Exit time again

Short post today. This week's economic news has put many people at pause. It's time to close some positions and wait this out. I took a bit off my S&P 500 ETF position (SPY) this week as the index has risen without much of a breather since early March.

I also exited Southern Copper (PCU) for a 74% total gain. Although the CEO recently said copper could hit $4/lb, I'm not going to be greedy. The company is well run, but it's time to start looking for other investment opportunities.

Last but not least, I sold off my entire Research in Motion position based on a few reasons. First off, I underestimated the iPhone. If there is a will to get corporate email, there is a way to get corporate email, as evidenced by IT departments opening up the iPhone to corporate email. Secondly, I have started to dive into the development framework for Google's Android and it dawned on me the relatively low distribution cost and power Google will be equipping their mobile development community. Distribution will be across multiple handsets, and you don't have to jump through hoops to get your apps approved as Apple requires. Lastly, I wasn't impressed with the comments made by Jim Basillie in the Globe and Mail, "We changed the world today in a way where nobody ever, ever, ever has even possibly declared that sense of possibility – and you frame it as catch-up? I’m shocked". He is drinking the kool-aid of past successes and seems to be navigating his company that is reminicent of someone that is desperate. I remember a comment several years ago when Ed Zander, the CEO of Motorola at the time, was asked what the company's next follow up success would be after the Razr. His response was to build more Razr's. I can't help but see a similar level of ignorance... or should I say arrogance? Sure Research in Motion will continue to have a lion's share of the enterprise email market. But if there is a will, there is a way... and Google's Android platform looks to pose a serious threat. Time to cut my losses short.

Still analyzing America Movil (AMX)

It was late last September when America Movil (AMX) turned up in one of my screens. I'm still analyzing the company and broader economic picture of Latin America. There are few things to digest which is taking longer than my usual analysis of a US based company:

- The mobile wireless industry within Brazil and the surrounding region
- America Movil's running capital expenditure and debt loads to build out 3G networks, and what their long term direction for growth.
- The Peso/USD currency picture.
- The Latin American customer. What are they like and how do their behaviors fair against other consumers in emerging markets.

I stumbled across an interesting article today that sheds some light around the last point. The topic covers the market for smartphones in Brazil and why adoption has been slower than other emerging markets. This matters because smartphones and their respective data plans represent growth opportunties, but only if the price/value points make sense for the typical consumer. It's worth the 5 minute read.

Also of interest is the recent announcement that Dell will be releasing their first mobile phone (based on Google's Android) into Brazil. The phone will be carried by Claro which is run/owned by America Movil.

The complexities of understanding this company however rest in the companies debt structure which is split into 3 major categories of currency:

- Peso (24.9% of total debt)
- US Dollar (46.6% of total debt)
- a bucket of other foreign currencies (28.3% of total debt).

The company earns most of its revenue denominated in currencies in Latin America, but the majority of its debt is owed in USD. As long as the USD continues to weaken against the Peso and Brazilian Real, this will put America Movil in good position. I am no Forex expert, but I'm going to have to dig in here to understand the current environment and where things are going with the USD. It's a factor to consider.

There are a couple of reasons why I am willing to spend the time to research this company as a possible investment:

1. The valuations on paper look good so far
2. The smartphone market has very low penetration at the moment, which may or may not present growth opportunities. More research is needed here.
3. Brazil is just one country where America Movil operates. However, focus on LatAm will continue as Brazil will continue to pump investment into infrastructure and economic growth initiatives leading up to the 2014 World cup and 2016 Olympics. You can bet they will want to put on a good show. It's their time. 4. Tracfone, their US business based on no-contract wireless plans distributed through Walmart, is showing double digit growth rates in subscriber growth (26.3% YOY) and revenues (13.8% YOY).

Which finally leads me to another thought. If economic development continues to move in the right direction in LatAm, there are other investment gems waiting to be uncovered in the region. Unfortunately AMX has already moved up 10% since it turned up on my screen. It's tough sitting on the sidelines watching, but need to exercise some due diligence and be patient.

More Borders stores closing

Borders continues to shed and trim its operations. An article was published this morning stating the chain will close more stores come January. The one thing Borders may not be able to shed so easily will be its debt load. It will be interesting to see how the company is doing with its cash flow when they report November 24th. With current liabilities close to $971m, their current ability to generate cash is pretty dismal. In the 3rd quarter the company generated $43.0m in cash from operations, and repaid their credit facility $46.4m. Essentially what comes in on one hand, comes right out of the other... and then some. This isn't just for the most recent quarter either. The past two quarters show the same story. If you look at the same period a year ago, $54m in cash generated and a $126.1m repayment on their their credit line.

Will Borders have an answer to Amazon, Walmart, and Barnes and Nobles? I don't think so. My concern last May was centered around their cash flow. It was just a concern, a warning to stay away from them. Now, I am 100% convinced they will not make it given light of what has transpired over the past few months.