Monday, April 30, 2007
I think inflation will become a concern as the year goes on, and that could hurt the markets some. But overall, with corporate profits strong, there still should be some good performance ahead.
Thursday, April 26, 2007
We might see some profits taken today, which could cause us to trade sideways, or even a little down. But there are some pretty big names reporting, and that could spur an afternoon rally.
Wednesday, April 25, 2007
It is a pretty broad rally right now, but oil stocks in particular are doing well. All of the drillers that I've mentioned have moved up significantly. Noble (NE) is advancing higher than the others, and this is probably due to the fact the others haven't reported earnings yet, and Noble reported a great quarter. I look for the entire offshore drilling industry to be good, especially the international names.
I think that the market could trade even higher throughout the rest of earnings season. We will probably give up some of the gains heading into May and June, which tends to be slower months.
But for now, things are looking strong. Not many buying opportunities on the long-term side, but there are some trades to be made.
Monday, April 23, 2007
Sunday, April 22, 2007
Diamond Offshore (DO)
Transocean is the largest, and has been getting the most praise. Jim Cramer owns it, T Boone Pickens owns it, etc. I liked transocean, and they do a lot of business with my favorite of the big boys, Chevron, but I think they are too concentrated in the Gulf of Mexico. Their margins a somewhat lower than the others as well. The are the most polished, in terms of image, and name recognition, which should bode well for it it when the entire sector does well. Because of their popularity, they trade at a premium, about 19 P/E, to the others, which is around 15 P/E.
The other three are similar. Each has about half the market cap of Transocean. Here, I'm just going to talk about the one I picked, and that is Noble. I like them for many reasons. The biggest is that most of their drilling activity is taking place in areas outside the gulf, and particularly the Middle East and Africa. They have great growth, profit margins, and are managing their company well. They also have room to grow, which is important.
In closing, I'd say you'd be good in either Transocean or Noble. Transocean is going to get pumped by Cramer, and will get the most publicity, but you have to pay up to get that. I lean toward Noble in this battle. I like their long term prospects, and the way they have run the company in the past. I think they have more room to grow, in terms of mergers and acquisitions, as well as organic growth. They just reported a good quarter, and I'd be a buyer on any pullbacks in price.
My favorite commodity though, as most readers have probably picked up on, is oil. I am a believer in that so-called "peak oil" theory. There is just too much demand, and I see that continuing. It is great that we are looking for alternative energies, but lets face it, there is no viable source that will take oils place, at least for another 10 years. The oil stocks fluctuate somewhat when the price of crude drops. I don't see that as a weakness, but as a great buying opportunity. In the next few posts, I'm going to be breaking down different ways to play the oil boom, and which stocks I recommend for each area.
Saturday, April 21, 2007
I am interested in how the oil stocks come in, and they will start reporting this week. I have recommended a lot of oil companies on this blog, and they have all performed well in the past few weeks.
I think that we still are at risk for a pretty good correction though. On Feb 27, we showed that we can be at mercy to overseas market performance, particularly Chinese. There are also a couple of other things to be concerned about: the weak dollar and inflation. I think a lot of this rally has been in part to steadily increasing inflation. The money we are making now isn't worth as much as it was just a couple of years ago. Corporate profits have increased because of this, and thus the stock market has increased. But the salaries of most Americans doesn't seem to be increasing at the same rate, and this could be a problem for our economy as a whole. I think this has been the cause for poor credit and mortgage defaults that have been the issue as of late.
Tuesday, April 17, 2007
Citigroup (C) announced that it will cut a lot of jobs, and it was well received because they have just gotten too big. It is difficult to compare them with Bank of America (BAC), because their focus is a little different. Citigroup has a strong exposure to international markets, while Bank of America is more domestic and deposit driven. From a value standpoint, Bank of America is the better investment, because they are leaner, and are growing faster. Their negative would be their lack of exposure to growing international markets. If you're looking for a combination, I would recommend Bank of America for the domestic side, and Goldman Sachs (GS), which would give you exposure to hedge funds, M&A activity, and international growth.
Friday, April 13, 2007
Chevron is up 12.10%
Echostar is up 14.76%
Frontier Oil is up 15.13%
Valero is up 19.88%
To see the full results, check out the post on the right hand margin, or click here.
Thursday, April 12, 2007
Looking ahead to the summer months, I think you have to stay with recent trends. Energy stocks, particularly offshore drillers, refiners, and oil services should stay strong. Metals and miners probably won't continue their torrid pace, but should still be solid. Beyond that, I don't think financial stocks will rebound until later in the year. The summer should provide some good buying opportunities for these types of stocks.
Here are a couple of financial names I would look at if we see a correction:
Capital One (COF)
Bank of America (BAC)
Goldman Sachs (GS)
Some oil related stocks to watch:
Freeport McMoRan (FCX)
Southern Copper (PCU)
Tuesday, April 10, 2007
Shorting is dangerous, but not for reasons you may think. Stocks do indeed go down quicker than they go up (look at Feb 27 for example), but you have the danger of the short squeeze. When a rumor flies, or a stock is upgraded, often times the people shorting the stock all rush to cover. This along can really drive a stock up, especially if it is large hedge funds doing the covering.
