Thursday, December 31, 2009

Position Update

Things continue to not look so hot for RHI Entertainment (RHIE).  Last week they entered into a forbearance agreement (details here).  I also saw that Seth Klarman sold his stake in the company, which is a big eye opener for me as he was one of the reasons I bought the stock. 

The big question now will be the value of their library.  It is quite sizeable and has been their reason for staying afloat.  Can it keep them afloat long enough for the market for their products to improve?  With the amount that the stock has declined, it is something I'm willing to wait out and see.  They are still in a good position in their industry.  Their biggest problem is the large amount of debt, and if they can manage it well enought to stay afloat.  I have such a small position that it really isn't affecting me much.  It was a one of those "if it works, I'll get a decent but not great return; if it doesn't I'm not out much" trades. 

We'll see...

Disclosure: Long RHIE

Wednesday, December 30, 2009

New Purchase

This has been a fairly boring market as we see low volume near the end of the year.  I'm curious as to how 2010 starts off, as January's trading is usually anything but boring. 

I went ahead and bought some Carefusion (CFN) today after a slight pullback.  It is a name I have been following for a bit.  They were spun off earlier this year from Cardinal Health, and I like the prospects for this company.  You can read the profile of the company here.  The bottom line is now that we have a clearer view on how health care reform will affect these companies, its a little easier to make decisions on their stock. 

I'm a fan of spin-offs, as they often create opportunities for companies to realize value.  Management is often motivated to get off on the right foot during their first few quarters on their own.  I did a piece on spin-offs earlier this year, which you can read here.

The company is in a good industry that is growing.  Their earnings are estimated to grow at a solid rate, and shares trade at 1.24x book value.  David Einhorn's Greenlight Capital, one of my favorite investors, owns 8.7 million shares.

The stock isn't far from its high, but I think there will be some value unlocked in the coming quarters that the stock hasn't had a chance to show yet.  I started with about a 1/3 position.

For most other names, I'm just sitting on my hands waiting to see if volume and/or volitility picks up when the new decade starts.

Disclosure: Long CFN.

Monday, December 28, 2009

End of Year Thoughts

This is my 600th post.  Hard to believe.  Even though I haven't been posting as much as I'd like for the past couple of months, I fully expect to ramp back up and keep this thing going.  I enjoy it a lot and am as committed to this journey as I've ever been. 

This has been one interesting year.  It has tested investors resolve and has rewarded those who can look past the noise, and in many cases those who can just go with the flow.  The way I see it is that even though the rules are changing and stocks are reacting to certain events differently than before, the market still is what it is.  There are still opportunities every single day.  That's why we all continue to come back.

I have a lot of good feelings and ambition heading into 2010.  I see lots of great opportunities out there for those who are willing to seize them.  I plan on being one of those people, and I hope to continue to pass some of that along on this site.

Thanks to all those who have followed consistently.  To those stopping by or seeing the site for the first time, I'd be happy to hear your comments and opinions.

Thanks again!

Wednesday, December 9, 2009

Wednesday Afternoon Thoughts

Winter is here and there's lots to talk about in the market.  The overall markets have been see-sawing a bit over the past week, but there are a few stocks on the move that are on my radar screen.

General Growth Properties has continued to climb.  It now appears Brookfield is the most likely partner for them at this point, and the stock just keeps rocketing as more good news is arriving.  We also have plenty of shorts trying to get out.  Shares were near 8.00 when I wrote about it last week.  They touched 11.00 today.  I'm in a very small position at 1.65.  Like many others, I wish I held more.  I could add to my position. 

RHI Entertainment has seen some buying of its shares lately as it seems they may have finally found a bottom.  Lots of volume moving into the stock and while this could just be a bounce off the bottom, these shares are really cheap.  I had an order in around .65 last Friday but didn't get a fill.  I'd add a small amount if shares get back below .70 again. 

I've been growing more bullish as I've been seeing signs the economy is improving.  I'd love to see at least a 10% pullback which would leave me a little more comfortable with valuations, but there are a lot of good stocks out there right now and things are improving, and it may not be the time to get extremely picky as there is a lot more potential upside. 

Disclosure: Long GGWPQ, RHIE

Thursday, December 3, 2009

General Growth Looking Good

Things continue to be looking up for General Growth Properties (GGWPQ) as they organize their plan to emerge from bankruptcy.  I've held a very small position in this since June, where I was able to pick up some shares around $1.80.  Shares are up near $8.00 today, making this my largest percentage gainer ever.  I only wish I had picked up more shares at the time.  But a nice gain nonetheless.  Here are my previous posts on GGP.

An enormous thank you to Todd Sullivan for this one.  He's been all over this trade from day one, and many people have made money on this one, and it appears there is more to come.  Thanks Todd!

Check out his awesome site here.

Disclosure: Long GGWPQ

UPDATE: WSJ Announces that Brookfield and Simon are buying General Growth Debt and are preparing to make a bid for all or part of assets.  More good news, and the stock continues to climb. 

Tuesday, December 1, 2009

Pfizer On Board With Healthcare Reform

Interesting commentary out today from Pfizer CEO Jeff Kindler.  For the most part, Pfizer is on board with health care reform.  As a shareholder, this is one question I was wondering.  How would reform effect Pfizer?  At this point, it seems like it wouldn't have many negative consequences.  He also said there is no news about the much coveted dividend that was cut when the bought Wyeth. 

Personally, I'm on board with the idea of health care reform, but like most large scale projects like this, I'm hesitant to believe the government will get it right. 

Long PFE, and might be adding. 

Monday, November 30, 2009

Position Update/Market Thoughts

I wanted to take some time to update where I'm at with a few positions and what I'm looking for in this market:

We've now sustained a rally that many (myself included) doubted would last this long. I'm still not bullish on what I call "just buying stocks", but there are pockets of value out there and that's what we need to focus on now. The Dubai factor provided some fear last week, but the market appears poised to shrug it off. There will be more "shocks" that the market will undoubtedly have to deal with, and they will likely be larger that that. But those will be awfully difficult to account for.

Many people I follow whose opinions I value continue to be cautious at these levels, and although I've been cautious as well, I have waded into a few small positions.

-The Wyeth-Pfizer transaction closed and I received 33.00 per share cash, as well as some Pfizer shares. In this market, I do like the safety of a name like Pfizer, and although their dividend is lower, they picked up a great business in Wyeth. At this point, I'm holding my PFE shares and may actually add to them.

-I bought a small position in small cap Tii Network Technologies (TIII). Small cap, pure value play. 16M market cap, and 12M in cash, with almost no debt. Being lightly traded is the only reason I haven't taken too large of a position. This one could take some time.

-I bought a small position in RHI Entertainment (RHIE), on their earnings sell-off. The stock has continue to drop even much below my purchase price. I do feel its important to at least see how they come out during the current quarter, when the bulk of their revenue is expected to come in. Just looking to a return to it more normally, but still undervalued valuation as opposed to its current, dirt cheap levels. Things aren't perfect here, but I think they'll hold it together.

-I finally bit the bullet and bought some Compass Diversified Holdings (CODI) on the holiday shortened Friday sell-off. I've been writing about and following this name for far too long without actually having a position. And even though I couldn't buy it at prices I've tracked it at, its still an undervalued company at less that 1x book value. At this point, I know they are going to make their next acquisition soon and that will likely lift shares further. If it sells off from here, great, because I'd like more shares. Great management at this company.

Like I said earlier, strategy wise, I'm looking at value almost exclusively. There are some growth names out there I like (FISV, FSYS, CFN, TDC are a few examples), but I'm in no rush to buy them with the market at these levels. I see more safety in companies that aren't relying on the economy to grow at highly anticipated levels to advance further. As an aside, I do still own ABB and a few various mutal funds.

Disclosure: Long PFE, CODI, RHIE, TIII, ABB

Wednesday, November 11, 2009

More of the Same

The market continues to show strength, as most of the news out there is positive.

RHIE dropped again today as it still hasn't found a bottom. It will be interesting to see if Seth Klarman picks up any shares at these levels, as he has in the past. As usual when this happens with a stock, you get people on message boards and blogs saying they are done for. They are most likely short the stock and aren't willing to have a conversation about it. There are always risks and its important never to risk more than you can afford to lose, especially with a stock that is this volatile. That's about all I have to say about that. I had reasons for buying it, and I still see value there. It may take time for that value to be realized. If it was easy, everyone would do it.

I continue to see more confidence out there, and as much as I feel stocks should pullback, it may just as easily not happen for awhile. There are still pockets of value out there. I don't like many large caps at this point, as most are overvalued when looking at the whole situation.

As always, I'll report any transactions and/or ideas that come up and I welcome your ideas as well.

