Friday, July 31, 2009

End of Week Wrap-up/Look Ahead

The market has paused a bit, but still has plenty of strength as the days normally reserved for pullbacks are finding their way into positive territory. We have some interesting earnings reports coming up next week as the market shifts from large-cap names to medium and smallish companies. Smaller companies tend to not move the market as much as they aren't weighted as heavily in the major indices. But, earnings are especially volatile for the stocks themselves.

I'll be making a decision to buy on a couple of companies after I see what they report...

RHI Entertainment (RHIE) will be reporting Wednesday. I'm hoping actually for a weak number like reported last quarter. The market over-reacted and sold that stock off down into the low 1's. Their businesses is somewhat seasonal and the value is in their backlog. I've been following this for awhile and again may jump in post-earnings.

Same deal with Fuel Systems Solutions (FSYS). You could look back when I first started discussing the stock, it was around 18/share. Its poised to close today around 25. Although I like the fundamentals and where the whole fuel conversion/natural gas vehicle complex is going, I'm going to need to see how they handled the previous quarter, and their outlook for the rest of the year. I'm willing to pay a little extra to know those details as there is plenty more upside if they're on the right track.

There are a few other names as well, and I'll be writing about them next week. Market wise, I'm still skeptical of this rally. There are a lot of people jumping in, and although I have some long exposure, I still have plenty of cash. Earnings can look good for a quarter or two due to cost cutting, but you can't replace the revenue, and eventually it will hurt earnings. Its also hurting the economy in a big way because it contributes to unemployment, and thus hurts retailers, etc. Its a cycle that eventually catches up to us. There is a lot of cheap money out there, and the government can dole out more of it to prop up some aspects, but reality is what it is. I see value in a lot of stocks, but its the overvalued stocks and what its done to the rest of the market that worries me.

There are some signs of a bottom. Rail data was still weaker this week, but a little bit improved over last week. If this trend continues, I'll be more bullish. We get jobs data next week and that is sure to be a market mover.

Stay Tuned.

Disclosure: None.

Battery Technology is the Future

I mentioned Chinese battery manufacturer Advanced Battery Technologies (ABAT) back in May when I noticed their CEO buy a big block of shares. I don't typically get too heavy into Chinese companies due to the lack of reliable information we get about them, but I do like this one. They are into lithium-ion batteries that are used in computers, smart phones, etc. They also just introduced batteries for ZAP scooters. (Press Release).

Also saw an interesting tidbit from Bloomberg today about Buffett and company making an investment in Chinese hybrid carmaker BYD. Its worth checking out. Also, Charlie Munger had this to say, “Battery technology is one of the most important subjects affecting the technological future of man." Amen to that.

I'd like to buy ABAT under $4.00 if I can.

No Positions.

Thursday, July 30, 2009

A Couple of Afternoon Links

Found a couple of things I wanted to pass along. (Both from Bloomberg)

1) Chinese Stocks to Recover From Plunge, Fisher Says.

Chinese stocks will recover from their steepest drop since November and end the year higher as speculation that the government will limit bank loans is unfounded, billionaire investor Kenneth Fisher said.

The nation’s economy is “gangbusters compared to the rest of the world, why would they try to kick that?” said Fisher, who has about $900 million invested in Chinese shares among the $28 billion he manages as chief executive officer of Fisher Investments Inc. in Woodside, California. “They have zero incentive” to curb lending, he said.

Zero incentive? How about the incentive to avert a massive bubble that when it deflates causes major financial problems? Let's see, I know we've seen this somewhere before. You don't even need to be a financial "expert" (like our Federal Reserve) to see that coming after what has happened in the US and Europe. I generally like what Ken Fisher has to say, but I believe hes just being a cheerleader and trying to attract assets.

2) Fannie, Freddie Won't Repay All Aid, Lockhart Says.

Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, won’t be able to repay all of the $84.9 billion in federal aid they have received since being seized by the government last year, their regulator said.

“Some assets and senior preferreds will have to be left behind as they come out of conservatorship, and that means some of those losses will never be repaid,” Federal Housing Finance Agency Director James Lockhart said at a speech in Washington today. “Their book is so large, it’s hard for me to see that they will be able to repay all of that.”

I think everyone saw this one coming. Its just unfortunate. That's my only comment here.

The market is enjoying another strong day as the bulls still have all the momentum and S&P 1000 looks easily attainable. I'm still interested to see what happens post-earnings, but for now the market is jumping on the recovery bandwagon. I'm holding all my longs and might trim a few if we see prices run up much higher. I have some stocks I'd like to buy, but hate chasing them.

The Oil Drum Looks at Natural Gas Replacing Gasoline

The Oil Drum does a great job on all things oil/energy related, and is a great resource. I found a very interesting article today that takes a look at replacing all our gasoline with natural gas. Can it be done? What is the cost?

Also, there is surprising letter toward the end that shows the licensing fees a business would have to pay to do vehicle conversions. Its astounding.

Here's the full post. Its definitely worth your time.

Interesting Reading-Thursday

Here's what I'm taking a look at this morning.

Foreclosures Up Again. Interesting read by Rolfe Winkler. The key here is that there are plenty of REOs (real estate owned by banks) that have yet to hit the market.

Waste Management Profit Tumbles 22 Percent. A solid company that I like to track.

Brunswick Reports Second Quarter Results. A look at the consumer recreational market.

Expedia Reports Second Quarter Results. Also a look at consumer recreational and business behavior.

Wednesday, July 29, 2009

Marcellus Shale Estimates Project Even Higher

I ran across this report today that the Marcellus Shale could end up yielding even more natural gas than expected, which already was a major number:

New calculations show the Appalachian Basin's Marcellus Shale formation could yield enough natural gas to supply all U.S. needs for nearly two decades -- dramatically more than previous estimates. Penn State University geosciences professor Terry Engelder projects nearly 500 trillion cubic feet of natural gas could be produced from the entire formation, which is found in portions of five states, including most of Pennsylvania. Engelder published his latest estimate in the August issue of Fort Worth Oil and Gas Basin magazine.

