Teck Cominco: The Next Acquisition Target Among Base Metal Mining Companies

In Counter currents in the market, I postulated upon a bear capitulation based on the resilience of major indices and the Dow Transports making a new high (a Dow Theory confirmation signal). No such capitulation came. Instead, the market wondered aimlessly with compressed volatility for several sessions. Then came the sub-prime debacle at HSBC and New Century (brief summary). The stress in the sub-prime market was well known, even I mentioned it in Counter currents in the market, yet the market still seemed surprised by how bad the news was. So is the market really efficient? Something to ponder. Anyhow, even though I was shorting home builders and mortgage lenders on and off, I wasn’t positioned for this implosion. I suppose I had a little too much trust in the market.

It’s doubly interesting to note that the market was once again on the ropes today and was able to pull through on the back of an acquisition rumor of Dow member Alcoa by either BHP Billiton or Rio Tinto for $40B or a 33% premium based on Tuesday’s closing price. I can just see the bears pulling their hairs out as everything they’ve been saying about the housing sector are being vindicated and the market still merrily chugs along. For this reason, I’m still expecting a capitulation top. After that, we can start talking about a market correction of some depth.

I haven’t owned any base metal miners since last May. As can be expected, the whole sector got a lift from the AA rumor today. I took the opportunity to purchase some Teck Cominco (TCK) in part based on its nice looking technical setup. It closed at $74.23 during regular hours and clocked in at $75.80 in after hours trading. This is well above the 50 dma at $73.06 and the upper boundary of the triangle. Moreover, momentum indicators are all pointing up.

The AA buyout rumor is a continuation of a torrent of M&A activities in the base metal mining sector. Not too long ago, TCK tried inviting itself to the courtship dance between Inco, Falconbridge with Xstrata also butting in. Inco completed the merger with Falconbridge only to be gobbled up later by CRVD. TCK has a market cap of $16B as of Tuesday. Compared with BHP Billiton (BHP, $133.6B), Rio Tinto (RTP, $71B), CRVD (RIO, $84.5B), Freeport McMoRan (FCX, $11.1B to complete purchase of Phelps Dodge, $25.3B), and Xstrata (~$45B), its figure is decidedly slim in an industry where size is a prerequisite for survival. Will it finally don the pretty white dress? I keep my fingers crossed.

Easy Grocery Shopping at My Grocery Deals

I came across MyGroceryDeals.com, a website that helps you search through the weekly deals at your local supermarkets. No longer do you need to go thru every flyer from every grocery store, and look through them. If you know what you are looking for, it’s easy.

Here is the comment from the site owner:

Mygrocerydeals.com is a free service that allows consumers to go online, do their grocery pre shopping based on advertised grocery flyer specials, look at nutritional information, create their shopping list and then head out to their selected store(s) with list in hand. We have recently mapped 50,900 zip codes into our database and then lined up the grocery markets and local stores along 4,400 county lines to make a match. So members really do see the deals in stores in their neighborhood only. We are a free site and intend to continue it as a free site. Our goal is to make it easy for our members to compare the advertised flyer deals at their local stores so they can save time and money. We are continually updating our site in respect to products and stores…we are not perfect in having all the information that consumers want, but we are trying hard. We encourage members to ask their local grocery stores to contact us with their advertised specials so we can incorporate them into our database. We are also continually updating our nutritional information on listed products so members can check ingredient information before heading out to their favorite stores. “Compare flyer deals and plan healthy meals” is what we are striving to offer our members.

Check it out. My only complaint is that you need to create a free account by using an email address. I have made sure that I didn’t get any grocery-related spam emails for 2 months before writing this article, since I don’t want to introduce anything that will spam your email. The login is a bit of hassle, but once you’re in, it’s easy.

P.S. I’m not affliated with nor paid by MyGroceryDeals.com. Only thought that this may be a tool to make finding deals in grocery shopping easier.

Zecco Part 2

I’ve got some good feed back on my review (Part 1, Part 2) of Zecco.com the online broker with free trades. I was pretty even handed: Zecco does offer free trades as promised and their order execution was reasonable; however, I experienced some problems with withholdings and wasn’t happy with how the reporting was handled. In the end, the withholding was recorded in the monthly statement and it was already forwarded to the IRS by Penson Financial (Zeccon’s clearing firm) by the time I had all my paper works in. This is a big motivation for me to file my taxes as soon as possible this year. I haven’t made further trades with Zecco although the account is still open. I’ll re-evaluate the situation after I get my tax refund.