Thanks for reading.

Disclosure: Long RHIE

Tuesday, November 10, 2009

Picked up Some RHIE

RHI Entertainment (RHIE) is a small cap name I've spoken about for a good portion of 2009. They reported a bad quarter today, and the stock is off 60%! I took a small position at 1.16 for a couple of reasons:

-Yes the quarter was bad, but keep in mind this is a company whose earnings are tied to the releases they put out (many more coming in next quarter than previous), and their library. Seasonality is a big factor here. I'm not saying this quarter will be outstanding, but it will likely be better. I may not even own the stock by the next earnings release.

-They do have way too much debt for a company this size and are burning through their cash at this point. My bet isn't on the long-term viability and ability to grow earnings, which still remain to be seen. My bet is more on an overreaction by the market, and the possibility to make some money on the return to "normalcy" so-to-speak. Seth Klarman still owns a large stake here (I believe) and he bought when this same thing happened in the spring. Its an opportunity to buy at less than 50% of book value.

This isn't necessarily my style for buying stock, but in some ways it is. Just looking for value out there. Again, its a small position and I'll be watching it closely. Might not be the best one to follow unless you're watching it closely. If it continues to go south, I'll likely dump it quickly.

Disclosure: Long RHIE

Monday, November 9, 2009

Loews Still Attractive

Loews (L) continues to provide value to its shareholders, while the market continues to undervalue its shares. I'm not going to break down each of its companies, but rather look at the bigger picture and the comments from their management.

Here are some statements by CEO Jim Tisch (one of the best around, I may add).

-Loews reported a solid quarter reflecting improved results in CNA, continued strong results in Diamond Offshore, and higher investment income in the holding company portfolio. During the third quarter Loews' book value per common share increased by over 14%, primarily as a result of the $1.7 billion increase in the mark-to-market value of CNA's investment portfolio. What a difference a quarter makes.

-At the end of the third quarter, CNA's book value per share stood at $35.38 compared to $20.92 at year end '08. This improvement was primarily the result of narrowing credit spreads in the fixed income market. While we are quite pleased to see the improvement in CNA's balance sheet, the volatility of fixed income security prices over the past year underscores how one could be potentially mislead by mark-to-market accounting, especially with the respect to unrealized losses at property and casualty insurance companies.

-And with that I'll get off my accounting soapbox and get back to our results. Diamond Offshore reported another quarter of excellent results. The big story for the quarter was Diamond's purchase of the Ocean Valor, a newly constructed dynamically positioned drilling rig that is capable of operating in 7,500 feet of water.

-Diamond was able to acquire the rig at auction for approximately $490 million, well below the recent cost to construct a similar new build rig. The rig is being actively marketed for work commencing in early 2010, which by our calculation is a lot better than waiting three years for the completion of a new build rig. This acquisition is consistent with Diamond's successful strategy of buying attractive assets at a time when purchases are possible at favorable pricing.
To replenish available cash after the rig acquisition, Diamond used its strong balance sheet to go to the debt markets and was able to issue $500 million of long-term debt due in 30 years at the very attractive rate of 5.75%. Diamond's board of directors recently declared special and regular – regular and quarterly dividends which together total $2 per share and market continuation of Diamond's policy of paying out special cash dividends reflecting the earnings and financial position of the company.

About acquisitions:

-We are always looking. The issue right now though I believe is exactly what's going to happen in the economy. My guess is that the economy is going to be very sluggish for a long time, maybe on the order of, if we're lucky, 1% to 2% growth. And I don't see this as a typical recession and I don't see this as a period where we're going to have 4% to 6% growth for the next year or so. I think it'll be very sluggish and I think that additional taxes and mandates will just be additional headwinds for the economy. I say all that as preamble because if we were to buy anything, I would not want to pay up in price anticipating that the economy and, therefore, business in the business cycle will resume. So like it said on the front page of the Wall Street Journal, jittery companies stash cash. You can count Loews Corporation as one of those companies.

And as what is usually the case, Tisch comments about the stock being undervalued:

-Well, there are two things you can do. You can complain about the prices of stock and the value of the stock, or you can do something about it. And there are multiple ways to do something about it. One is, I guess as you suggest, is to cast some holdings overboard. We're not looking to do that. The other way to deal with that is to buy in shares and in the past four months the company's brought in 4.5 million shares.

-As I like to say about our share repurchase history, we have a long and glorious history of share repurchases, buying in shares when the stock trades at a discount. Just to get on my soapbox again and provide an advertisement, Loews' stock has appreciated. Loews shareholders for the past 50 years have had a 16% rate of return on their shares compared to 9% for the S&P 500. So that if you have $1 50 years ago and you invested in the S&P 500, it would be worth about $75 now.

-On the other hand, that dollar if you would have invested in Loews at 16% would be worth $1,600 or $1,700. So the appreciation of Loews has been quite extraordinary. And one reason for that has been that we have aggressively bought in the shares. In 1970 we had the equivalent of 1.3 billion shares outstanding. Today it's below 430 million.

-For the life of me, I do not understand why the market values Loews so cheaply, but having said that I'm not complaining about it. Instead we're buying in the share and we're using that as an opportunity to create long-term value for all Loews shareholders. Beyond buying in the shares and doing what we're doing, I don't know what else we can do to close that valuation gap. It is a great frustration to me, but also I see it as a great opportunity.

So to summarize things, Loews remains on the same path. Conservative about the economy and its balance sheet. They'll look for acquisitions if they make sense. Their stock remains undervalued, and they'll continue to buyback shares if it continues. This is the kind of stock you can just buy and sit on. I plan to do some of that, but have just been a bit picky about where I buy. On a side note, that's a common approach for me. I'm usually pretty good at finding opportunities, and you're welcome to buy when I do, or be a bit more aggressive, which may pay off for you.

Tii Network Technologies Reports

Tii Network Technologies (TIII) is one of those small caps I've been saying is attractive. I picked up a small amount of shares back in the middle of October. You can read my initial reason for buying through that link. Here's the release:

Net sales for the three months ended September 30, 2009 were$7,460,000 compared to $8,521,000 in the comparable prior year period, a decrease of $1,061,000 or 12.5%. Net sales for the nine months ended September 30, 2009 were $19,703,000 compared to $27,248,000 in the comparable prior year period, a decrease of $7,545,000 or 27.7%. The decrease in the 2009 periods was primarily due to the economic downturn, which has negatively impacted sales of our connectivity and network interface device products, and the loss of landlines by the service providers which has negatively impacted sales of our network interface device products. Additionally, in the three months ended September 30, 2009, the decrease in sales was partially offset by an increase in sales of our broadband products into the growing broadband market and to new customers.

Kenneth A. Paladino, President and Chief Executive Officer, stated, "The sequential increase in sales for the quarter was due to the improving economy's positive impact on our markets and sales to new customers from recent market share gains. Though total sales for the quarter were lower than the comparable prior year period, we are very pleased that sales of our more advanced broadband products were higher by almost 25%.

The decrease in gross profit margin for the quarter was to due to freight
and expediting costs incurred to satisfy an increase in demand for certain products with contracted delivery requirements where inventory levels for these products had been reduced due to the economic downturn. Increased production levels of these products have enabled us to significantly reduce expediting costs and as a result we expect to return to historical gross profit margin levels in the fourth quarter.

We continue to manage our other operating expenses and balance sheet
closely. Our operating expenses are down 22% or $1.9 million for the
first nine months. Cash is now $12.3 million, up $4.0 million for the same period.

Though our sales have not yet recovered to prior year levels, we are
confident that we are executing the right strategy and with the improved economic outlook, we expect that our profitability will also continue to improve."


I highlighted a couple of key points. The key with these small cap names is value. This company is now sitting on $12.3 million on cash with a $16.9 million market cap. In a normal market, companies like these might not be so undervalued. So this becomes more of a buy and hold until the market realizes some of its value more so than a bet on the company increasing earnings.

Disclosure: Long TIII

Not So Fast, Bears...

My claim that the market had turned negative last week appears to be a little premature. The melt-up is back on with the dollar declining and stocks off to the races again. A few stocks of interest to me have reported earnings, and they have all come in strong. I'm going to do a post about each, TIII, CODI, and L.

The reflation trade, or whatever you'd like to call it, remains on.

Tuesday, November 3, 2009

Well Hello, Mr. Buffett

If you follow financial news, or any news for that matter, you know what happened this morning. Warren Buffett's Berkshire Hathaway agreed to buy Burlington Northern. He already had a large stake (I believe around 20%), but this is a massive bet on the US economy. It really is classic Buffett. If you've read my blog at all, you know I'm bullish on railroads, and have felt BNI is the best out there. I don't own any shares, so I missed out on this one. Buffett isn't stealing it, but it will likely look like a good purchase five years from now.