"If the natural gas from the Marcellus could be extracted on demand, the Marcellus alone would last the U.S.A. more than 19 years, producing 489 trillion cubic feet of gas," Engelder said Monday. It was Engelder and Gary Nash, a professor at State University of New York at Fredonia, who stirred interest in the natural gas industry early in 2008 when they projected that production in the Marcellus Shale formation could bring massive expansion of the industry. Late last year, Engelder made news with an estimate that 392 trillion cubic feet could be produced -- 13 times the amount the nation uses on an annual basis. Western Pennsylvania's average natural gas consumer uses about 98,000 cubic feet annually.

From the standpoint of a new energy plan that relies more on natural gas, this is great news. We're sitting on decades of reserves, and its just waiting to be used. From the standpoint of prices, news like this is going to continue to put downward pressure on prices until increased demand returns to the market.

I'm still long UNG, and it appears it will take some time for prices to recover. We're still in a traditionally slow time in the season, and it typically picks up as we head closer to fall. I'll continue to monitor this story.

Disclosure: Long UNG

Tuesday, July 28, 2009

National Oilwell Varco Earnings

National Oilwell Varco (NOV) released pretty solid earnings this morning. This is a company that I've owned a couple of different times, and I like their diversity in the oil space. They are an oil services company that serves offshore platforms (the main reason I liked them in the first place) amongst other areas. Here's their results (via Market Watch):

National Oilwell Varco said Tuesday its second-quarter net income fell a less-than-forecast 28% as its rig technology business held steady despite a downturn in the oil service business.

National Oilwell Varco earned $220 million, or 53 cents a share, compared to $421 million, or $1.05 a share, in the year-ago period. Revenue was virtually flat at about $1.9 billion.

On an adjusted basis, the Houston maker of drilling-equipment said it earned 90 cents a share compared to $1.04 in the year-earlier period, while analysts polled by FactSet Research were looking for earnings of 88 cents a share, on average.

Its backlog fell to $8.7 billion from $9.6 billion at the end of the first quarter. Shares of National Oilwell Varco added 1.8% in premarket trading to $59.84

"Our strong book of business and solid balance sheet positions us well to navigate the current challenging marketplace, which witnessed further steep rig count declines and fierce pricing pressure during the second quarter, particularly in North America," the company said.

"We are using this time to streamline our business and invest for future growth, while continuing to execute on our customer's requirements."

The volume of rig declines could play a negative role for NOV for a couple of quarters. I've discussed this a lot with regard to natural gas. Production is being shut off until supply can be balanced with demand. I may revisit this name if oil offers a more attractive entry point. My favorite names in the oil sector are National Oilwell Varco, Diamond Offshore, Noble, and Schlumberger. I also sometimes trade the 2x oil ETF (symbol DXO).

Disclosure: None

Monday, July 27, 2009

Early Week (or Weak) Earnings

In scanning the news wires this morning, I'm seeing earnings from Aetna, Honeywell and Verizon that stand out. Let's take a quick peek at the first two.

First, health insurer Aetna, gives us a very timely look into costs in the health care industry. (Reuters):

Aetna Inc sharply cut its full-year earnings forecast on Monday because of higher-than-projected medical costs as the health insurer posted a 28 percent drop in second-quarter net income.

The No. 3 U.S. health insurer, whose shares fell 7.7 percent in thin premarket trading, expects 2009 operating earnings of $2.75 to $2.90 per share. In June, Aetna lowered its full-year outlook to $3.55 to $3.70 per share from an initial forecast of $3.85 to $3.95.

Second-quarter net income fell to $346.6 million, or 77 cents per share, from $480.5 million, or 97 cents per share, a year earlier. Revenue rose 10 percent to nearly $8.7 billion, compared to the analyst estimate of about $8.6 billion.

Aetna said higher medical costs stemmed from use of more services in the emergency room, laboratory and preventive services, which is a continuation of
issues cited earlier this year. "We continue to see upward pressure on medical costs beyond what we projected in early June, which we believe is driven in part by changing provider behavior in the face of a deep recession," Chief Executive Officer Ron Williams said in a statement. "We did not fully capture the impact of these forces in our 2009 pricing."

Ok, bright side, revenue's were up year over year. But at what seems to be a funny coincidence in its timing, Aetna says increased medical costs are hitting them hard. Medical cost now represent I believe 1/6 of our nation's spending, and it is likely to continue without some type of reform. They cut their full year guidance by quite a bit, and the stock is getting a haircut in the premarket.

Also reporting this morning is large industrial manufacturer Honeywell. (Reuters).

Diversified U.S. manufacturer Honeywell International Inc reported a 38 percent drop in earnings that matched Wall Street's forecasts and cut its full-year profit forecast to the bottom of its prior range.

The world's largest maker of cockpit electronics, which is facing a coordinated downturn in its core aviation and construction markets, said on Monday it expects no economic recovery this year.

Honeywell now looks for full-year earnings of $2.85 per share, at the low end of its prior forecast of $2.85 to $3.20. It cut its revenue forecast to $31.5 billion, below its prior range of $32.3 billion to $33.2 billion.

"Economic conditions ... remain challenging and we are not planning for any recovery in 2009," said Chairman and Chief Executive Dave Cote, in a statement.

Revenue at the Morris Township, New Jersey-based company fell 22 percent to
$7.57 billion.

Pretty weak results here. Revenue down 22 percent. Again, I've been looking hard at revenue numbers as those are one of the best indicators as to just how much activity has decreased. The bottom line is being overlooked as cost-cutting measures are being used to save money and to meet analyst expectations. Their CEO said they aren't planning on any recovery in 2009. Not sure if CNBC is going to cover that statement, but we need to listen to what these companies have to say.

The market was quite strong last week, and this week should be a good test. Can the market hold its gains without as many potential catalysts (earnings results)? If it can, it will bode well for a more prolonged move up as we move into August.

Friday, July 24, 2009

BNI Holding Up in a Tough Market

Burlington Northern Santa Fe Corp. (BNI) reported yesterday. They are my favorite of the railroads, and they delivered a pretty good quarter considering what they were dealing with. Here's some of the stats (via Reuters):

No. 2 U.S. railroad Burlington Northern Santa Fe Corp on Thursday reported a better-than-expected net profit, with lower fuel expenses and aggressive cost controls offseting a 26 percent decline in revenue as the recession continued to
hurt freight volumes.