In the meantime, Zecco has been making improvements as described below. They cannot come at a better time as the competition for “zero commission” is heating up.

Zecco now offers IRAs

This is a new offering from Zecco. Roth IRA, traditional IRA and rollover IRAs are now available. The same free trading applies to IRA accounts as well. I’m still trying to get a clarification as to whether one can own a taxable account as well as an IRA account and get free trading in both. There was a rule that one cannot own more than one account (e.g. individual + corporate) and get free trading in both.

There is a serious drawback though, in that Zecco is charging an annual fee of $30 for IRAs. While it is not a deterrent for frequent-traders, it will be a big put-off for those who are price conscious and plan to adopt an ETF based index strategy, especially since there are so many other online brokers that offer no fee IRAs.

Virtual Trailing Stop Orders

A virtual trailing stop order (VTSO), is a stop order that adjusts as the price of a security moves. What you do is you enter a stop price is placed at a set distance above or below the market price, depending on whether it is on a long or short position. And, the stop price then adjusts as the price of the stock moves, maintaining the set distance. The purpose of this order is to maintain a set level of potential loss at any point in time while allowing for continued appreciation as long as the price does not fall to the stop loss.

Say you’re long stock ABC which is currently trading at $100, you want to protect yourself from a decline in the stock price, i.e. either protect existing profit or limit potential loss. You could enter a stop order (A stop order is an order that becomes a market order once the stop price is reached. For long positions, it’s a sell order below the current price; for short positions, it’s a buy to cover order above the market.) at $95 which limits potential loss to $5 per share from current levels, any slippage notwithstanding. However, if ABC appreciates to $120 and you haven’t kept up with your stop, you’re now opening yourself to a potential $25 decline.

This is a concern for those who can’t monitor their stops constantly. Don’t worry, trailing stop orders come to the rescue. Zecco’s implementation is a fixed distance trailing stop. In the above example, you enter a VTSO at $5 (note, not $95! This was confusing giving their interface. See this tread at the Zecco forum). As the stock appreciates, the stop price is lifted, always at $5 below the high after the order was entered. In the above example, when the stock makes a new high at $120, the stop would be at $115. This way, you still benefit from appreciation in the stock, and your gains will never slip away more than the pre-determined amount.

Trailing stops are best after an extended move when you want to protect your profit. Using a tight stop during a period of consolidation may get you out of the stock prematurely only to see it taking off without you.

Some online brokerages such as TDAmeritrade implement trailing stops using a percentage off the high. There isn’t a big difference between the two. Granted more sophisticated implementations would also allow a limit order instead of a market order to be triggered, this is still a big improvement from Zecco and I applaud their effort.

The competition is heating up
As implied in the opening paragraphs, even “zero commission” is not immune to competition. Previously, I have mentioned Bank of America which offers 30 free trades/month (vs. Zecco’s 40 free trades/month) in a dozen states around the country. One catch is that you have to have $25k in deposit accounts with them. The drawback is that BoA imposes a $50 semiannual “brokerage account maintenance fee” for accounts under $50k, so the deal is not attractive to investors with low account balances.

The latest contender is Wells Fargo which is offering 100 free trades/yr when the equity in the brokerage account meets a minimum of $25k. There are no minimum deposit account requirements. What sets it further apart is that many no-load mutual funds are also eligible for commission free trades. Trades beyond the first 100 cost $5.95 each which is also reasonable. With this offer, Wells Fargo has leapt to the front of the pack among ultra-low commission brokers in my opinion.

One of the main concerns with Zecco is how unproven it is. Even though the accounts are FDIC insured, no one knows how long it would take FDIC to respond if a catastrophic event does happen. On the other hand, both Wells Fargo and BoA are 1st class institutions. I hope Zecco can respond to this challenge. Competition can only be good for us individual investors.

Now for some idle speculation completely unrelated to online brokerage comparisons. If you’re wondering why Wells Fargo suddenly became so generous, or whether HSBC can make any money by offering a 6% interest rate on their savings account, my over-active mind has a theory. It is well known that consumer deposits are among the cheapest financing channels for banks. Is it purely coincidence then, that Wells Fargo and HSBC Household Finance top the list of subprime lenders according to this website? While I’m not suggesting either is going out of business, or their account holders are in any danger (HSBC is something like the #3 bank in the world and Wells Fargo is the highest rated bank in the US), the timing does strike me as a little too coincidental. It is entirely possible that their subprime lending divisions are under pressure and they want some extra liquidity to ensure that nothing “unexpected” happens. Just food for thought.