In other news, Berkshire agreed to split their "B" shares 50 to 1, which is a big departure for them.

Buffett is clearly trying to make a statement here, and likely wanted another "signature purchase" (like Coca Cola, GEICO, or many others) to add to his legacy.

Monday, November 2, 2009

Market Has Turned Negative

In my opinion, the market action seems to have a downward bias to it now. In the past few months, anytime negative news would come out, the market would dip, only to see bulls push through and move the market higher. Right now, it feels like the opposite. Earnings haven't been making big headlines and economic data is carrying more weight, as is the apprehension of investors and fear that stocks are overextended.

Small caps are getting hit hard. They are the most volatile and have moved the a lot to the upside during this rally, so their sell off comes as little surprise. I have a few names on my radar that I may pick at if prices continue to improve. I know I've been saying that for sometime, but I'm a very patient investor.

I do think that things are improving and many stocks could become attractive if prices fall further. I think the economy is slowly recovering, but just not to the level that stocks priced in. So if we see another over-reaction to the downside, I'd view that as an excellent opportunity to buy some stocks. In March, when we hit the lows, there were still a fair amount of major risks out there. Some of those have subsided, and some have been forgotten about. Either way, conditions are likely better than in March. So, like I said, if stocks become more attractive price wise, I think I'll be a buyer of some pretty substantial amounts.

Lets see what this week brings.

Thursday, October 22, 2009

Union Pacific Not So Bullish

I always keep track of the railroad earnings as I still think they are a pretty good primer for the rest of the economy. I know there are others, but this is just one that I follow. So, Union Pacific reported this morning. More of the same...Revenues still down double digits, profits helped by cost cutting (release). I've highlighted a couple key areas.

Union Pacific Corp. said Thursday its third-quarter profit fell 26 percent
as shipping demand remained weak and the overall economy stabilized.

The nation's largest railroad couldn't offset lower shipping volumes,
though it benefited from significantly lower fuel costs, improved productivity
and other cost-cutting measures. Union Pacific operates 32,400 miles of track in
23 states from the Midwest to the West and Gulf coasts.

The Omaha company said Thursday it earned $517 million, or $1.02 per share,
down from $703 million, or $1.38 per share, last year. Analysts surveyed by
Thomson Reuters, on average, expected a profit of $1 per share.

Revenue fell 24 percent, to $3.67 billion.

"Business volumes seem to have stabilized, but at very low
levels
for Union Pacific," said Jim Young, the company's chairman and
CEO.

Union Pacific's fuel costs plummeted 59 percent, to $466
million, as the average price per gallon of diesel dropped to $1.87 from last
year's $3.70 and the railroad burned 19 percent less fuel.

Union Pacific's compensation costs and headcount fell 11
percent
.

Union Pacific said it still had 4,100 employees furloughed, and it has
50,000 railcars and 1,700 locomotives stored. All those figures are down
slightly from July, suggesting that Union Pacific has started preparing for
higher shipping volumes, but Young said the economy hasn't shown much sign of
improvement.

"In 2010, we don't expect a quick rebound and have positioned
ourselves for a slow recovery
," he said.

Union Pacific said its freight revenue again fell across all six of its
main business segments, and the number of carloads it carried fell 15
percent.

The biggest drop in freight revenue came in the industrial-products sector,
which fell 39 percent, to $557 million. Automotive revenue fell 30 percent, to
$227 million, even as the government's Cash for Clunkers program increased
vehicle sales.

Agricultural-shipping revenue fell 23 percent, intermodal revenue fell 22
percent, energy revenue fell 21 percent and chemicals revenue fell 16
percent.

Fuel costs obviously helped and play a big role for them. They do however, see some increase in volume when fuel prices spike as they are sometimes an alternative to shipping via other method. Still though, this is a "reality indicator" that can't be overlooked. While the market roars to new highs, look at the numbers of industrial goods and raw materials. They are showing no sign of recovery.

I'm still quite concerned about employment numbers and what they mean for the economy looking out a few quarters. We're still riding the oversold bounce and I'm not saying it won't continue. Fund managers are chasing performance as they will find themselves out of a job if they don't catch this rally after last year's situation. So while the dips will be bought, the question is when will the realities of the broad economy balance out with the market. There's your million dollar question. I wish I knew the answer.

Disclosure: None

Diamond Offshore Reports Another Strong Quarter

Quick, name me a few companies that have grown revenue and net income year over year. Having trouble? Me too. Here's one. Diamond Offshore Drilling. I've written about them occasionally over the past few quarters. They operate in a very profitable industry, and to me are about the best in that industry. Here's a brief snippet from the release:

Contract driller Diamond Offshore Drilling Inc. on Thursday said third-quarter earnings rose 17 percent as rising crude prices drove up demand from oil companies for more drilling services. As the economy showed signs of recovery in the third quarter, crude oil prices stabilized, trading as high as $76 per barrel, well above a 2009 low of $46.73 per barrel in February. Diamond Offshore's quarterly earnings climbed to $364.1 million, or $2.62 per share, from $310.5 million, or $2.23 per share, during the same period last year. Analysts polled by Thomson Reuters estimated a profit of $2.30 per share, on average. Revenue rose nearly one percent to $908.4 million, up from $900.4 million in the prior-year period. Analysts forecast revenue of $874.2 million.

They operate a pretty shareholder-friendly operation as well as earnings are returned to shareholders via a regular and special dividend. This is one of those stocks you'd be alright owning a few years, which is more than I can say about a lot of stocks right now. Loews also owns about 50% of DO, and buying their stock may be a cheaper way into DO if you like the rest of their businesses (which I'll leave for another day).

Anyway, good stuff from DO. I'd be a buyer of their stock anytime it pulls back (hint: just watch the price of crude).

Disclosure: None
Besides higher sales, profit was aided by lower contract drilling costs, foreign currency gains and reduced taxes.

Tuesday, October 20, 2009

Pfizer Reports; Should I Sell My Shares?

Now that I own some Pfizer stock (due to the acquisition of Wyeth), I feel obligated to at least post on Pfizer's earnings. (marketwatch)

-The world's largest drug maker posted net income of $2.88 billion, or 43 cents a share, compared with $2.28 billion, or 34 cents a share, for the same quarter in 2008.

-Excluding various items, Pfizer would have reported adjusted earnings of 51 cents a share, versus 62 cents. This year's quarter was also impacted by a higher tax rate, due largely to its merger with Wyeth.

-Revenue in the period fell 3% to $11.62 billion, from $11.97 billion.

-Pfizer was expected to report lower year-over-year sales, with the loss of patent protection for such former blockbusters as Norvasc and Zyrtec weighing heavily on its top line.

-Still, Pfizer's sales results managed to top Wall Street's expectations. According to a recent poll of analysts by FactSet Research, Pfizer was pegged at posting earnings of 48 cents a share on revenue of $11.44 billion.

-On Oct. 15, Pfizer finally closed its $68 billion merger with Wyeth, which was scheduled to release its earnings Thursday. Pfizer halved its once-coveted dividend several months ago to help finance the takeover.

-Pfizer also updated its 2009 financial forecast to reflect the acquisition. The drug maker now sees revenue of $49 billion to $50 billion, up from its previous forecast of $45 billion to $46 billion. Earnings are seen between $1.45 and $1.50 a share, up from $1.30 to $1.45. Adjusted earnings should come in between $2.00 and $2.05 a share, up from $1.90 to $2.00.

I'm still making up my mind about this stock. As long as it continues to move higher, I'm not going to sell it. I don't typically like companies that make massive acquisitions as I fell there is a lot of waste and its difficult to manage that many different operations and still grow. But they have a pretty strong sales pipeline now as Wyeth was a great company (that's why I owned the stock). But Pfizer did have to cut their dividend to finance this deal, which is one of the reasons to like Pfizer in the first place. I haven't had time to do a ton of research on this yet, so like I said, I'm still up in the air on Pfizer.

Disclosure: Long PFE

Caterpillar Reports; Not Much New

Caterpillar reported quarterly results this morning. I like to keep an eye on companies like Cat due to their cyclical nature and I feel they can give us a tell on if the economy is improving. They beat estimates, which were laughable. Sales and profits are still substantially down, and they are selling the hope, just like many others. Here are some quotes from the Bloomberg article.

“We believe the third quarter marked the low point for Caterpillar sales and revenues in what has been the toughest recession since the 1930s,” Owens said in the statement. “We are seeing encouraging signs that indicate a recovery may be under way.”