The railroad said volumes at economically sensitive business units, which it did not specify, have begun to stabilize. BNSF hauls a variety of commodities such as coal, grain, lumber, construction materials, automobiles and consumer goods.

The Ft Worth, Texas-based company reported second-quarter net income of $404 million or $1.18 a share, compared with $350 million or $1.00 a share a year earlier. The company's earnings for the same quarter a year earlier were also affected by a one-time 31 cent per share charge.

Wall Street analysts had on average expected earnings per share for the latest quarter of $1.00, according to Reuters Estimates.

Revenue in the quarter fell to $3.32 billion from $4.48 billion. Analysts had expected revenue of $3.74 billion, according to Reuters Estimates.

"BNSF had another strong quarter of cost control in an extremely difficult economic environment," Chief Executive Matthew Rose said in a statement. "Because of our continued focus on productivity combined with our long-term market opportunities, we are well positioned to benefit when the economy recovers."

Like other major U.S. railroads, BNSF had reported robust profits in recent quarters as strong pricing helped them offset falling freight volumes. But analysts have warned that a prolonged recession could undermine their pricing power.

Revenues were light, but the demand for products on a large scale is still down. I've been very patient with this stock and have yet to buy any shares. The market continues to price in a recovery that hasn't yet to surface. Tech stocks have been strong, but industrial stocks have been selling hope more than showing results.

The Association of American Railroads released their weekly traffic volume, and it was again weak. Click here to read that report.

The AAR also put out their monthly Rail Time Indicators, which is a really good look at many indicators for rails and the economy. These are the stats we need to be taking cues from when trying to predict what the economy is going to do.

Disclosure: No Positions.

Quick Update on UNG

I've just been trying to catch up on some stuff from yesterday. UNG (natural gas ETF) took a good hit yesterday as inventory data came in higher than expected. This has little effect on my reasoning for buying this. Todd Sullivan made a good point that its a little strange that they put out weekly numbers on natural gas as it seems like it might be hard to accurately define that. Not to mention weekly fluctuations can be do to any number of things, and although they can move the price of the commodity (and the ETF), they don't change much about why we own it. It actually ends up being kind of nice because it gives you these windows of opportunity to buy it if you're looking to. You'll never find a stock that does that.

I'm not saying that natural gas is perfect. There is a ton of supply right now, but over time, and if the economy shows some recovery, that will eventually even out. With the rate that production has been shut off, we're likely to see demand move higher than supply at some point which will move prices much higher.

Disclosure: Long UNG

Thursday, July 23, 2009

Roubini: Risk of "Double-Dip" Recession

I don't want to rain on the parade here, but I think its important to look beyond earnings and realize the effect of cutting this many jobs, and what it will mean going forward. I found it amusing that last week CNBC took Nouriel Roubini's comments about the recession ending this year out of context and made it breaking news. Here's some commentary out today' about Roubini (via Bloomberg):

The global economy may fall back into a recession by late 2010 or 2011 because of rising government debt, higher oil prices and a lack of job growth, said Nouriel Roubini, the New York University economist who predicted the credit crisis.

A “perfect storm” of fiscal deficits, rising bond yields, “soaring” oil prices, weak profits and a stagnant labor market could “blow the recovering world economy back into a double-dip recession,” he wrote in a research note today. “It is getting more likely unless a clear exit strategy from the massive monetary and fiscal stimulus is outlined even before it is implemented.”

Roubini, chairman of Roubini Global Economics and a professor at NYU’s Stern School of Business, predicted that the global economy will begin recovering near the end of 2009. The U.S. economy is likely to grow about 1 percent in the next two years, less than the 3 percent “trend,” he said.

Roubini based his short-term outlook on the worsening condition of the U.S. housing and labor markets, which he called “inextricably linked.” He said a “weak” job market will contribute to another 13 percent to 18 percent drop in house prices, bringing total declines nationally to as much as 45 percent from their peak.

“The worst-case assumption in U.S. stress tests were that unemployment could average 10.3 percent next year,” Roubini wrote. “The reality is clearly going to be worse as the unemployment rate is likely to peak around 11 percent.”

Emerging markets may fare better than the industrial world because, “paradoxically,” many have better sounder economic foundations than more advanced nations.

“We are now closer than we were six months ago to the end of the worst financial crisis since the Great Depression and the worst global recession in decades,” Roubini wrote. “But the road ahead will be very rough and bumpy.”

I tend to agree with this viewpoint, although probably not quite as bearish. It will be very tough for a recovery of any size without better employment numbers. Anything else will just be artificially inflated due to Fed policy and Washington policy. We know that that has happened before, and that is what they're trying to do again. At some point, somebody needs to figure out that you need to let the economy cycle out so when can come back stronger. Otherwise the bubbles will only increase in size and frequency and we'll need more and more bailouts. The problem with that is no politician wants to take the heat for short-term pain. The stimulus is a prime example. It was pushed through in attempts to re-inflate the economy. If it doesn't have the desired effect, which is likely, they will pass another one. Its just bad policy. Both parties are to blame, as is the whole system in Washington. Until the system is changed, the results won't; the politicians are just actors.

Sorry if that got to be a little bit of a rant, but what the heck, its my blog.

Now off to try and digest the massive amount of earnings results.

The Market Loves Tech Right Now: EMC

EMC earnings were announced this morning, and like many large-cap tech names, their results were good. Wall Street is particularly happy as it appears tech stocks are poised to be the leadership group to lead the next bull market. (Reuters)

EMC Corp, the top maker of corporate data storage equipment, forecast full-year revenue above Wall Street expectations as corporate technology budgets stabilized, sending its shares up 2.4 percent in premarket trading.

The company also reported stronger-than-expected quarterly earnings on Thursday, citing its own efforts to cut costs, in addition to the downturn in spending hitting bottom.

