Every new year I am deluged with research and forecasts from financial institutions and brokers. I also get many calls from the media asking me for my top tips and asking me to predict where the FTSE 100 or S&P 500 will end the year. Something I never get asked for is, 'what's a good company to short?'
Let's start the year with some ideas for companies that I think will go down in 2010 rather than up. Before I go any further, this does not mean I am bearish on the overall stock market. As long as interest rates stay near zero, stocks will continue to go up and I think, overall, world stock markets are set for a positive year again.
I have written before about British Airways (BA) and so far its share price has managed to stay much higher than I would have imagined. Yet my analysis of this company still points to it being bankrupt and has a valuation of 50p at best, and with the shares currently trading at £2.05 it makes a good short candidate.
Even before its recent strike issues, BA is losing serious money and the forecast is for another £600 million loss in 2010. The FTSE 100 firm has a massive pension deficit and no clear business strategy. Instead, it is trying to be a bit of everything, one day a low cost carrier and the next focusing on high-end business class. The airline business is a hard market to make money in at the best of times and in a weak economy, with volatile fuel prices and terrorism threats, it's just not a place to invest in.
Whilst the British Airways brand will remain, the company will not. I see it merging/being taken over at a much lower price than it is trading at now - shareholders will be lucky to see 50p and will be diluted down to an insignificant amount. The new owners will then asset strip the company and BA will be slimmed down with thousands of staff being made redundant. I don't expect the UK government to bail them out, but even if they did, shareholders will be left with near nothing, just like at RBS and Lloyds.
Short sell or buy put warrants until the inevitable happens - next stop £1.00 and then 0.50p. You could look at December 2010 puts too.
For those that don't follow sport, the World Cup is the most watched and followed sporting event in the world. So even if you're not a football fan, from an economic point of view, you just cannot ignore it. It beats the Olympics by far and has a global reach that no other event can match. The World Cup kicks off in June 2010 and South Africa is the host nation.
The positive economic impact that the World Cup will give South Africa is very good news for the country and South African stocks. South Africa is well known for mining but also has a good farming industry and both represent winning sectors for the years ahead.
The ETF EZA which tracks South Africa is up 93 per cent since 2004 and I see more mileage in this. If you can access South African shares then the smart trade is buy the Satrix 40 ETF in South African Rand; that way you have exposure to shares and the South African Rand (ZAR). Lyxor also have a South Africa FTSE JSE 40 ETF listed in London LSAF. The top six stocks that make up the ETF are: BHP Billiton (Basic Resources) 16.14 per cent, Anglo American (Basic Resources) 11.85 per cent, MTN Group (Telecom) 8.37 per cent SABMiller (Food & Beverages) 7.91 per cent, Sasol (Oil & Gas) 6.25 per cent and Standard Bank Group (Banks) 5.13 per cent.
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