The company narrowed its 2009 forecast range to $1.85 to $2.05 a share, from $1.15 to $2.25. The average estimate was $1.48 a share and the highest prediction was $1.75. The revenue forecast is now $32 billion to $33 billion, compared with its previous forecast of $32 billion to $36 billion.

“The world economy is still facing significant challenges,” Owens said in today’s statement. “There is uncertainty about the timing and strength of recovery.”

“We’ve already started planning for an upturn,” Owens said in the statement. “When it comes, it can come quickly, and we, our dealers and our suppliers will be prepared.”

In a preliminary forecast, Caterpillar today predicted 2010 sales would increase 10 percent to 25 percent from the midpoint of the 2009 forecast range, partly driven by the end of dealer inventory reductions.

As I've said before many times, and will continue to say, selling the hope is okay. The economy may have bottomed. But Wall Street has been buying the hope big time since late spring. Now stocks are just too expensive and have fully priced in a recovery which has yet to appear. That's why its dangerous to just "buy stocks", which is my term for just jumping back in. I still think there are deals out there, but large cap stocks have just been bid up too high in my opinion.

Onward...

Monday, October 19, 2009

Einhorn Speaks at Value Investing Congress

David Einhorn of Greenlight Capital is someone I'm always eagerly listening to. He is very intelligent and manages money for a living. As I've said many times, the people that are intelligent and have their own money on the line are the only ones I truly listen to. Believe me, there are very few of them. But Einhorn is one of them.

Here's the text of his speech today at the Value Investing Congress. I got this via Rolfe Winkler's blog at Reuters. There's a lot of great stuff in here.


Here's just one good quote, about gold:

I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.

Saturday, October 17, 2009

A Late Friday Buy

I made a small purchase at the end of the day Friday. Its a small company called TII Network Technologies (TIII). They supply products in the DSL, surge protection, and VOIP arenas, amongst other things. Click here for a full profile.

I'm just looking strictly at value on this one. It trades at less than half of its current book value. They have nearly 11M in cash, and for a company with only 16M market cap, that is a pretty good safety net if the economy doesn't recover as quickly as some predict. Like most companies, revenues are down year over year, but operations are improving.

Now is the time to scoop up values in companies like these. I'm finding more opportunities in small cap names right now. The large cap stocks are followed so closely and bought by so many funds. I just can't find much value in large cap stocks right now. The key with these small cap names is make sure they are sitting in a good cash position and won't be reliant on credit to finance operations for an extended period of time, and you'll be ok.

Its a small position, and I may add to it, but it won't become too large for me. Its lightly traded and I'm not a fan of taking big positions in stocks like this. But I do think its worthy of getting a shot here. Here's a link to their latest quarterly report. (pdf)

I got this idea from Arohan's Investing Life Premium, which is a great service. Check it out, as he has many more great ideas as well.

Friday, October 16, 2009

Earnings Commentary

Well, earnings season has officially kicked off. Google and IBM reported after the close yesterday. Last quarter, these two were really the drivers that kicked the summer rally into high gear. They both reported solid numbers again, but its a little different story today. Google is trading higher, but it wasn't enough to lift stocks today. We also got results from lumbering giants Bank of America and GE, both of which weren't taken as great.

It will be interesting to see if investors continue to buy every dip, which has been the case lately. The next catalyst appears it will be economic data or just more investors gaining faith in this market as we climb the "wall of worry."

I have stocks out there I'd like to buy, but again feel many portions of this market have come too far, too fast. With earnings coming out daily, I'll be posting more frequently, and hopefully some posts will be talking about some trading activity on my part.

Have a great weekend!

Thursday, October 15, 2009

Pfizer/Wyeth Close Deal...Should I keep Pfizer Shares?

Pfizer completed its $68 billion dollar acquisition of Wyeth today. It amounts to $33/share in cash and 0.985 shares of PFE per share of WYE. As a holder of WYE for a couple of years, I have some mixed emotions about the deal. Wyeth is a good company and could continue to provide solid returns for years to come, so in that respect, I'm disappointed. So now I have to find another stock to provide those returns on the capital I had invested. Can Pfizer provide that? That is what I need to figure out at this point. I'm typically not a fan of companies that grow through massive acquisitions. I'd prefer companies to buy smaller companies that you may not have to pay full value for.

Wyeth shares cease trading at the bell today. I'll probably follow up on this more in the coming days/weeks. I won't immediately sell the PFE shares, but will do some more research to determine if there is a better option for this capital.

Disclosure: Long WYE

Monday, October 12, 2009

Soros on Board, But Can We Profit From Green Tech?

Alternative technology and specifically energy have been a big debate over the past few years. I've spend a fair amount of time researching and looking for potential investments. I've looked specifically at wind power, geothermal energy, and natural gas for transportation. There are many other sources out there and solar is still probably the most popular. I like solar energy, but just not as an investment right now. There are too many solar companies out there right now and prices are still too high for consumers to significantly invest in this technology. As a whole, green energy is still almost entirely dependant upon being subsidized by Washington. That is gradually changing, but it will take a long time before green opportunities are just what are there for the consumer as a logical choice.

I see today that billionaire investor George Soros says he's investing $1billion into green tech. He's a very smart investor, but he's always politically motivated as well, so we have to remember that. I'd rather not get into the whole political debate over climate change, but I will say this. What do we have to lose? If we become energy independent and create sustainable alternatives that can be better for the environment at a similar cost, its a no-brainer. Even if climate change ends up not being significant, we've made a good switch.

In my opinion this whole movement comes down to this: Right now, to buy green items mean you are putting the social and environmental factors at a higher priority than the economic factors, and its just too difficult of an economy for the majority of people to do that.

Its going to be a combination of various sources that will end up working for us. The leading companies for the next few decades in this movement may not have even been created yet, and that's what makes it difficult for investors. If you really want to invest in this, I'd stick to diversified ETF's to limit single-company exposure. I'd also look at larger companies that supply products tied to this movement. ABB is one example that I've talked about before, and there are others. I'll try to find some opportunities for us in this space, but overall, I'm still a little hesitant here.

Disclosure: Long ABB

Wednesday, October 7, 2009

Update/Go Twins-Vikes!

I apologize for the lack of posts in the past few days. I was in Minneapolis for the Monday night Vikings-Packers game, and am now back home. The market will give us plenty to keep an eye on with earnings season starting (it seems like it never ends). So I expect to be doing a lot more posting, and buying of stocks. It will depend a little on how earnings come in and especially how they do relative to exceptions, but I still expect the market to pull back a bit. Thanks for checking in, and I promise, there will be more to come.

Enjoying the big wins by my two favorite teams!

Here's me after the game on Monday.

Friday, October 2, 2009

Time to Pay Attention

I've been very slow to get bullish during the summer months, and readers of the blog can attest to that. I've probably put too much energy in looking at economic data, and not enough in spotting actual undervalued stocks, which is my main objective. I feel that the ISM and employment data that has recently come up should give a reality check on the economy side. I'm not a believer in stimulus as I feel we'd be better off allowing institutions and individuals to de-leverage as opposed to encourage them to take on more debt.

Has the market topped in the near-term? Its possible. There have been plenty of people ready to buy the dips though, and I wouldn't be surprised to see that happen again either.

But like I said, I'd rather time stocks than time the market. I may make a couple of smallish buys in the next few days, and you can't expect to see more activity post-wise. As a value guy, its more fun when the market goes down as its time to pay more attention to the action again.

Let's find some value, and make some money!

Monday, September 28, 2009

Natural Gas Prices Could Fall As Storage Hits Capacity

I saw this interesting piece out from Bloomberg today.


The steepest rally in natural gas prices since 2006 is coming to an end as the 400 salt caverns, depleted oil fields and aquifers used to store the fuel in the U.S. reach capacity for the first time.

Stockpiles may surpass the record of 3.545 trillion cubic feet by as much as 350 billion cubic feet this fall, Energy Department estimates show. Gulf South Pipeline Co. says its fields in Louisiana and Mississippi are so full that customers will have to pay penalties for exceeding their limits. With no place to go, producers will be forced to dump excess fuel on the market.

The worst economic slump since the 1930s will cut demand from chemical plants to carmakers to households by 2.4 percent this year, according to government estimates. The November futures contract will drop about 19 percent to near $4 per million British thermal units, said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania.

“I don’t know where all of this gas is going to go,” said Schork, a former natural gas trader on the New York Mercantile Exchange, who in June forecast inventories would reach near 3.8 trillion cubic feet. “We’re a month away from significant heating demand. Something’s got to give.”

The November contract has climbed 31 percent from its low of $3.662 per million Btu on Sept. 3, after economic reports signaled that the recession is ending and fuel demand will rebound in 2010. October futures, which expire today, have risen 48 percent from a seven-year low of $2.508 in the same period.

