First up, I'd like to share four momentous events with you, all coming overnight…
1) Based on this piece of feedback, it looks like we have at least one new subscriber to Motley Fool Share Advisor.
"Hello Motley,
I've been following you in the background for a very long time now, and the Melbourne Cup predictions have done it for me…"
We'll take 'em, however they come. However, it does suggest we need to revise our marketing strategy, given our new subscriber was finally persuaded to join Motley Fool Share Advisor based off my mate Lewy's horse-picking track record.
So much for our stock picking track record, huh, and our two 300%+ winners?
(We're pushing our luck, I know, but Lewy's tips for The Oaks today are Set Square from Lumosty with the best roughie Imperial Lass. If one of those lovely ladies salutes, I expect subscriptions to Motley Fool Share Advisor to hit new record highs.)
2) Last night I added even more money to one of my already large positions.
Such is the beauty of limit orders on North American markets — you set them, go to bed, and find out in the morning if they were filled.
The strict Motley Fool trading rules preclude me from naming the stock I've just bought.
What I can tell you is it's a junior oil producer whose share price has been absolutely taken to the woolshed over the past three months, plunging 36%.
Some of fall was due to production delays. Some was in response to a sharply lower oil price. The rest was fear and panic,.
When I see other investors indiscriminately dumping stocks, in complete disregard to fundamentals, I get interested. Very interested.
My junior oil stock trades on a multiple of around 2 or 3 its funds generated from operations. The odds are certainly in my favour.
3) The iron ore price fell to its lowest levels in five years as some Chinese steel mills were ordered to reduce production.
This could get ugly for iron ore miners… it's what happens when reduced steel production collides with increased iron ore supplies.
No wonder then that shares of high cost producers like Arrium Ltd (ASX: ARI) and Atlas Iron Limited (ASX: AGO) are on the nose again today. Shares in Arrium, the former OneSteel, are down a whopping 82% so far in 2014.
4) The Aussie dollar was "smoked," plunging two cents to as low as US85.64 cents, its lowest point in over four years.
As regular readers will know, I'm not surprised. It's what happens when a recovering US economy collides with a slowing Aussie economy.
Not that I'm complaining — a lower Aussie dollar is good for my US stocks, it's good for the local economy, and might even stop RBA boss Glenn Stevens slashing local interest rates even further.
Or maybe not…
You may have seen yesterday's report in The Age, where Morgan Stanley said Australia's economic growth will fall below 2% and unemployment will rise to nearly 7%.
If the investment bank are anything remotely close to being right, you can lock in even lower interest rates than today's so-called emergency low cash rate of just 2.5%.
What's an investor to do?
Sell up and head for the safety of gold?
Not so fast. After the gold price slid to a four year low of US$1137 an ounce, the AFR reports analysts as saying a test of the US$1000 level could be on the cards.
Some safe haven, huh?
Pile everything into the Medibank Private IPO?
It seems there are no shortage of investors willing to chance their arm in the $5.5 billion float of Australia's largest health insurer.
Why the huge interest? It's not as if the valuation will be attractive… assuming Medibank Private floats at $2 (the upper end of the range), the shares will trade on a forecast price-to-earnings ratio of 21.
And it's not as if the dividend yield is anything to write home about… at that same $2 float price, on an annualised basis, Medibank's implied forecast fully franked dividend yield is 3.5%.
Based off those numbers, I'd rather buy Telstra shares (ASX: TLS). It trades on a P/E of 15 and a forecast fully franked dividend yield of 5.3%.
That said, I get why there is a mad rush to grab Medibank Private at the IPO price.
The cost-cutting potential. The opportunity to be more aggressive with its marketing. The decent, fully franked dividend. The discounted price private investors might pay compared to the institutions.
But here's the real reason why investors are piling in…
EVERYONE smells a first day profit. If Medibank Private does float at $2 per share, EVERYONE is betting they'll close day one at $2.20 or even $2.40.
Why?
– Demand for the shares currently exceeds supply.
– As the ASX's 50th largest company, fund managers, institutions and index trackers alike will be FORCED to buy Medibank Private shares.
– The Government, behind in the polls, will try to make sure private investors "get something" from the float. It wouldn't surprise me if the final IPO price was $1.90 or $1.95.
I'm not having any of it.
Firstly, any allocation I might get is likely to be modest. A 10% or even 20% day one pop won't make a material difference to my portfolio. And I wouldn't sell on day one anyway.
Secondly, long ago, I swore off IPOs completely. There is no rush. There are plenty more fish in the ocean, many of them far better investments than Medibank Private. And who knows, you might get a better price later on — we're overdue a stock market correction.
For those who choose to board the good ship Medibank Private IPO, good luck — I wish you well.
For me, along with my colleague Scott Phillips at Motley Fool Share Advisor, I'll just stick to fishing for those over-looked, under-appreciated, under-valued ASX stocks that everyone else is ignoring.
That's where the real value lies… and with the intense focus on the Medibank Private IPO, the fishing pond is looking rather full, and hungry.
If Medibank, or even Telstra are not for you…
Top Motley Fool investment advisor Scott Phillips has just named his #1 dividend-paying stock for 2014-2015. With solid growth prospects and a fat, fully franked dividend, this ASX stock could be a huge winner for your portfolio. Discover the name and code FREE by clicking here now.