"Things are stabilizing. Visibility is getting better. That's what Intel, IBM, Dell, everybody else is saying," said Kaushik Roy, an analyst with Wedbush Morgan Securities.rts to cut costs, in addition to the downturn in spending hitting bottom.

EMC said profit excluding items was 18 cents per share in the second quarter, above the average analyst forecast of 16 cents, according to Reuters Estimates. Revenue fell 11 percent to $3.26 billion, beating the $3.20 billion average forecast of analysts.

"While global conditions remain challenging and our full-year view of declining IT spending remains unchanged, EMC's second-quarter financial performance reflects customers' budget stabilization and improved business predictability," Chief Financial Officer David Goulden said in a statement.

EMC forecast it would report full-year revenue of $13.6 billion, excluding $200 million from its pending acquisition of specialty storage company Data Domain Inc. Analysts had expected annual revenue of $13.5 billion.

Net income fell to $205.2 million, or 10 cents per share, from $360.1 million, or 17 cents, a year earlier.

As of the time of writing this, EMC shares are up about 5% in the pre-market. They didn't say anything earth shattering, but like I said, I believe the market is depending on large cap tech to lead us. I do like this company moving forward. Also a couple of hedge fund managers I admire, Bill Ackman and David Einhorn, own large stakes in EMC.

Disclosure: None

ABB Earnings

ABB's numbers are about what I expected. Revenues and profits down year over year, some weakness in orders, etc. Cost cutting is helping the bottom line (I swear we've heard that before, somewhere). Here's some data (via Reuters)

Swiss engineering group ABB's cost-cutting limited a fall in profit in the second quarter, but the group remained cautious for the rest of the year as customers hesitate about spending on equipment.

Net profit slumped by 31 percent to $675 million, but this was well ahead of the average forecast of $592 million given by analysts in a Reuters poll as ABB has already saved $500 million this year.

The seller of power equipment to utilities as well as to oil and gas companies is looking to cut costs by $2 billion by the end of 2010 as demand in the industrial, construction and automotive markets wanes as a result of the economic slump.

"Factories within some units, such as power products, were running at full capacity to execute order backlog and this supported the earnings before interest and tax (EBIT) figure," a spokesman for the group said. The company has so far slashed around 3,000 jobs, including contract, temporary and permanent workers, and has also cut costs by buying products at lower prices as well as by shifting production to emerging markets.

"Uncertainty surrounding economic recovery, the stability of raw material prices and the availability of project funding continue to influence the timing of many power investment decisions," the group said. Demand had fallen across all regions and there were still no signs of any green shoots, ABB said.

ABB is expected to benefit from government stimulus packages designed to counter the slowdown, but the group said it was unable to forecast when these programmes would start to help ABB or when the availability of funding would improve.

The group, which is the world's biggest supplier of transformers for electrical grids, saw its second-quarter orders tumble 35 percent to $7.3 billion, roughly in line with expectations, while sales fell 12 percent to $7.9 billion.

It confirmed its targets for 2007-2011, excluding its Robotics unit, which
needs further restructuring.

ABB is aiming for revenue growth of between 8 percent and 11 percent and for an earnings before interest and tax (EBIT) margin of between 11 percent and 16 percent in the mid-term.

A couple of things here. First, I was looking for about the opposite reaction. I had hoped the company would have stronger results and outlook than I expected, but the market would get scared off by some piece of data. Actually, although I love where this company is positioned, they didn't say much that impressed me, and Wall Street (they are easy to please these days) likes it, as the stock is trading higher in the premarket. That's about all I have to say here. It will get better for them, and eventually will be very good.

Also, I saw a story about ABB and the technology they are selling to China. It was interesting to see that all their best products are being bought there as China is demanding the newest and best stuff for alternative energy projects (I was hoping that might be the US role, but sadly no). Here it is, via Bloomberg.

Disclosure: Long ABB

Wednesday, July 22, 2009

Thursday Earnings

Just wanted to supply a quick primer for what I'll be focusing on tomorrow. We're still heavily into earnings season, and that is dominating the action in the market. What we're seeing is some fairly good quality earnings, especially in technology companies. We're also seeing some low quality earnings in industrial-type names, but most are making numbers due to cost cutting and are being welcomed by a favorable climate in the market. Thursday will have these companies reporting that I'm looking at:

-3M. Just looking for a general update from them. How numbers are looking internationally vs. US etc. Revenue's year over year.

-ABB. I know they'll report some trouble in their robotics unit due to auto exposure. I'm more interested in where their orders are coming in from (more from Africa and Middle East? and of course Asia). Also looking to see the type of orders (new grid projects, and their take on wind and solar). Looking for their outlook for the rest of 2009. May add shares if market reacts negatively.

-Amazon. This company has been on fire. I've never owned the stock, but love their product. A stock that can move the market.

-American Express. Looking for info on the credit situation and the health of the consumer. They of course have been weakened by this recession, but are a great company with a great CEO.

-Baidu. China!

-Burlington Northern. My favorite of the railroads. I like this sector for the next few years. I know their results will be pretty weak, but the market won't punish them much. Rails seem to be the poster child for the "market looks six months ahead" argument. The market is pricing in a recovery, thus the strength in rails.

-Diamond Offshore. My favorite of the offshore drillers. Noble reported solid results tonight, and Diamond probably will too. The market won't be surprised by anything they say unless its a massive miss.

-EMC. Tech stock I've watched that I really like the fundamentals on. Haven't seriously looked to buy it yet, but may depending on what they say tomorrow.

-EZCORP. Will the "trading down" play be abandoned?

-McDonald's. Is their growth continuing? Good barometer of global economy.

-Microsoft. Killed it last quarter, and probably will again. Isn't as boring as it used to be.

-Netfix. One of the beneficiaries of the recession. Where will their numbers come in? Amazon or Apple should buy them.

-Potash. Mosaic was better than expected, and I suspect they will be too.

-UNP. See Burlington Northern.

-Wyeth. I own this stock and am only interested in their numbers to help determine if I'll keep my Pfizer shares when I get them. This result will not move the stock much as Wyeth's stock price is now basically worth 33 dollars plus 98.5% of Pfizer shares value.