Gas for November delivery fell 16.8 cents, or 3.4 percent, to $4.78 per million Btu at 1:25 p.m. today in New York. The October contract fell 26.7 cents, or 6.7 percent, to $3.718.

Click here to read the rest of the article.

There are many dynamics at work here, but even though we are getting closer to the heating season, and the economy has shown signs of bottoming, there is still a lot of natural gas supply out there. I see pressure on prices for a while longer, and a recovery in 2010 at this point. I still like it very much as an investment looking out over the next few years.

Disclosure: None

Finding "Value" Out There

Although the market does feel a little stretched, particularly in certain areas, there is still a lot of value out there. I continue to run across people successfully buying stocks at undervalued prices and participating in "Active Value Investing", or "Buy and Sell" vs. "Buy and Hold" investing. To me, that is the best way to play this market. Your belief in the long term strength (or lack thereof) of the state of the economy isn't affected as much with this approach. As opposed to a common approach of this being a good time to "buy stocks" and pour money into index funds or large mutual funds, active value investing is about timing stocks and not the market. Timing the market is nearly impossible.

I've mentioned Todd Sullivan and the excellent research he does on his site, and I wanted to mention one other service I've come across.

Arohan's Investing Life has recently launched the "premium" portion of their site complete with detailed analysis of stocks picks, complete portfolio, and real-time trade alerts. You can also interact with other members within their forums. I've spent some time recently on the premium portion of the site, and feel it is an excellent service for investors. One successful stock will more than pay for the membership fee, and you can try it for free for seven days.

If you have any questions about this service, I'd be happy to give you more detail. If you're interested in this service, click on the link and check it out.

CLICK HERE FOR A LINK TO THE PREMIUM SITE

Thursday, September 17, 2009

Natural Gas Leaders Stepping up Lobbying Efforts

While I'm not fan of corporations gaining influence in Washington, I do believe natural gas has a great future in our energy plan. Anyway, here's an article I spotted about the natural gas leaders trying to increase demand and shine the light on Washington and what they give to the coal industry:

Chesapeake Energy Corp. and other natural-gas producers, unhappy with climate-change legislation they say favors competing fuels such as coal, are teaming up to tout the benefits of their product to lawmakers in Washington.

Chesapeake, Noble Energy Inc. and Apache Corp. are among 28 companies that in March formed America’s Natural Gas Alliance, a Washington-based group aimed at increasing “appreciation” for natural gas. Members of the alliance met with reporters today in Washington.

The alliance has “one mission: to try and generate more natural gas demand,” Aubrey McClendon, chief executive officer of Oklahoma City-based Chesapeake, which operates the largest number of gas rigs in the U.S., said yesterday.

That goal may be stymied by climate-change legislation approved by the House in June, which requires capping carbon dioxide emissions and allocates a certain amount of pollution permits to industries for free. Gas utilities would get 9 percent of the allowances under the proposal from Democratic Representatives Henry Waxman of California and Edward Markey of Massachusetts. The Senate has yet to vote on the legislation.

“We did not have an active role in climate-change legislation in the House,” David Trice, chairman of Newfield Exploration Co. and chairman of the alliance, said of its member companies at the press briefing today in Washington. “We will correct that in the Senate.”

Natural gas produces about 50 percent less carbon dioxide than coal when burned as a power source. Under most energy-use scenarios by the government’s Energy Information Administration, gas use would be flat or decline under the Waxman-Markey plan, Jim Hackett, CEO of Anardarko Petroleum Corp., said at today’s event.

‘Hall Pass’

The Waxman-Markey legislation’s distribution of allowances “basically gives the coal industry a hall pass for up to two years, and we think that’s not fair and we’re confident that it’s not going to lower CO2 emissions,” McClendon said in a speech yesterday in Washington at an event sponsored by Johns Hopkins University’s School of Advanced International Studies.

“My job is to make sure that policy makers and politicians are aware of the abundance of natural gas and the options that gives them, particularly senators, to take another look at Waxman-Markey,” he said.

Natural gas prices have fallen 35 percent since the start of the year. Natural gas for October delivery fell 11 cents, or 2.9 percent, to $3.65 per million British thermal units at 11:49 a.m. on the New York Mercantile Exchange.

The U.S. consumes 60 billion cubic feet of natural gas a day. Gas at $3 per million cubic feet is the energy equivalent of oil at $21 a barrel, McClendon said.

New Markets

If companies can convince owners of coal-fired power plants to switch to gas, and if they can create more natural gas-fueled transportation, there is a potential market for an additional 125 bcf of gas in the U.S., McClendon said.

An industry group in June reported that the U.S. has an estimated 1,836 trillion cubic feet of potential natural gas, the highest recorded level. About a third of reserves reflects potential gas in shale-rock formations.

More gas production from “abundant” shale will help reduce volatility of prices, in part because the onshore facilities aren’t susceptible to hurricanes as are rigs in the Gulf of Mexico, said Hackett.

Environmentalists and some members of Congress have raised concerns about shale gas and the potential effect the process of breaking up the rock may have on water supplies.

‘Crack Cocaine’

Natural gas has been “the crack cocaine” of the electricity industry for the last 15 years, Jim Rogers, CEO of utility Duke Energy Corp., said during a speech in Washington yesterday.

“Every time we need power, we build a natural gas plant, not a coal plant, not a nuclear plant,” said Rogers.

McClendon said the industry hasn’t been a good salesman in the past.

“We’ve always felt like we produced a superior product and that it would sell itself,” said McClendon.

Before, the view was that the “fellows that were producing an inferior fuel had to do all the lobbying, had to do all the hard work to make sure their fuel got burned,” said McClendon. “The world’s changed.”

“We now realize our fuel can meet a lot more demand than it has historically and we have to overcome the view that natural gas is scarce or that its price is volatile.”

Chuck Davidson, CEO of Houston-based Noble, said that approach marks a big change in the industry.

“It’s a paradigm shift for a producer to really shift over and think about how to market your product,” he said yesterday at the Johns Hopkins event.

I'm still keeping an eye out for good natural gas investments.

Wednesday, September 16, 2009

Plenty of Momentum Left

After what I'd call "churning" over the past week or so, the market has shown strength and has moved another leg higher. I still get a divided feeling out there. Many are still bearish due to macro events and extended valuations. Others are going with the flow and making money while its there to be made. And still others believe a full on bull market has taken off and this is just the start of it. I'm somewhere between group 1 and 2. I've held stocks and picked at a few positions, and haven't yet been selling into this strength (though I've been considering it). At the same time, I haven't added significant positions I plan to hold for an extended period of time. I'm definitely starting to subscribe to the "buy and sell" philosophy or active value investing. In other words I'm targeting specific stocks that are undervalued relative to the market, and selling them when I see a nice appreciation. I'm not falling in love with any positions.

I don't want to spend too much time on strategy, because I'd rather be talking about stocks. It will happen soon, I hope.

Tuesday, September 15, 2009

Contago Oil and Gas Results

Contango Oil and Gas reported quarterly and full-year results. Press release here.

Commentary by CEO Kenneth Peak:

“Despite the prolonged shut-in of our production this past fall and losing our offices due to Hurricane Ike together with the collapse in natural gas prices, we had a profitable and successful year. We repurchased 7% of our common stock and ended the year with 22 Mcfe of proved developed reserves per fully diluted share. We are debt free and have a $50.0 million unused line of credit.”

Mr. Peak continued, “Income taxes are our biggest expense, but it is better to have a tax problem than it is to have an income problem. I have been surprised that on-shore U.S. natural gas production hasn’t fallen off more quickly. The industry is not earning a positive rate of return at anywhere near current natural gas price levels and sooner or later, the industry must earn a profit if it is to continue to attract capital to drill. We will continue to be stingy with our common stock. Our fully diluted share count now stands at 16.5 million shares, as compared to 16.7 million shares at June 30, 2001. In the past two years we have issued a combined total of 67,559 shares and options to management and the board of directors and this fiscal year we plan to issue zero stock and options.”

I've been searching for alternatives to UNG for investing in natural gas. Gas prices have recently bounced, and I expect 2010 prices to be higher than current levels. Contango appears to have a transparent group of managers concerned with shareholder value. Also, they have virtually no debt which is quite rare in this industry. Thus, if prices stay low for an extended period of time, they are much more likely to survive and even buy assets at good prices.

I may be buying some MCF soon.