I also am against shorting because you are limited in what you can make. A stock can only go as low as zero, and the odds of that happening are very low. But there is no limit on how high a stock can go. If you go in long on a great company, you can often make well over 100%. That opportunity simply doesn't exist when selling short.
In conclusion, I must say that there is a time and place for selling short. Large money managers have a good use for it to hedge their bets in case of a market downturn. But to the average investor, you are much better off building a well-balanced portfolio on the long side of stocks with great future earnings prospects.
Monday, April 9, 2007
The pessimists' view goes something like this. It's much safer for them to be negative because they can't really be wrong. These are usually what I'd call "Wall Street Outsiders." If stocks go down, they were right. If stocks go up, people don't get mad at them because stocks went up and people are happy. If stocks have been going down, they will continue to go down because of poor performance, bad economy, etc. If stocks have gone up, then companies can't continue their pace of growth, and are due for a decline. It's a viewpoint that doesn't allow you to get hurt, but doesn't make you much money either.
The optimists are most people you see on television. They buy into the Wall Street money machine. The more excited they get the general public on investing, the more everyone in the industry makes. So for example, if CNBC tells people to buy, buy, buy, and has shows like "Mad Money", and "Fast Money", people are likely to follow that sentiment. People get excited about the idea of making easy money. So CNBC gets people to buy stocks and mutual funds, and the brokerages and fund managers pay them millions in advertising dollars. When the market is strong, you have to be invested because you can't afford to miss out. When the market is weak, you better buy in because stocks can't stay this cheap for long. This isn't as safe of a theory, and it can cause you to lose money quicker. It's a classic example of risk vs. reward.
These are examples of why it is hard to consistantly beat the market. You have to learn how to sift through all that you hear in the media. Now nobody can be right every time, but if you learn how to balance the bulls vs. the bears, the pessimists vs. the optimists, and take the best advice from both, then you're ahead of most investors.
Thursday, April 5, 2007
The most important facet of investing, and one that many people can never learn, is discipline. You can have all the financial knowledge in the world, including understanding economics right to it's core, but if you don’t have discipline, it’s very difficult to make money in the market.
Some things to remember if you want to be a disciplined investor:
2) Don’t think that you’re missing out. There will always be another chance, many times with the same stock. So don’t let your emotions lead you into buying a stock at the wrong price.
3) Try to avoid the “noise” coming from Wall Street and on television. The latest IPO or up and coming company may be a great one, but don’t forget to stick to your investment criteria before buying in. There are plenty of examples of “can’t miss” stocks that missed.
4) A disciplined investor does not get shaken out by a short-term drop in the market. The proper time to sell is when the conditions taking place in a company that caused you to buy, have changed. This principle can differ somewhat if you are a trader rather than investor. If you are a trader, it’s important to cut losses quickly, because you aren’t concerned with the long-term prospects of a company.
5) Make a plan, and stick to it. As simple as that sounds, it is difficult for many investors to follow. If you’re serious enough to spend the time on investing, then you’re probably smart enough to succeed. If you can complement discipline with your plan, then you should enjoy a lot of success in the long term.
Wednesday, April 4, 2007
Two additional things that interested me in the conference call:
1) They will carry Apple Computers in 200 of their stores this year
2) Sales of flat-panel televisions continued double-digit growth
The concern out there is that margins will shrink as larger retailers like Wal-Mart (WMT) are trying to capture some of the flat-panel television market. This is one of the reasons that the stock declined today.
I think Best Buy is a good investment, and would be interested in scooping up some shares if we see any short-term drops in share price.
Also, here's a great article about Best Buy written by The Street.com's Marc Lichtenfeld.
To view the complete announcement, click here.
Amgen, on the other hand, I'm still a little cautious on. I think that todays advance could be a quick bounce and it could still head lower. There hasn't been much positive news out of the Amgen camp lately. I'm sure management is trying to figure out how increase the stock price. They could institute a dividend, or buy back more of its stock. The earnings estimates have steadily dropped, and if they surprise to the upside when they announce, the stock could advance 10%. In the mean time, I'm paying close attention to its trading patterns relative to the broad market, as well as trading volume. I'll continue to update as things progress.
Tuesday, April 3, 2007
I think Capital One (COF) looks like a great value here. They don't have a lot of exposure to the sub-prime area of mortgages, but is being treated like it does by Wall Street. They are a major player in the credit card industry, and are in the process of becoming a diversified bank, as it made two major acquisitions in the past year and a half. It trades at a low valuation (about 8.5x forward earnings). If it continues its quest and becomes a full scale bank, it should deserve the multiple that other banks are getting (which is 11 to 12). And if you compare it to two major credit card companies, it is especially cheap. American Express (AXP) trades at around 15x forward earning, and newly public Mastercard (MA) at 22x.
So, we'll keep on the lookout. I'm still fairly bearish on the market near term, but there are always good stocks to buy.
Monday, April 2, 2007
Here is a nice article about Warren Buffett and his current views on the market.