Asmus Puhl Finance Blog

This was Colfax CEO John Young’s  comment about the 2009 Q3 results!

… and the numbers clearly reflect that:

Net sales in the third quarter were $ 128.5 mil, 16.2% less compared to Q3 2008.

Net income was $ 1.8 mil including restructuring charges of $ 9.6 mil.

These results are preliminary 2009 Q3 results because they do not include the recent favorable asbestos ruling on October 14, 2009 for the company’s warren pump division.

Colfax still felt the crisis, there is no doubt!

But in this environment management quickly reacted, cut cost and reduced headcount by 15%. All cost reductions will translate into approximately $16 mil of savings in 2009.

The most impressive evidence of management’s action is the dramatic improvement of their cash flow statement:

They went from free cash flow negative one year ago to a free cash flow of $26.2 mil and a margin of 6.7% in the first 9 months of 2009!

Encouraging signs are coming from their order book:

On a sequential basis, their organic orders were up 15% driven by increases in the commercial marine, Navy, power generation and general industrial markets.

Backlog is also up slightly since the end of the second quarter.

Colfax still remains cautious and lowers their outlook for FY 2009:

They now expect adjusted earnings/share of $0.88 – $0.94 .

On Friday the stock closed at $ 12.04.

So for FY 2009 the P/E is 13  and the price/free cash flow ratio is about 17.

This seems to be a reasonable price for a high quality company.

Why not snap up some shares and wait until the economy further improves?

Future acquisitions on this way will certainly bring some upside potential too!

Watch for the strategic moves of some market participants especially in Asia,

we pointed out on this blog several times when commenting the Gold market’s recent run-up!

And now India’s central bank buys 200 tonnes of Gold from the IMF!

This is the biggest single gold purchase within the last 30 years.

Gold jumped to a new record high this morning as it becomes evident that large buyers like governments and central banks accept these current price levels!

Will governments of other countries follow? Will they diversify their reserves away from the US-Dollar?

India today confirmed they will do so!

Don’t forget that the Asian countries are not indebted like the US or the major European countries. They have money. They accumulated huge currency reserves over the last years and they are more and more frustrated about the declining value of the US-Dollar.

Stay tuned as this story unfolds!

And here they are, the preliminary results of Q3 2009!

Adjusted earnings came in at $ 0.23/share.

… if it is of any importance for you they beat analysts estimates by 3 cents.

And the market reacts favourably:  The stock is up more than 2 % in today’s early trading!

One stock this blog watches closely is Colfax Corp. (NYSE: CFX) !

The company will  report its 2009 Q3 preliminary Earnings on November 3, 2009.

Those results are preliminary because they “exclude the impact of the favorable ruling for Colfax’s Warren Pumps subsidiary issued by the Delaware Court of Chancery on October 14, 2009 relating to asbestos-related insurance coverage.”

“The Company is currently evaluating the impact of this ruling on its financial statements and expects to record a gain in the third quarter resulting from the ruling.”

We will publish our thoughts about this earnings release and listen to the conference call.

….stay tuned!

Gold prices that jumped above $1,000 an ounce this week are signaling that investors are buying metals to hedge against declines in currencies, former Federal Reserve Chairman Alan Greenspan said on Sept. 9 at an investment conference in New York.

The gains are “strictly a monetary phenomenon.” Rising prices of precious metals and other commodities are “an indication of a very early stage of an endeavor to move away from paper currencies,” he said.

And he continued: “What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.”

Can we still have confidence in Alan Greenspan today?

After all it was his low interest policy as Fed Chairman that contributed to the liquidity bubble and the debt crisis which brought our financial system and the world economy near the collapse.

But it is a fact:

About 30 years ago gold reached its highest price at $ 873/oz.

Inflation adjusted this would translate into $ 2247/oz. today.

So at $ 1058/oz. we are still far away from this „historic all time high”!

And don’t forget:

Since Oct. 1^st the gold price never felt below the $ 1000 threshold.

We already get used to it, don’t we?

I think this could very well lay the foundations for an extended rally …. with all the volatility which is inherent to precious metal markets.