Busy, busy day. A lot for the market to digest, and will be interesting.

House Passes Bill For Natural Gas Vehicle Research

Found this press release about the House of Representatives passing the bill to fund research for natural gas vehicles. Keep in mind, this isn't the large NATGAS act, as that bill is still in congress.

Today, the House of Representatives, by unanimous consent, passed H.R. 1622 – a bill that would direct the Secretary of Energy to: (1) conduct a five-year program of natural gas vehicle research, development, and demonstration; and (2) coordinate with the natural gas vehicle industry and with the Administrator of the Environmental Protection Agency (EPA) regarding streamlining the certification of natural gas conversion systems to federal certification requirements and in-use emission standards.

The bill was sponsored by Rep. John Sullivan (R-OK), who has been a champion in support of natural gas vehicle issues.

“We commend Mr. Sullivan’s committed leadership on this issue,” said Richard Kolodziej, president of NGVAmerica. “NGVs can make an even greater impact on displacing foreign oil while reducing greenhouse gases and urban pollution. But to do so we need more natural gas engines integrated into more vehicle platforms. The two parts of this bill would help do that by providing federally supported R&D funding and streamlining the EPA certification process for conversion equipment to get more conversion equipment into the market faster and with less cost.”

The bill would authorize $30 million a year from fiscal 2010 to 2014 for natural gas vehicle research and development.

NGVAmerica is a national organization dedicated to the development of a growing, sustainable and profitable market for vehicles powered by natural gas or biomethane. NGVAmerica represents more than 100 companies interested in the promotion and use of natural gas and biomethane as transportation fuels, including: engine, vehicle and equipment manufacturers; fleet operators and service providers; natural gas companies; and environmental groups and government organizations. For more information about NGVAmerica, visit our website at

This is a positive step in the right direction. I'm a believer in natural gas being a big part of our new energy plan in both power generation and transportation.

Long UNG, and still looking to buy FSYS.

Wednesday Earnings Mixed/What I'm Looking to Buy

Looking back to last night, Apple really was solid. I mean in the face of a very difficult time for consumers, Apple continued to deliver, and with a premium brand at that. Consumers are continuing to buy their more expensive computers, and obviously the iphone is just killing it right now. Good for them. I owned that stock about three ipods ago, but haven't recently.

The bank's were mixed; The market liked what US Bank had to say, and Wells Fargo, not so much.

Pfizer looked pretty solid to me. They slightly raised full year estimates, which is great in this market. They also reported that the Wyeth purchase has been approved by shareholders, of which I am one.

I'll break down some more individual stuff later today, but just wanted to give a quick update as to what I'm watching:

-I rarely buy when the market surges like it has the past few days, so that accounts for the lack of activity. I was encouraged when futures were lower this morning as I was hoping to make a couple of buys, but I think the Apple momentum accounted for that quick erase of the drop.

-I'm looking to buy some shares in Compass Diversified Holdings (CODI). This basically a private-equity company that owns six diversified companies. They are very transparent and are in a good financial situation. They're looking to make another acquisition soon, which could really jump start the stock. In the meantime, they are yielding 15%. Todd Sullivan picked this one off, and I'm just going to refer you to his post for the details. I've done plenty of research here, but he's got the best explanation and videos to detail. Thanks Todd.

-I'm also likely to pick up some Wal-Mart shares. I like the price and the insulation this stock provides against weakness in the market (when that happens again). Fitting that Wal-Mart stock is trading at a discount to the rest of the market.

-I'm eagerly waiting tomorrow's earnings, specifically from two: ABB and Diamond Offshore.

That's all for now.

Disclosure: Long WYE, ABB,

Tuesday, July 21, 2009

U.S. Gas Rig Count at 7-Year Low

Baker Hughes put out its rig count again last week, and I'm just updating with the data. The natural gas count slipped to 7-year lows, as producers continue to shut off supply (data via Reuters).

-The number of rigs drilling for natural gas in the United States fell 7 this week to 665, the lowest level in more than seven years, according to a report on Friday by oil services firm Baker Hughes in Houston.

-U.S. natural gas drilling rigs have been in a mostly steady decline since peaking above 1,600 in September, and now stand at 869 rigs, or 57 percent, below the same week last year. It is the lowest natural gas rig count since May 3, 2002, when there were 640 rigs operating.

-Tighter access to credit and a 70 percent slide in natural gas prices to about $3.50 per mmBtu after peaking above $13 last July have forced many producers to scale back drilling operations. But with the natural gas drilling rig count now firmly entrenched below 700, and monthly production down four straight months through June, some analysts expect to see the supply-demand balance tighten soon.

The bulls on natural gas have said eventually all this shutting off of supply will balance out with demand, and push gas prices higher. Prices have bounced slightly off their lows of the previous week or two, but still remain depressed.

Disclosure: Long UNG

Wal-Mart Going Green and Its Effect

I touched on this yesterday in my piece about potentially picking up some Wal-Mart (WMT) shares (click here to read). Wal-Mart's initiative to require all its suppliers to disclose "ecological costs" (to borrow a quote from the blog linked below). When you look at all the suppliers Wal-Mart works with, not to mention the massive scale they operate on, this is a big step forward. Lately, Wal-Mart has been say to heck with waiting for Washington to act, because we all know of long that can take, and they usually don't get it right anyway. I found more information on this through, via bloomberg.

Wal-Mart has just changed the game with respect to environmental issues. Now it doesn't matter whether Congress' new cap-and-trade law meets all its promises, nor whether the G-8 leaders dithered rather than acted on environmental issues.

Wal-Mart's unilateral decision to put its purchasing and communication power behind going green also shows that a single company using its unique clout can accelerate public action to reduce greenhouse gases and reverse climate change. By rolling out an environmental labelling program disclosing to consumers the environmental costs of making products sold at Wal-Mart, the $401 billion retail behemoth has transformed green standards from nice-to-have to must-have.

In practice, of course, we know that suppliers will change their practices to avoid embarrassing disclosures, and consumers will think twice about the choices they make. Consumer activists have been clamoring for information. At a recent conference discussing the company of the future, many seemingly informed people were astonished to learn how many gallons of water it took to make just one cup of Starbucks (or anyone's) take-out coffee - they had forgotten irrigation of coffee plants, fluids consumed by transportation of coffee and manufacturing of paper cups, and so forth.