Disclosure: None

Monday, September 14, 2009

Why Bubbles Will Likely Continue

Since this crisis started, I have stressed that we've taken no real long-term steps to repair our financial system, but rather put a band-aid on it. You can't cure a problem involving excessive leverage by more borrowing. The Pragmatic Capitalist has a post out that can cover it better than I could, so I'll just refer you there for the rest. Keep in mind, even if what this analysis says is true, it doesn't mean stocks are doomed. Stocks will always be forward looking and can dislocate from economic reality, for awhile at least. Eventually, things will balance out. Oh, and now is not a great time to start slapping tariffs on Chinese goods. Just throwing that out there.

Friday, September 11, 2009

Friday Update

The market continues to hold up even though for the past week or so its had a grinding feeling. Many stocks on my list have pulled back a touch even though the market has held up. The leadership stocks of the past couple of months (financials, tech, etc) are still strong and the market will hold as long as they do.

On the natural gas front, I have no regrets in getting out of the UNG ETF. There is too much dislocation from the actual underlying assets. I was okay with the high premium because as long as prices were this low, people will be buying it on the cheap and thus the premium could remain because of the lack of new issues. But ultimately, the closing of DXO did me in. I wasn't interested in finding out one morning that UNG decided to do the same thing. I'm still bullish on natural gas and am looking for good ways to invest in it while prices are still at these levels. If anyone reading this has ideas, I'd love to hear them.

It has been difficult to sit on my hands while this market continues to advance, but I still think its the prudent move. I may start buying here and there, but would like to see some more attractive prices before I move my cash positions to small levels.

On a housekeeping note, I'll try to post more. Its difficult to post much when I'm not focusing in on buying or selling specific names, but there are still items of interest I can comment on. I will be posting multiple times per day when I'm more active, and when time allows.

Hope everyone has a great weekend!

Tuesday, September 8, 2009

Senate must raise debt ceiling above $12T

I'm back at it after the holiday and the unofficial start to fall. Activity always picks up on Wall Street this time of year as hedge fund managers leave the Hamptons and come back to work. We'll likely see volume pick up among other things. I'm still expecting to see some weakness heading into fall, and have a few stocks I'd love to pick up.

I saw this headline out about the Senate having to raise the debt ceiling. This is dangerous territory. The dangers of excess debt are very troublesome. You can look throughout history and individuals, corporations, and governments that take on extreme levels of debt well, lets just say its doesn't end well. Here's the news story on this (From The Hill):

The Senate must move legislation to raise the federal debt limit beyond $12.1 trillion by mid-October, a move viewed as necessary despite protests about the record levels of red ink.The move will highlight the nation’s record debt, which has been central to Republican attacks against Democratic congressional leaders and President Barack Obama. The year’s deficit is expected to hit a record $1.6 trillion.

Democrats in control of Congress, including then-Sen. Obama (Ill.), blasted President George W. Bush for failing to contain spending when he oversaw increased deficits and raised the debt ceiling. “Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren,” Obama said in a 2006 floor speech that preceded a Senate vote to extend the debt limit. “America has a debt problem and a failure of leadership.”Obama later joined his Democratic colleagues in voting en bloc against raising the debt increase.Now Obama is asking Congress to raise the debt ceiling, something lawmakers are almost certain to do despite misgivings about the federal debt.

The ceiling already has been hiked three times in the past two years, and the House took action earlier this year to raise the ceiling to $13 trillion. Congress has little choice. Failing to raise the cap could lead the nation to default in mid-October, when the debt is expected to exceed its limit, Treasury Secretary Timothy Geithner has said. In August, Geithner asked Senate Majority Leader Harry Reid (D-Nev.) to increase the debt limit as soon as possible.Changing the debt cap “does provide an opportunity to look at fiscal policy and what its failings are, and ideally it could give both sides an opportunity to think about what we need to do so we don't keep raising the debt limit,” said Robert Bixby, the executive director of the Concord Coalition, a
fiscal watchdog group.“But probably as a practical matter, it will get more attention as a partisan back-and-forth,” Bixby said.When the House raised the debt limit to $13 trillion as part of a budget resolution approved in April, Democratic leaders used a maneuver known as the “Gephardt rule,” named after former House Democratic Leader Dick Gephardt (Mo.), to avoid taking a roll call vote on the debt limit increase. The Senate isn’t so lucky. It lacks a similar mechanism, meaning each senator must cast a politically perilous vote on raising the debt ceiling. The Senate Finance Committee will “carefully review Treasury's request on behalf of the American taxpayers,” according to an aide to the committee's chairman, Sen. Max Baucus (D-Mont.).“Sen. Baucus understands the critical importance of signaling to the world that the U.S. maintains the confidence and security to continue to lead the global economy out of recession,” the Baucus aide said. “The request to raise the debt limit is serious and must be addressed thoroughly and in a nonpartisan manner.”The aide
noted that Baucus is pressing the Treasury Department to be more transparent about its efforts to pull the economy out of recession.“He will continue to demand the necessary communication and cooperation going forward,” the aide said.

Both the White House and the independent Congressional Budget Office last month said that they expect the debt to increase by another $9 trillion over the next decade. Should the Senate follow the House's lead and set the new debt limit at $13 trillion, lawmakers would probably have to raise the limit again next year, when the Obama administration expects to run a $1.5 trillion deficit.The business community has supported Geithner's push for a higher debt ceiling. Bruce Josten, the top lobbyist for the U.S. Chamber of Commerce, said it's essential to the U.S. economy.“If we fail to address this in a timely fashion, then you run the risk of having to curtail government operations,” Josten said. “The last thing our economy and the world economy needs is greater uncertainty throughout global credit markets.”Josten said that the high level of debt is a reality during the recession, but it's unsustainable and needs to be reduced by reforming Medicare and Social Security.“While we can freely and openly acknowledge completely and lobby to raise the debt ceiling and incur some more debt, the longer trends ultimately need to be reversed,” he said.Congress
raised the debt limit just a few months ago when it passed the $787 billion
stimulus package.



We've raised the ceiling three times in the past two years. This isn't a Republican or Democrat issue, its a Washington issue. Most members of congress have no real economic sense in my opinion and realize the problems their actions are causing.

How irresponsible is it to continue handing out money via various stimulus programs when our country is already at dangerous debt levels? The simple answer I can come up with is that no one wants to take the political hit for cutting back and thus making us endure some short-term pain for the long-term health of our country. This will never be accomplished by career politicians and Washington insiders. They are too worried about keeping their jobs. They are playing a game that has worked for a long time, but the rules are changing, and there is too much at stake now.

Anyways, there is my rant that comes along about once a month. Have a great week everyone!

Wednesday, September 2, 2009

Update on UNG

Just to update, I did sell the balance of my shares this morning, around 10.14, I believe. Investors are treating it as if its going the way of DXO, which hasn't yet happened. No one seems to want to hang around and find out. According to Yahoo Finance the NAV on UNG is 9.35, but that's as of Aug 28. I'd imagine its lower now. If anyone has access to more up to date NAV data, I'd be interested in it. Its just an unfortunate situation as these ETFs can be great, but are becoming bigger than they were designed for. I'm not interested in investing when the rules are changing, and that's why I chose to leave UNG behind. I like natural gas, and will be investing in producers/alt. fuel companies in the (maybe not too distant)future.

Beyond that, I think the market is turning over a bit. Doug Kass had a nice strategy piece he put out echoing the same thing. I'll be buying if we see better prices, and I anticipate that happening this fall.

Disclosure: None

DXO to Close Fund, UNG Next?

More regulatory trouble for commodity funds. Duetsche Bank announced it will redeem shares for its double-long oil fund, which I refer to as DXO, which is the symbol. These funds have been under scrutiny from the CFTC for owning too many contracts. I'm worried the same fate will happen to UNG, or the natural gas fund, which I own shares. They already halted new shares in July, and I haven't had a good feeling with it since. On one hand, a lot of people want to own natural gas because it has gotten so cheap, and the prospects are great (like I've said many times). But because of the halt of new shares, demand has held UNG at a large premium (around 20%) over NAV, which is around 9.33 as of this morning. If UNG decides to go the same route, I wouldn't be surprised if they redeemed shares closer to the NAV rather than the current trading price. If they do not, that premium could stay there awhile as a lot of people want to invest in this.

To make a long story short, I'm going to sell part of my position in UNG or maybe even all of it. This in no way changes my outlook for natural gas. I'm just going to find different ways to play it. I'm going to have to take a decent hit on UNG due to depressed gas prices, but I can make that up later as I feel gas prices will rise in 2010. I'll post when I make some purchases. Contango Oil and Gas (MCF) is one I'll likely look at, and surely I'll have some exposure if I decide to buy Loews (L).