And the strategic moves of some market participants mentioned in my previous posts only continue to strengthen the upward tendency!

Our guest author John Gault this summer published an article about the idea of 

“Energy Independence” promoted by every American President from Richard Nixon to Barack Obama.

You can now read this interesting article on our in-depth analysis web site!

Enjoy!

A lot of market participants are bullish for gold these days.

But what about gold’s „little sister” silver?

Mother Earth contains about 15 times as much silver than gold and the historical prices for gold and silver reflected this ratio most of the time.

And how are prices today?

One oz. of gold this Friday morning stands at $ 1045, but one oz. of silver only costs $ 17.75

(watch for precious metal quotes on “Kitco.com” )

So today you can buy 59 oz. of silver for the price of one oz. of gold!

This is an enormous disconnect from the historical price ratio!

What do you think?

Will this gap close?  Does this mean the beginning of a huge silver rally?

After the Fed meeting of yesterday Gold is a little down at $ 1014 /ounce in today’s morning trade. The dollar stands at 1.4770 against the Euro.

So will Gold continue to move higher?

Ok, a short term setback is always possible. Gold is rather volatile and attracts a lot of short term traders and hedge funds.

But as I pointed out, watch for the strategic moves of the Asian countries and the Oil producing Arab countries!

Will they continue to move away from the US-$ as their dominant currency reserve and diversify? Gold is clearly one of their options.

Don’t forget that the US and the other Western countries lost a lot of credibility during the financial crisis. Asia looks at this as a Western crisis.

The level of Western indebtness worries Asia where neither the countries nor the banks or consumers are leveraged as their Western counterparts.

A good indicator could be the declarations of China and other Asian countries at the G-20 summit in Pittsburgh.

They already ask for more voting rights for Asian countries within the IMF. And definitely this will not be their last move.

Recently the last „bear” of the big gold mines, Barrick Gold (NYSE: ABX), threw in the towel and annouced a huge $ 5.6 billion charge in Q3 2009 in order to eliminate their fixed price gold contracts, reflecting an „increasing positive outlook on the gold price”.

Stay tuned!

The gold price is flirting with the $ 1000 threshold for some days now. This move comes after the price of the precious metal has been hovering around for 18 months.

So is a breakout imminent? Indeed some technical factors may suggest this move.

But this blog does not favor technical analysis so we will not discuss this.

Normally bullish market mood indicates that all positive factors are already priced in and every market participant is already positioned. So the expected move will not happen because there is no new demand coming to the market.

Could it be different this time?

If you seek an answer watch out how big sovereign market participants behave:

• China and other Asian countries for some time now expressed their low confidence in the US-Dollar and are seeking to diversify their currency reserves. And for sure they will not jump into the Euro as this monetary union has their own structural problems which are now starting to surface.

• China for some time now is closing deals for resources and commodities. And since 2007 the country is also the biggest gold producer as the South African Mines are starting to deplete.

• Hongkong is repatriating its physical gold reserves from London and invites Asian central banks to store their gold with them. The Hongkong Monetary Authority wants to create a new gold bullion ETF based on gold stored in the vaults of Hongkong.

These market participants make big longterm strategic moves. They are not positioning themselves for the short term.

The US are running a budget deficit of 13% of GDP. The big Western European countries are at an average of 7%. The financial crisis has been accomodated essentially by throwing money at the problems. This money is still floating around.

Their are first signs that the Fed and other central banks are disposed to tolerate a higher inflation rate than they actually admit. An inflation rate of 0 to 2% seems to be a thing of the past once the economy picks up.

So will the central banks be credible when they have to start to raise interest rates again?

Perhaps you should watch out for more bullish signs of the gold market in the coming weeks and months!

Certainly, Colfax future earning’s power does not only depend on cost savings and on the solution of the asbestos problem.

Will orders of the oil and gas industry pick up in the second half of 2009 and in 2010?

This could happen if the price of crude oil continues to strengthen.

Will the „Global Navy and Commercial Marine End Market” remain strong?

As always in investing there is no guarantee but one thing is assured:

Colfax has a disciplined management. They are positioning the company for better times.

We just don’t know exactly when that will be!