We also know that the Wal-Mart concept is certain to be emulated by other retailers in their own ways. Who could possibly hold themselves up as Not-Green when over 130 million people visit a Wal-Mart store every week, according to company figures, and are made more conscious of environmental concerns? You can bet that a competition will ensue among retailers to out-do Wal-Mart in having the best green-oriented program. That might make "cheapest" the battle of the past and redefine "value" in the minds of consumers and the public.

The article is a good read, as is this blog post from Harvard Business "Leading Green".

So while people rip Wal-Mart for taking away manufacturing jobs in the U.S. (which we increasingly didn't seem to want by the way), stop and take a look at what they're actually doing. When you're looking for new initiatives to make broad changes, you should look to the leaders in business to get things done before you go waiting for Washington.

I still haven't picked up any shares, but have been actively watching.

Disclosure: None

CAT Sells the Hope

The market is getting excited about Caterpillar's (CAT) results this morning. CAT has been at the center of the slowdown, and was one of the first companies that showed the coming recession through slowing earnings (two years ago). So, I'd like to think that CAT will provide signs of a coming recovery, and maybe will be one of the first one to see improvement. Here's today's quote from CEO Jim Owens (data via Reuters).

"There is still a great deal of economic uncertainty in the world," Jim Owens, the company's chairman and chief executive, said in a statement. "But we are seeing signs of stabilization that we hope will set the foundation for an eventual recovery."

To me, they are selling hope. The numbers weren't pretty, but they did raise their full year outlook, and in a market that wants to go up, thats all it takes.

-Caterpillar raised its outlook for full-year profit, including redundancy costs, in a range of 40 cents to $1.50 with a midpoint of 95 cents a share. When it reported first-quarter results three months ago, Caterpillar put that midpoint estimate at just 50 cents a share.

-The company, the world's largest maker of mining and construction vehicles, reported a second-quarter net profit of $371 million, or 60 cents a share, compared with $1.11 billion, or $1.74 a share, last year.

-Sales and revenue fell 41 percent to $7.98 billion. Analysts, on average, had expected the Peoria, Illinois-based company to report a profit of 22 cents a share on sales of $8.36 billion, according to Reuters Estimates.

I see CAT reacting to what the rest of the market has been saying and going along with it. That's fine I suppose. The market has indeed stabilized, and we're all waiting for more signs of recovery. The only problem with that is stock continue to move higher, as they're already starting to price in that eventual recovery. We still don't know how robust that recovery will be. Can stocks run further? Sure. If the market continues to react to earnings reports like this the way they're reacting this morning, there is plenty of upside left in the market.

Disclosure: None

Monday, July 20, 2009

Finding Some Value in Wal-Mart

I know this isn't the most exciting stock out there, but I've been taking a look at Wal-Mart (WMT) recently. I still be believe we're in the midst of consumers "trading down" from more expensive goods and services to discount and value-based companies (my previous posts about this here). Wal-Mart was and still is at the center of this. Wal-Mart has been surprising many as well with initiatives to promote energy efficiency and their decision to support the government's health care plan. Wal-Mart's line has always been that they're doing what's best for the company, and in this case, going green is profitable in their eyes.

I'm more interested just taking a look at the what the stock is doing in this market. The stock is becoming the antithesis of the "green shoots" trade, which is fine because we have enough stocks getting overvalued. Wal-Mart has seen its stock steadily fall while the market has rallied this summer. So basically, we can buy Wal-Mart shares as a hedge against the broad market falling, which could happen (as unlikely as it may seem to some), but at the same time, we're buying a stock with strong and improving fundamentals.

Wal-Mart always generates a lot of cash, and distributes it well through dividends (2.2% yield) and share buybacks (3.5 bil). I see some value here in their shares. Their shares are currently trading at 12.5x forward earnings, which are estimated to climb from 3.56 to 3.89. If the stock continues to fall while the broad market advances, I'll likely start a position.

As always, I'll post my trades here and via Twitter. You can follow my Twitter updates at
Disclosure: No Position

Halliburton CEO: Natural Gas Prices to Remain Weak

I'm not going to cover the full details of the Halliburton quarter (earnings lower, but beat estimates...we know the deal), but it was interesting that the CEO went out of his way to speak about natural gas prices. (data via Reuters).

Halliburton Co, the world's second-largest oilfield services company, posted a better-than-expected quarterly profit on Monday, boosting its shares, but it warned that North American natural gas markets were likely to stay weak through the end of the year.

Natural gas prices in the United States have tumbled to less than half of year-ago levels, and high inventories were expected to curb spending by energy producers on new wells.

"Due to the continued weakness in natural gas demand, reflected in the high injection rates for working gas storage, we believe it is unlikely that there will be a meaningful recovery in natural gas prices and, consequently, drilling activity for the remainder of the year," Dave Lesar, chairman and chief executive officer, said in a statement.

Now obviously he's pretty plugged into the situation for natural gas. I'm still holding my position for a few reasons. If you look at the upside vs. downside risk for natural gas (upside risk factors include an economic recovery, strong storm season, massive production shut off) (downside risk of economy weakening decreasing demand further), I still think the upside is stronger. If natural gas prices had already priced in these upside factors, I would feel differently, but prices are still depressed.

His quote that we won't see an meaningful recovery in prices and consequently drilling activity this year is interesting. Wouldn't that then mean that depressed drilling activity would then consequently help push prices back higher???

Disclosure: Long UNG

Earnings Reports From Industrial Sector

A couple of names of note reporting this morning, Eaton Corp. and Johnson Controls Inc.

EATON (via Reuters)

-Diversified manufacturer Eaton Corp, a maker of hydraulics, electrical control systems and truck transmissions, reported higher-than-expected quarterly profits on Monday, but slashed its earnings forecast, citing weakness across its markets.

-Eaton cited weak truck production, steep declines in European electrical markets and shutdowns at U.S. automakers. It said it expected its end-markets to decline at a faster rate than it had forecast in April.

