(HSBC) France - Top Picks H2 2015

We highlight investment themes that we like and that have the added benefit of being resilient to market uncertainties and volatility. Our experience is that investors/analysts struggle to position for these events. A strong stance in either direction could end up being very wrong very quickly. Moreover, European and French equities in particular are facing two powerful cross-currents.

Downside risks are high with Greek negotiations at a crucial stage, and higher US interest rates in prospect. Moreover, French economic growth remains lacklustre, with continuing rising unemployment casting a doubt about the strength of consumer consumption going forward which had helped keep up French GDP quite well in Q1.

However, there are also upside risks, particularly relating to earnings with the (still) low level of interest rates, a weaker EUR against various currencies and lower oil prices providing the biggest boost to earnings in over a decade. We expect EPS to grow by 19% in France in 2015 for CAC 40 companies and 33% for CAC Mid 60 companies in our coverage universe.

These upside and downside risks combined with the lack of visibility on the outlook, and the high volatility of stock markets underline why we favor self-help companies and high yield equities.

(BN) Alfa Oil Dream Falters as $1.7 Billion Pacific Bid Falls Apart

Alfa Oil Dream Falters as $1.7 Billion Pacific Bid Falls Apart
2015-07-09 01:04:37.795 GMT


By Nacha Cattan and Christine Jenkins
(Bloomberg) -- Mexico’s Alfa SAB and partner Harbour Energy
Ltd. dropped their plans to buy Pacific Rubiales Energy Corp.
after the driller’s largest shareholder spurned a takeover offer
once valued at as much as $1.7 billion.
Pacific Rubiales said Wednesday it would have “no further
material obligations” to its former suitors after accepting
their withdrawal. Alfa said its offer “correctly valued”
Bogota-based Pacific Rubiales and had no plans to sweeten the
price.
The pullout derails Alfa’s quest to become an oil company
and take advantage of Mexico opening its fields to private
producers for the first time since 1938. The maker of lunchmeat
and car parts slumped 10 percent since being identified as a
bidder in May, a sign of investor dismay even as Pacific
Rubiales stakeholder O’Hara Administration Co. lambasted the
$C6.50-a-share bid as too low.
“We see this as positive for Alfa,” Ana Sepulveda, an
analyst at Invex Casa de Bolsa SA, said in a telephone interview
in Mexico City. “The requirements from funds that held stakes
in Pacific Rubiales were overvaluing the company.”
The original bid for Pacific Rubiales was about C$2.1
billion, or $1.7 billion, when it was made in May. By Wednesday,
the value had fallen to $1.6 billion. The company’s shares are
listed in Toronto as well as in Bogota.

Restarting Turnaround

Alfa’s exit means Pacific Rubiales executives now will have
to restart a turnaround effort, according to Nathan Piper, an
analyst at RBC Capital Markets. In a note, he estimated that the
company is saddled with about $4.5 billion in net debt and will
lose 35 percent of current production when the license for its
biggest field ends in 2016.
The rout in global crude prices erased 76 percent of
Pacific Rubiales’s market value in the past year.
Pacific said in a statement that it would continue with its
plans to reduce its debt and operating costs, and to divest non-
core assets. It also will continue to pursue “Mexico energy
opportunities” with Alfa as a partner.
The takeover plan had been set to go to Pacific Rubiales
shareholders this week until Alfa and Harbour requested the vote
be reset for July 28. O’Hara, the Venezuelan-led group that
controls almost 20 percent of Pacific Rubiales, said the
original bid was doomed to fail and said this week it had to be
sweetened to more than C$9 a share before it would consider the
bid.
O’Hara didn’t immediately respond to an e-mail and phone
message after regular business hours seeking comment on Alfa’s
retreat. Alfa holds about 19 percent of the shares.
“We thought our offer correctly valued Pacific Rubiales,”
Alfa Chief Executive Officer Alvaro Fernandez said in a
statement. “We are not willing to change our offer, therefore
we are terminating the Arrangement Agreement. We remain
committed to pursue opportunities in the Mexican energy sector
and will decide on the alternatives we have.”
Harbour is an investment firm formed by Asian commodity
trader Noble Group Ltd. and private-equity firm EIG Global
Energy Partners LLC to invest in energy assets worldwide.

For Related News and Information:
Stories on emerging markets: NI EM <GO>
Top stories on Latin America: TOPL <GO>
Stories on emerging-market currencies: TNI EM FRX <GO>
Most-read news on Mexico: MNI MEX <GO>

To contact the reporters on this story:
Nacha Cattan in Mexico City at +52-55-5242-9283 or
ncattan@bloomberg.net;
Christine Jenkins in Bogota at +57-1-313-7660 or
cjenkins28@bloomberg.net
To contact the editors responsible for this story:
James Attwood at +56-2-2487-4019 or
jattwood3@bloomberg.net;
Edward Dufner at +1-214-954-9453 or
edufner@bloomberg.net
Edward Dufner, Molly Schuetz

(BofA-ML) Up the Greek, without a Chinese Paddle

The Buy Signal
BofAML Global Breadth Rule triggers a contrarian “buy” signal...on average global equities rally 6.5% following 12 weeks...Bull-Bear index close to "buy"...in absence of a systemic shock, we recommend adding risk post Greek denouement Sunday.

