THE TIMES (UK): SHARE OF THE MONTH UPDATE: “There may be volatility in the price of oil, and contradictory projections of demand and supply, but oil stocks are an insurance premium against geopolitical risk. Moreover, the restructured Shell, ENI, Schlumberger and Premier Oil have strong cashflow and pay healthy dividends.” (ShellNews.net) 20 Nov 04
November 20, 2004
Allied Domecq's spirits boosted by US
By Stella Shamoon
DESPITE their varying fortunes, I remain committed to the stocks in the portfolio and am selling none this month.
Full-year net profits at Allied Domecq rose 5.6 per cent to £356 million on sales of £3.32 billion, with strong growth in its US spirits brands and the Dunkin’ Donuts and Baskin-Robbins food chains. Wm Morrison, meanwhile, reported a 1 per cent fall in net profit to £65.1 million in the six months to July 25. But while the supermarket group’s revenue fell 13 per cent to £2.6 billion, sales rose 12.5 per cent in the 41 Safeway stores converted to Morrisons stores so far.
I still believe the group’s daring and opportunistic acquisition of Safeway should pay off handsomely in the medium term, not least since the fall from grace of Sainsbury’s.
Bulgari, the Italian jeweller, increased its net profits in the third quarter by 50 per cent to €28 million (£20 million) after sales rose 11 per cent to €202 million. The recession in luxury goods is over and Bulgari looks in good shape, with exciting new designs.
Microsoft is to pay shareholders a dividend of $3 a share to distribute its $32 billion (£17 billion) cash mountain. That should boost shares in the broader market as investors put the windfall back into the stock market. At Nokia, third-quarter sales rose 1 per cent to €6.94 billion, despite big price cuts to its handsets.
There may be volatility in the price of oil, and contradictory projections of demand and supply, but oil stocks are an insurance premium against geopolitical risk. Moreover, the restructured Shell, ENI, Schlumberger and Premier Oil have strong cashflow and pay healthy dividends.
Pharmaceuticals, however, are in the sickroom. Merck has lost $30 billion in market value since it withdrew Vioxx, its painkiller. But although Merck has sustained a cruel cut in market value, it is not fatal.
Pfizer is suffering in sympathy. Its painkillers Celebrex and Bextra are blockbusters in the same class as Vioxx. Trials on Bextra found the risk of heart attack or stroke was 2.14 times higher than for patients given placebos. The litigation discount on “big pharma” shares is overdone. I am taking a contrarian view.
GlaxoSmithKline’s development of a new anti-depressant drug is delayed by a year, but a vaccine for cervical cancer will be ready two years ahead of schedule. Eli Lilly reported a 6 per cent rise in third-quarter earnings to $755.2 million despite disappointing US sales of Zyprexa, its core drug.