-But the company said cost cuts made it possible to deliver second-quarter earnings per share close to its original forecast.

-Net earnings fell to $31 million, or 17 cents a share, from $337 million, or $2.03 per share, a year earlier. Revenue fell 32 percent to $2.9 billion, compared with Wall Street forecasts of $3 billion.

-Eaton said it now expected its end-markets to decline 21 percent to 22 percent, versus down 15 percent to 16 percent in its April forecast. It expects its U.S. markets to fall more steeply than overseas markets.

-It estimated full-year operating earnings of $2 to $2.20 per share, compared with its April forecast of $2.50 to $3, but still above Wall Street estimates of $1.92 a share.

When you take a step back at look at these numbers, they are pretty poor. Of course they beat estimates through cost cutting, but earnings at $31 million from $337 million? And we're not talking about some small company that is too focused on one industry or product (Eaton has 75,000 employees). But hey, they beat expectations and the stock is up 10%.


-Johnson Controls Inc posted a 63 percent plunge in quarterly earnings as the weak economy pressured the diversified manufacturer's auto parts and building controls businesses, but its shares rose 7 percent as the results beat Wall Street forecasts.

-The company said economic conditions remained challenging in most of its markets. It benefited from cost cuts made earlier in the fiscal year, and it expects profits to increase in the current fourth quarter and into fiscal 2010.

-"There are still many uncertainties in our industries, but there is better clarity than there was three months ago," Chief Executive Steve Roell said in a statement."Automotive production globally remains at low levels, but appears to be stabilizing," he said. "Analysts are beginning to see a bottom in the commercial buildings and residential ... markets in the next six to nine months."

-Net income fell to $163 million, or 26 cents per share, in the third quarter ended June 30 from $439 million, or 73 cents per share, a year earlier.

-Revenue fell to $6.99 billion from $9.87 billion, missing analysts' estimates of $7.39 billion.

We all knew auto parts would be weak. But I wanted to see what JCI had to say about industrial level HVAC business. With the economic stimulus now out, businesses are encouraged to trade out for more efficient energy saving options. At a minimum, I know the federal government has been doing it in many of their buildings, so you know some revenue is going to be coming in. Here's what I could find for info on that:

The building business' order backlog fell 9 percent to $4.4 billion at the end of the quarter. The backlog in North America was comparable with year-earlier levels, while there was a double-digit decline in Europe and the Middle East. Customers have delayed some projects to see if funding could come from the U.S. stimulus package, Johnson Controls said, but the program should give a meaningful boost to its financial results in the second half of fiscal 2010.

What do these earnings reports tell us? Unfortunately, its the same old tune. Revenues are weak, they are all cutting cost (which mostly means cutting jobs), and are beating earnings estimates. This is good for the stock, but when you attach it to the big picture, it can't make for positive results. We need strong employment levels so the consumer can get healthy. Until the consumer gets healthy it will be hard for retail sales, real estate sales, and many other aspects of the economy to grow again.

Disclosure: No Positions

Saturday, July 18, 2009

ABB Still Well Positioned

In doing my normal Saturday reading, I came across a feature in Barrons about Swiss industrial/electrical giant ABB (ABB). I've held shares in this company for about a year, and I continue to like this company, even though it has hit a rough patch (who hasn't?) Here's a couple of meaningful quotes from the Barron's feature:

  • ABB's fortunes in the past year have been dented by exposure to the automobile and construction industries, but the Swiss engineering giant's power-transmission and distribution activities should continue to generate earnings that offset the weakness.
  • Product mix and geographic diversity so far have insulated ABB (ticker: ABB) from the worst of the recession, and it looks well positioned to prosper. Its balance sheet is still one of the best in the industry, with $2 billion in net debt and nearly $5 billion in cash giving the company a solid financial buffer and a war chest for acquisitions.
  • Those prospects aren't reflected in ABB's shares. The stock has shed about one-third of its value during the past 12 months; late Friday, ABB's American depositary receipts were trading at $16.15. The Dow Jones Europe Stoxx 600 industrial-goods and services sector has fallen about 25% during the same period. ABB trades at a trailing 12-month average price/earnings ratio of 11.3 times.

Their automation and robotics sectors are getting hit pretty hard. But their power systems and process automatic sectors are really doing well(up 36 and 10 percent YOY respectively) , as they are picking up orders all over the world. These guys are specifically hitting it hard in emerging markets. In fact, their order growth in the Middle East and Africa is up 119% year over year, and now making up 21% of all orders.

They are well diversified with their four largest business segments making up 29, 24, 23, and 22 percent of all orders.

ABB is right at the center of alternative energy production as well. Think of smart grid technology, which is just starting to expand, as well as wind and solar products, and we all know the potential of those.

If you have time, check out this presentation detailing their latest updates in the industry and how they stand as a company. Click to view presentation (pdf).

The bottom line here is that although they are still being hurt by the recession, its a company that is holding up well (almost 5billion in net cash), and will certainly be strong when the economy recovers. Stock wise, it has hovered in the 15-16 range for quite some time. They report earnings this week, and we should get a clearer picture on where orders are coming in. If we get any negative reaction from the market, I might very well use the opportunity to add shares.

Disclosure: Long ABB.

Friday, July 17, 2009

Another "Reality" Indicator-Rail Traffic Down

The Association of American Railroads released their weekly rail traffic report again yesterday, and it showed additional year over year declines.

AAR Reports: Rail Traffic Remains Down Year Over Year

Rail carloadings up slightly from previous weeks

WASHINGTON, July 16, 2009 — The Association of American Railroads today reported that rail traffic remains down year over year for the week ended July 11, 2009. U.S railroads reported originating 262,210 cars, down 17.9 percent compared with the same week in 2008. Regionally, carloadings were down 12.8 percent in the West and 25.6 percent in the East. Rail carloadings were at their highest level in 14 weeks.

Intermodal volume of 176,887 trailers or containers was down 23.7 percent from the same week last year. Container volume fell 19.4 percent and trailer volume dropped 40.3 percent. Total volume on U.S. railroads for the week ending July 11 was estimated at 28 billion ton-miles, off 16.9 percent from the same week last year.

