSE All Share 0.25% -1.41% 7.85%