Good versus Bad
China market cap loss = India GDP (Chart 1)...China/Greece event risk high...but no disorder/contagion in fixed income = reduced risk of a meltdown.

Trades
Add some risk, stay long the US dollar, rotate back into “high yield” and position for China via rates. For hard-core contrarians most oversold stocks are: Brazilian & Turkish banks, Canadian resources, Eurozone energy & HK consumer
discretionary.

>>> BofAML convictions
- Our core conviction: the cyclical highs in the US dollar & stocks have yet to be reached; the lows in volatility, yields and commodities have already been seen.
- Our asset allocation: long dollar, long volatility, long stocks, short bonds and credit, opportunistic in EM/commodities.
- Our base case: a “regime change” from Max Liquidity-Minimal Growth to Higher Growth-Higher Rates means lower, more volatile, but still positive asset returns.
- Our tactical case: our sentiment signals are flashing “Buy”; we are buyers of risk post Sunday’s Greek denouement; a sustained rally requires stronger macro data.

(Barron's) Fund Star Wally Weitz Is Waiting for 10% Stock Correction

Fund Star Wally Weitz Is Waiting for 10% Stock Correction
Omaha’s other value hound says to “watch calmly as it unfolds and take advantage” of lower prices.

We are at the halfway mark in 2015 and the stock and bond markets have made very little progress so far this year. The stalemate between buyers and sellers has been going on for several quarters.

The lack of net change in market averages does not mean that nothing is happening in the world, though. There have been many political and economic developments that affect both investor confidence in general and the profitability of companies in a number of industries. The investment landscape is always “uncertain.” However, it seems that there are a number of ongoing “standoffs” between bullish and bearish forces and that this extended period of ambiguity is causing growing investor anxiety.

Federal Reserve
One of the most visible standoffs for American investors is the debate within the Federal Reserve over when to end its policy of “extraordinary accommodation” and allow market forces to reset interest rates at more normal levels. Investors love very low interest rates—they can borrow cheaply personally to speculate, and their companies can raise money cheaply for acquisitions, stock buybacks and to repair weak balance sheets. On the other hand, they worry about the potential for future inflation and the possibly negative impact of higher rates on the economy and securities prices.


In our opinion, the Fed’s decisive actions during the financial crisis were necessary and successful. At some point, though, its intentional inflation of securities prices (in pursuit of a “wealth effect” that would stimulate the economy) through “quantitative easing” became unnecessary and probably counter-productive. To the extent that securities prices were bid up to artificially high levels, some of investors’ recent profits have been borrowed from the future. This is no disaster but may lead to near-term disappointment for investors with unrealistic expectations.

As for interest rates, it is safe to predict that they will go up at some point. Very high interest rates can be damaging to the economy and would depress valuations of stocks and bonds. We believe we are a very long way from damaging interest rate levels, but investors tend to react to the direction of changes in rates. We do not expect tight credit to be an issue for the companies we own (or for business in general) for years to come, but investors are subject to panic attacks.

International Tensions
On the geopolitical front, we have literal standoffs around the globe: Russia and the NATO countries over the Ukraine; China and its neighbors over disputed islands in the South China Sea; Sunni and Shia factions all over the Middle East. The standoff between Greece and its euro-zone creditors intensifies as I write. The danger, not to mention the pain and suffering in each of these arenas, is real. Any of these situations could trigger a bout of market volatility at any time, but from a narrow, investment point of view, we think our companies are well-prepared to insulate themselves from foreign hostilities.

Energy
Another type of standoff is taking place in energy markets. Oil and gas prices have always been volatile. For perspective on the continuing drama of supply and demand imbalances, we recommend Daniel Yergin’s classic, The Prize. New discoveries and advances in transportation and technology create gluts and then new markets for energy (e.g. cars and emerging middle class consumers) cause shortages. New technology for extracting oil and gas from shale deposits has once again upset the supply/demand equation. The collapse in energy stock prices has created some apparent bargains in companies with very valuable reserves.

What is a little different this time is that the lead times required to bring new production on stream in the U.S. has been shortened considerably by the new technology. This may mean that oil and gas price recovery will take longer than usual. If this is the case, it will be important that energy investors own companies with very low production costs and strong balance sheets (and that they have plenty of patience). We think our choices of Range Resources (natural gas), Pioneer Natural Resources (oil) and Core Labs (oil field services) fit these criteria.