Disclosure: Long UNG

Tuesday, September 1, 2009

Some Good Reading

I've been updating what I've been reading as my trading activity has been light. I should start a series of posts called "things to do while not buying stocks." That's been pretty much it lately. I continue to believe this market has been pushed too high given the economic situation out there. I'm still modestly bullish on a group of stocks that I've been profiling, and will be buying them when the market corrects. Here is a good piece from Bloomberg this morning echoing these sentiments.

Goldman Sachs Wrong on Economic Recovery, Macro Hedge Funds Say

Paul Tudor Jones is quoted in that article, and he also believes this rally isn't sustainable. Its difficult to know who to listen to amongst the so-called "experts" out there. If someone invests for a living, is successful, and has been successful for a long time, I listen to them. That's who I listen to. I don't pay attention to analysts for the most part or those who get paid to make projections rather than actually invest.


Monday, August 31, 2009

UNG Still Ugly

I've been writing a lot about natural gas this summer, and I've tried to back off a bit lately. But its important to keep an eye on what is going on. Supply is still high and pushing prices lower. We've got to be getting close to a price where producers can't make money producing gas and will need to shut off production. You take that, and add weather factors like a cool summer and a (so far) quiet hurricane season, and prices have fallen. One interesting thing here is that gas hasn't gotten and help from the "recovery." Now, I've been skeptical of the recovery, but to those who say its real, why hasn't gas traded higher in anticipation of higher commercial usage? Why hasn't rail traffic of raw goods increased significantly?

The primary trading vehicle for natural gas, UNG, has its own set of issues. Regulators have been coming after them and they stopped issuing new shares. Investors want to be able to play natural gas, but with no new shares the fund stops tracking what its meant to track. UNG now trades at around a 20% premium supposedly. Thats not to say it can't continue, but if investors get fed up, UNG could fall further. I'm still holding my shares, but UNG is the problem, rather than gas to me. I like the idea of getting into gas at these prices, but the uncertainty with UNG bugs me.

Here are some links to info on UNG today.

http://seekingalpha.com/article/159042-natural-gas-etf-the-short-term-story?source=yahoo

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aDSp1GtwaRpE

Disclosure: Long UNG

Saturday, August 29, 2009

Prince Alwaleed Remains Richest Saudi

As an investor I've always been interested in, Prince Alwaleed carries an interesting story. His Citigroup investment has been well documented, first as a wild success, and then, well we all know what happened to Citigroup in 2008. I read his biography and reviewed it awhile back (Click here to read review and purchase book).

Today, I found a piece from Bloomberg giving us an update on how he has survived the recession. So far, it looks like he's done well:


Aug. 29 (Bloomberg) -- Prince Alwaleed bin Talal, Citigroup Inc.’s largest
individual investor, was ranked the richest Saudi national by Arabian Business,
even after losing 4.6 percent of his personal wealth in the past year.

Alwaleed’s assets are valued at $16.3 billion, compared with $17.1 billion
last year, the Dubai-based magazine said today in its 2009 Saudi Rich List,
citing the accounts of Kingdom Holding Co., the prince’s investment company.

The global credit crisis, lower oil prices and a decline in demand for crude have hurt investment and energy companies operating in Saudi Arabia. Kingdom Holding’s second-quarter profit slumped 83 percent as returns on Alwaleed’s investments in stock markets and hotels fell.

“Today, some of his more ambitious investments are showing the strain of
the global economic slowdown,” Arabian Business said. “The depreciation in value
of his 5 percent stake in Citigroup, for example, has been well-documented.”
Citigroup lost 73 percent of its value in the past 12 months as investment
losses eroded its capital.

Alwaleed, nephew of the late King Fahd bin Abdulaziz al- Saud, stands out
among more than 2,000 Saudi princes because he has made money. After earning a
bachelor’s degree from Menlo College near San Francisco, he returned to the
Persian Gulf and parlayed an inheritance of less than $1 million into a billion-
dollar fortune in the 1980s, mostly through real-estate investments, according
to Riz Khan’s biography “Alwaleed: Businessman, Billionaire, Prince”(William
Morrow, 2005).

Apple, Time Warner
The prince, 54, built his fortune by investing in brand- name companies he considered undervalued, including Apple Inc., News Corp. and Time Warner Inc. Forbes magazine estimated he was worth $13.3 billion in March, ranking him 22nd among the world’s billionaires. This year, Alwaleed’s investments haven’t kept pace with the Saudi benchmark. Shares of Riyadh-based Kingdom Holding have declined 4.3 percent. The Tadawul All-Share Index, the largest market in the Middle East by market value, has gained 19 percent.

Kingdom Holding’s assets are valued at $7.26 billion, while the Prince owns $3.18 billion of real estate and $1.56 billion of media assets such as LBC and Rotana Holding, Arabian Business said, citing his financial accounts. Alwaleed’s other major assets, including an Airbus A380, are valued at $1.7 billion.

The value of the prince’s cash remains confidential, the magazine said, adding that “we are assured it has not changed significantly since we were allowed to see the verified total figure in December.”

Friday, August 28, 2009

Rail Data Showing Some Improvement

I'm always keeping an eye on the weekly rail car loading data from the Association of American Railroads. This weeks data is showing some improvement. As we continue to look for signs of strength in the economy, this is one I like to watch. Although it has been slow to improve, and some might thus view it as more of a lagging indicator, I don't think that's the case. We're looking at raw materials here. This is one of the first steps in the line. I feel that the market is continuing to price in a recovery that hasn't necessarily been shown through data. That's why I continue to be cautious about this market. Anyway, here's yesterday's release:

AAR Reports Rail Traffic Continues Slight Improvement

Carloadings at Highest Level Since Early March

WASHINGTON, D.C., Aug. 27, 2009 — The Association of American Railroads today reported that rail traffic continues to show slight improvement with rail carloadings at their highest level since early March. For the week ended Aug. 22, 2009, U.S. railroads reported originating 279,478 cars, down 16.1 percent compared with the same week in 2008. Regionally, carloadings were down 14.2 percent in the West and 18.9 percent in the East. Intermodal volume of 193,207 trailers or containers on U.S. railroads was down 16.2 percent compared with the same week last year. Container volume fell 10.2 percent and trailer volume dropped 38.2 percent. Total volume on U.S. railroads for the week ending August 22 was estimated at 29.8 billion ton-miles, down 15.6 percent from the same week last year. Eighteen of the 19 carload freight commodity groups were down from last year, with only the nonmetallic mineral category defying the trend with a 1.3 percent increase. Declines among the other commodities ranged from 5.7 percent for petroleum products to 49.3 percent for metallic ores. For the first 33 weeks of 2009, U.S. railroads reported cumulative volume of 8,715,641 carloads, down 18.8 percent from 2008; 6,151,511 trailers or
containers, down 17.1 percent, and total volume of an estimated 927.7 billion ton-miles, down 17.9 percent.

Canadian railroads reported volume of 64,267 cars for the week, down 15.3 percent from last year, and 41,971 trailers or containers, down 19.2 percent. For the first 33 weeks of 2009, Canadian railroads reported cumulative volume of 1,973,473 carloads, down 23.6 percent from last year, and 1,328,088 trailers or containers, down 16.4 percent.

Mexican railroads reported originated volume of 11,461 cars, down 1.4 percent from the same week last year, and 6,279 trailers or containers, off 3.1 percent. Cumulative volume on Mexican railroads for the first 33 weeks of 2009 was reported as 374,653 carloads, down 14.8 percent from last year; and 162,822 trailers or containers, down 20.6 percent. Combined North American rail volume for the first 33 weeks of 2009 on 13 reporting U.S., Canadian and Mexican railroads totaled 11,063,767 carloads, down 19.6 percent from last year, and 7,642,421 trailers and containers, down 17.1 percent from last year.

Wednesday, August 26, 2009

Employment Outlook Still Shaky

Employment numbers, while their decline has moderated, still haven't recovered. This will likely take some time and will weigh heavily on the economy no matter how much other indicators improve. Not many people seem to be covering this today, but the White House did release some interesting data yesterday (bloomberg):

U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts
because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said.

The Office of Management and Budget forecasts a weaker economic recovery than it saw in May as the gross domestic product shrinks 2.8 percent this year before expanding 2 percent next year, according to the administration’s mid-year economic review issued today.

The Congressional Budget Office, in a separate assessment, forecast the economy will grow 2.8 percent next year. Both see the GDP expanding 3.8 percent in 2011.

“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.”


Also, a little tidbit from the Fed's Fisher today (reuters):

Dallas Federal Reserve President Richard Fisher said on Wednesday the U.S. economy is poised for a slow, sluggish recovery as it emerges from a painful recession.