Lower fossil fuel prices have a negative impact on the development of alternative energy sources. We would like to find wind or solar investments that could be profitable for our investors. At this point, these alternative sources require government subsidies to generate good economic returns. We do not own any “pure plays” in wind or solar power, but Berkshire Hathaway has made substantial investments in both through its utility subsidiary. We will continue to look for opportunities in this area.

Media
In the media world, there are several sets of cross currents that are unsettling investors. The cable “bundle” is under attack. Some cable subscribers and their advocates have argued for the choice to buy channels on an a la carte basis. ESPN has the clout to charge about $6 per month per subscriber and to insist on being carried on the “basic” tier of channels. Aside from the value of collecting subscriber fees from all subscribers, including many who watch no sports programming, ESPN is able to demand premium advertising rates because of its “reach.” Non-sports fans would like to save the $6, but it is quite possible that individual viewers’ overall cable bills would go up under a la carte as cable networks priced to offset declines in numbers of subs.

Cable providers are facing defections of video subscribers, both from younger “cord-nevers” and “cord-cutters” who cancel video service and watch “over-the-top” streaming services like Netflix or Amazon Video delivered via broadband. The result is a loss of video revenue for the cable operator, and both subscriber fees and advertising revenue for the cable networks.

Broadband is a more profitable product for providers, as it shifts the burden of programming costs to the consumer. Thus, it may be possible for the cable provider to price its broadband service to be just as profitable as video plus broadband. However, cable companies face broadband competition from telephone company DSL, and in some markets, from alternate providers like Google Fiber. In addition, the FCC is considering changes in regulation that might prevent such price increases for broadband service.

The issues are very complicated. The players are large and powerful. The regulatory environment is in flux. The amount of money involved is enormous. Hence a titanic standoff. It is very important that we understand the evolving balance of power because we have investments in cable operators (Liberty Global and Charter, via Liberty Broadband) and cable networks (Fox, Discovery and QVC). We believe we own companies with the right combination of competitive position, financial strength and savvy management, but we are watching developments very carefully.

Health Care
A political standoff over the Affordable Care Act has moved to a new stage. The recent Supreme Court decision removed a threat to the law itself and clarified the coverage status of millions. This was welcome news to health care providers and removes a significant layer of uncertainty to the immediate outlook for various kinds of health care businesses.

On the other hand, the law still has flaws. It also has opponents who will continue to try to dismantle it. Dave Perkins is our resident expert on all things health care and we look to him to help us understand which companies are best positioned to navigate the changing political and regulatory environment. Our primary exposure to health care is in providers of necessary products and services that face relatively less regulatory, reimbursement or “patent cliff” risk. They include LabCorp (medical lab tests), Express Scripts (a pharmaceutical benefit manager, or PBM, which helps employers manage costs of prescription drugs for employees), and two specialty pharmaceutical companies, Valeant and Endo (generic and branded drugs).

Health care accounts for roughly 17% of the American economy. Demand is stable and growing. Competition is fierce but fairly predictable. Regulation, government reimbursement and insurance practices are wild cards. We are looking for companies with reasonably predictable, growing cash flows and the ability to “make their own breaks” through sensible acquisitions and buying back their own shares to increase per share business value.

Outlook
As we talk to our companies and revise our estimates of their business values (at least) every quarter, we are generally struck by two things: (1) the companies are doing well, they are finding profitable ways to reinvest their profits, and generally, their business values are growing; but (2) their stock prices, along with those of most companies we follow, have already risen to reflect those gains in business value.

We have blamed this predicament on the Fed and its “fire hose” of freshly created money pumped into the bond and stock markets. The explanation is certainly more complicated than that, but the conclusion is the same—stocks are “reasonably” or “fully” valued. That is okay but not exciting. We prefer to buy stocks at cheap enough prices (discount to value) that we can win two ways—from the growth in business value over time and from an upward valuation of the stock (closing the discount).

The U.S. stock market has not experienced a 10% correction in over three years. That size dip is normal and inevitable. When it happens, all the negatives that have been apparent for years may suddenly seem important (and possibly insoluble). Some speculators will be caught short and will have their own personal liquidity crises. All of this is a normal part of investing. Anything can happen in the stock and bond markets in the short run. Fear causes selling and selling can feed on itself. The trick is to watch calmly as it unfolds and take advantage when securities are being sold at distressed prices.

There were serious structural problems in our economy going into the 2008-09 mortgage crisis/Great Recession. (The same was true in 1973-74 and 2000-2002.) We do not believe that we have comparable conditions today. We have a valuation problem—stock profits borrowed from the future—but not an illusion of value problem like we had seven years ago. We own companies with staying power and we are holding considerable “dry powder.” Cash reserves are 15-20% of the long-only stock funds (Value, Partners Value and Hickory) and Partners III Opportunity’s net exposure to stocks is 67%. We have no idea what the markets will do in the short run, but if we do happen to experience some stock market turbulence, we believe we are prepared to take advantage of it.

(BFW) Weidmann Says ECB Mustn’t Raise Greek Liquidity Without Program

Weidmann Says ECB Mustn’t Raise Greek Liquidity Without Program
2015-07-09 07:05:31.248 GMT


By Paul Gordon
(Bloomberg) -- ECB Governing Council member Jens Weidmann
says at event in Frankfurt that “the Greek government has not
only walked out on the previous agreements, but has been widely
criticized as an unreliable negotiating partner.”

* “No one can seriously say right now if these days will mark
a turning point in European monetary history”
* “Central banks – although they have the means – have no
mandate, in my view, to safeguard the solvency of banks and
governments. That kind of implicit redistribution is a
matter for governments or parliaments, if at all”
* “The Governing Council recently ensured that the provision
of emergency liquidity assistance (ELA) was frozen, and I
welcome the fact that further deposit outflows have been
stemmed by the capital controls”
* “ELA is no longer being used to finance capital flight.
This certainly represents a step forward, and shifts the
responsibility to where it belongs: with the governments and
parliaments”
* “The Eurosystem should not increase the liquidity
provision, and capital controls need to stay in force until
an appropriate support package has been agreed by all
parties and the solvency of both the Greek government and
the Greek banking system has been ensured
* ‘‘In the event that further short-term assistance is thought
to be desirable or necessary, it is up to fiscal
policymakers to provide ad hoc financial support”
* NOTE: Euro Area Said to Consider Guarantee Plan for ECB Aid
to Greece

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Paul Gordon in Frankfurt at +49-69-92041-224 or
pgordon6@bloomberg.net
To contact the editors responsible for this story:
Fergal O’Brien at +44-20-3525-7152 or
fobrien@bloomberg.net
Paul Gordon

(GS) Europe : Capital Goods Lowering estimates on pre-2Q channel checks; reitera

Lowering estimates on pre-2Q channel checks; reiterating ratings

Channel checks highlight a tough 2Q; minor estimate cuts
2Q channel checks have not yet given us evidence of a sustained global recovery in fixed investment. We note three key trends across the sector since March (which have also been highlighted by ABB’s and Schneider’s CEOs recently): 
(1) Further slowdown in growth in China as receivable and inventory levels continue to rise and distributors face financing issues (e.g., Assa Abloy, Schneider, Siemens, ABB have all highlighted this and a few noted that receivable days for some distributors have almost tripled vs. pre-crisis years). 
(2) A temporary slowdown in growth in the US due to a combination of slower capex growth in O&G and tougher comps in 2014 (ABB, Schneider, Assa Abloy). And 
(3) no material signs of a change in trends in Europe, except in small pockets within construction and telecoms
(Prysmian, Nexans, Assa Abloy).

(NY Post) Twitter trio mum on possible sale of company

SUN VALLEY, Idaho — Will Twitter put itself on the block?
That’s a major question at Allen & Co.’s media conference here — and it’s a question those Twitter execs attending this mogulfest really don’t want to talk about.
Anthony Noto, Twitter’s financial chief, was the only officer of the micro-blogging site willing to address the question when approached by The Post early Wednesday.
Asked if the company had hired an investment bank to explore a possible sale of the company, Noto told The Post: “We haven’t hired anybody.”
He quickly added: “We haven’t hired a bank.”
Noto quickly scooted off to breakfast, but presumably he was alluding to the fact that Twitter last month hired executive search firm Spencer Stuart to find a replacement for ousted CEO Dick Costolo.
Costolo remains on Twitter’s board after losing his job last month. He had less to say about the company’s future. The 51-year-old techie furrowed his brow and remained silent for a few seconds when asked by The Post about whether Twitter was exploring a sale.
“I can’t talk about any of that stuff,” Costolo finally said.
A few minutes later on a walk to breakfast, interim CEO Jack Dorsey was looking extremely relaxed — and appeared to have trimmed his beard since last month.
Was this a sign that he’s getting serious about his official duties?
“I’m very excited about what’s in store for the company,” Dorsey said. Asked too about rumors that Twitter is exploring a sale, Dorsey fell into a Zen-like trance for a moment, his wispy beard enhancing his chilled-out guru vibe.
“No comment,” Dorsey said, and headed into breakfast.
As reported by The Post, some Facebook investors have privately voiced concerns that CEO Mark Zuckerberg might be courting Twitter as a possible acquisition.
These Facebook investors are worried that Twitter’s operations are too troubled to fix, and would create a massive distraction for Facebook. Asked whether he might have any meetings with Zuckerberg planned this week, Dorsey laughed — and said nothing.