"We're beginning to see indicators that we're coming out of this," he said in an interview with the Dallas Morning News."I think it will be a while before businesses rehire or increase pay," he said. Consumers are also likely to be cautious before starting to spend again, said Fisher, who is not a voter on the Fed's interest rate setting panel.

"They're all going to be very, very conservative on that front until they feel comfortable that we have a global economy that is proceeding," he said. "I think that will take some time." Fisher said he believes the worst declines may be over for residential investment, inventories, exports, and possibly consumption.

Monday, August 24, 2009

What I'm Reading

Like many investor/blogger types, I am constantly reading a few books. My lack of trading recently has given me even more time to plow through some books. I figured I give a quick update of what I'm reading. There's a good shot I'll review some or all of these books.

Adventure Capitalist by Jim Rogers. Story of Jim's journey around the world with his modified Mercedes convertible. He shares stories of the culture in various countries, and in particular conditions for investing. One might say a book written six years ago about where to invest is outdated. But the beauty here is Rogers is always thinking with a longer time horizon than most, and he's often quite early on trends, so its actually a perfect time to be reading this book.




The Snowball by Alice Shroeder. This is the authorized recent bio about Warren Buffett. Its quite lengthy (as many biographies tend to be), so I've been taking my time with it. It covers it all, from his childhood habits and the beginnings of a great investor, to current events. I'm most interested in the war stories and how he made his successful investments more than family history etc, but this is an interesting book if you're a Buffett fan.




Active Value Investing: Making Money in Range Bound Markets by Vitaliy Katsenelson. Just started this one. I've been aware of it for awhile, but haven't had the chance to pick it up until recently. I'm excited about this one as Vitaliy is a very smart guy, and I tend to subscribe to this style of investing. Not much else to say as I'm barely into it.




If you've read these and have an opinion, feel free to comment. Otherwise, if you're interested in reading them, I've supplied the links to find them on Amazon.com. Thanks!

I'm Still Bullish on Frontier Markets

I want to preface this by saying I'm not as bullish on "frontier markets" as I am on "emerging markets". (I define frontier markets as Africa, the Middle East, Eastern Europe; I define emerging markets as the BRIC countries, and a few others). But while the frontier markets were marked down especially hard in 2008, I'm still bullish on their outlook. Many are resource rich, and with political stability, their economies will grow. Keep in mind also that I have a very long time horizon until retirement, and can afford to be patient with investments like these. I do own T Rowe Price's African and Middle East Fund (TRAMX). A recent development for them (within the past year) is that they were allowed to buy shares in Saudi Arabia, which is one of the most attractive countries to invest in in that region. Although for the time being these countries mostly follow oil prices and the subsequent boom of the economy in areas like Dubai, I feel over time we'll continue to see more diversification, which will attract more investors.

I saw this note out from Goldman Sachs regarding UAE banks today (via Bloomberg):

United Arab Emirates’ banks may rise an average of 30 percent in a year as earnings “remain attractive” and valuations catch up with the emerging markets average, Goldman Sachs Group Inc. said.

Valuations of six out of the top seven U.A.E. banks that Goldman Sachs covers are likely to improve to 1.2 times their estimated 2010 book value from about 1 as they catch up with the peer average in Turkey, Russia and South Africa, Goldman Sachs’ analysts led by William A. Mejia said in an August 21 report e- mailed today.

Shares of the banks, which include Abu Dhabi Commercial Bank PJSC, First Gulf Bank PJSC, Dubai Islamic Bank PJSC and Union National Bank PJSC, have already risen by 55 percent this year, although they are still about 50 percent lower than they were a year ago, the report said. Emirates NBD PJSC, the nation’s largest bank by assets, and second-ranked National Bank of Abu Dhabi PJSC, will face higher non-performing loans this year and a “more challenging” funding environment that will hurt growth, the report said. Although borrowing costs will stay high and slower loan growth will hurt revenue, banks’ “profitability levels in general will remain attractive,” the analysts said.

“There is little to suggest U.A.E. banks should trade at a significant discount to global peers,” the report said.

Goldman Sachs raised its rating on Abu Dhabi Commercial Bank and Dubai Islamic Bank to “neutral” from “sell” and cut National Bank of Abu Dhabi to “sell” from “neutral.” It reduced its rating on First Gulf Bank to “neutral” from a “buy.”

Friday, August 21, 2009

Market Continues to Rip...Nat.Gas Does Not

This market is continuing to rip higher mostly on the back of financial stocks, but pretty much everything is going along for the ride. Except natural gas, of course, which just happens to be one of my largest holdings. Natural gas prices have now moved to seven year lows as supply numbers continue to come in high. I'm not too worried, however, because we're dealing with a commodity that is necessary. We're not talking about some junk stock that just reported bad earnings. Now that the market is convinced a recovery is at hand (I dispute the size of the recovery, as the market is pricing in a fairly strong one), its only a matter of time before gas prices start to rise again. Industrial and commercial demand is the driver of usage right now, and if we do see a recovery, usage is going to jump. Although its been a cooler summer, and the hurricane season hasn't been active yet, I still think we'll see benefit heading towards, and especially into 2010.

Of course my strategy of waiting for a correction to buy heavier into stocks isn't looking great right now, but I have plenty of patience. There are a handful of stocks out there I like, and I've been discussing them over the past few weeks. I'm just playing the waiting game for a bit, and I think I'll be paid off for my patience.

Disclosure: Long UNG

Thursday, August 20, 2009

Contango Oil and Gas Update/Lease Bid

I saw this press release out from Contango Oil and Gas (MCF) regarding their apparent high bid in lease blocks in the Gulf of Mexico. I like the fact that they are using depressed prices to go out and find opportunities to pick up more assets. We also got some commentary from management in this release as well:

Kenneth R. Peak, Contango’s Chairman and Chief Executive Officer said, “We plan to spud our Ship Shoal 263 prospect (“Nautilus”) around November 2009, and our Matagorda Island 617 prospect (“Dude”) in early 2010. Our Matagorda Island 607/616 prospect (“El Duderino”) may or may not be drilled, depending on the results from our Matagorda Island 617 well. Each of these prospects has an estimated dry hole cost of approximately $15 million. Assuming we were to drill three prospects by June 30, 2010, our fiscal year-end, and all three wells were dry, our projected after-tax capital outlay would be about $30 million, or equal to our current cash on hand. Assuming one of these prospects was to be successful, our estimated all-in after-tax finding and development cost for these three prospects would be about $2.00/Mcfe and we would expect to add reserves approximately equal to our anticipated fiscal year 2010 production.”


Mr. Peak continued, “With the natural gas futures market trading at a seven year low, it is no surprise that this year’s Western Gulf of Mexico Lease Sale attracted half the bidders on half the number of blocks and half the dollar value of bids, as last year. This is really good news. Cheaper leases, rig rates, pipe and services are good if you are drilling and Contango will be drilling. If natural gas prices continue to decline, as many believe, we would expect to be presented with even better opportunities. Our strategy remains unchanged - we intend to continue to explore, protect our balance sheet and use periods of stock weakness to continue our share repurchase program. Since the Company first announced its $100 million share repurchase program in September 2008, we have purchased 1,224,354 shares of our common stock at an average cost per share of $42.30, for a total expenditure of approximately $51.8 million. Our fully diluted share count now stands at 16.5 million shares.”

These companies may well be the best way to play natural gas as they can make money even was gas at these prices, and make even more if prices rise. I'm still waiting until earnings from Contango before I make any move here. There are a lot of small to medium sized gas companies out there, but this was the only one I could find with net cash on the balance sheet. As I've discussed before, companies that have not gotten over-leveraged will come out of the recession stronger than their peers due to flexibility. They can buy assets at below market value and won't be at the mercy of creditors if conditions deteriorate and effect operations.

Disclosure: None, but taking a look.

Wednesday, August 19, 2009

China Syndrome

For the second time in a week, a sharp drop in Chinese shares have shaken US markets. Today Wall Street decided that that is old news, and we've seen some buyers step in. China has had a strong surge off the bottom in its markets, so its only natural that there will be some bumps along the way. As China gains more importance in the financial realm, we will continue to become more affected by what happens in their markets.

With stocks slowing up a bit, I've started to get closer to buying some shares. I still expect a decent sized to correction, and plan to use that to do a healthy amount of buying. Many voices that I respect have been calling for this (or something like it to happen). Paul Tudor Jones recently said stocks are in a bear-market rally. David Einhorn recently sold some long positions and added a large position in S&P puts (could just be a trade there though). And there have been a handful of others.

I do agree with what Todd Sullivan has been talking about with regard to active value investing. This theory comes from Vitaliy Katsenelson, and his book Active Value Investing. There's a lot of good info in his writings, and I urge you to take a look.