All 19 carload freight commodity groups were down from last year, with declines ranging from 4.2 percent for the catch-all category labeled “all other carloads” to 58.4 percent for metals and metal products.

For the first 27 weeks of 2009, U.S. railroads reported cumulative volume of 7,069,102 carloads, down 19.2 percent from 2008; 4,993,245 trailers or containers, down 17.1 percent, and total volume of an estimated 751.7 billion ton-miles, down 18.2 percent.

Canadian railroads reported volume of 58,741 cars for the week, down 24.6 percent from last year, and 39,945 trailers or containers, down 21.4 percent. For the first 27 weeks of 2009, Canadian railroads reported cumulative volume of 1,608,721 carloads, down 24 percent from last year, and 1,081,085 trailers or containers, down 15.9 percent.

Mexican railroads reported originated volume of 11,430 cars, down 12.5 percent from the same week last year, and 4,725 trailers or containers, off 23.7 percent. Cumulative volume on Mexican railroads for the first 27 weeks of 2009 was reported as 305,127 carloads, down 15.0 percent from last year; and 128,281 trailers or containers, down 22.1 percent.

Combined North American rail volume for the first 27 weeks of 2009 on 14 reporting U.S., Canadian and Mexican railroads totaled 8,982,950 carloads, down 19.9 percent from last year, and 6,202,611 trailers and containers, down 17.0 percent from last year.

I'll continue to monitor this as I view rail traffic as a good, broad indicator of the U.S. economy. Government data and statistics can often be misinterpreted and/or manipulated, but this stuff is pretty straightforward. Again, I like the railroads as an investment going forward due to efficiency and lack of competition. Typically, with data like this the stocks would be trading at or near lows, but that isn't quite the case right now. I'm still looking to buy some shares at lower levels.

Disclosure: No Positions

Greenlight Capital Q2 Letter

I'm always paying attention to David Einhorn's Greenlight Capital hedge fund. I think he's one of the best out there not only at running the fund, but being open and transparent about his style/strategy. His 2nd quarter letter is out, and here it is, via Dealbreaker.

As I mentioned at the end of last week, he move all their gold holdings from the ETF to bullion. The fees were higher in the ETF, believe it or not (I do), than paying to hold physical gold. When you're buying that much, the ETF expenses really add up. I also noticed that they've lightened up quite a bit on long exposure. I think its clear that the easy money off the bottom has already been made.

Earnings Report/Update

Just wanted to give a quick update of where we sit as earnings hit full force.

From the tech side of things, IBM reported some pretty solid results. They were down on revenues, but it was a manageable number. They beat on their profits, and raised their full year guidance from 9.20 to 9.70, which was important. They also improved their profit margins. I believe they are an example of a company "managing" its way through this recession, and doing it well. Not only are they performing well now, they are poised to be way ahead of the pack once we return to solid growth.

Google also reported last night. Again, solid numbers. But that's not was the street wants from Google; it wants big numbers. Its true their growth rate is slowing, but I think they deserve a little bit of a pass considering the economic climate. Interesting that they finally are jumping on the cost cutting bandwagon (cutting jobs), which takes a different stance than we're used to seeing from them.

The big banks are all going to report big numbers, and we knew this going in. They had massive revenues coming into their investment banking wings due to all the share issuances during Q2, not to mention trading (see Goldman). To me though, what is going to happen next quarter, and the one after that? We know that credit losses are continuing, and that banks still are sitting on a ton of this debt. Can their investment banking and trading operations make up for those losses? That will determine their fate.

We also had some bad results, and those come from companies tied mostly to the consumer. Marriott reported a tough quarter, with their results falling by almost all metrics. Nokia also wasn't too hot, and really got punished by the market yesterday. Although their market share in smart phones increased to 41%, the street chose to overlook that (which I must say surprised me a bit), and looked at their falling margins and poor forecast.

The question now is what is going to drive this market? Its going to take earnings surprises. After Goldman, the only way bank earnings were going to move the market is if they are bad or out of this world good. After Google and IBM, same thing for tech.

The market has proven the past couple of days that it still would like to go up if it can, but will the momentum dry up? Personally, I'm interested in earnings from the rest of the railroads (specifically NSC and BNI), and a few others (Diamond Offshore and Fuel Systems Solutions to name a couple).

Thursday, July 16, 2009

UNG Wakes Up!

Natural gas is finally moving substantially higher today as we got the inventory data out:

Natural-gas futures extended gains Thursday after the Energy Information Administration reported U.S. natural gas inventories rose 90 billion cubic feet last week, smaller than some analysts had expected. Some analysts surveyed by energy information provider Platts had projected a buildup as big as 106 billion cubic feet. After the data, August natural gas futures rose 17.9 cents, or 5.5%, to $3.462 per million British thermal units. It was up less than 3% before the data. At 2,886 billion cubic feet, stocks were 589 billion cubic feet higher than last year at this time and 454 billion cubic feet above the five-year average.

Hopefully the trend will continue. We're finally heading into a time of year in which demand ticks higher. How much, remains to be seen.

Lot's of big earnings coming up. Big Tech today with Google and IBM after the bell. I'm doing a couple of earnings related guest posts over at Fund My Mutual Fund, so keep an eye out for those.

Disclosure: Long UNG

Fuel Systems Solutions Update

Fuel Systems Solutions (FSYS) has been pretty strong since I mentioned it last week (click here to read my analysis of FSYS). I'm starting to wish I had started a position. The market reversed right around S&P 875 and hasn't looked back since. FSYS has move from mid 18's to this morning at just over 21 as I write.

I'm going to be a little patient here. They don't report earnings for a few weeks and the stock will likely fall if we see the broad market move lower. They did have a strong beat last quarter and provided a solid forecast. Along with the NAT GAS bill (which expands the use of alternative fuels for transportation) moving through Washington, I think FSYS could be in good shape.

Disclosure: None

Wednesday, July 15, 2009

Sold American Railcar/Earnings Thoughts

I went ahead and sold my American Railcar (ARII) shares. Never got it to a full position, and this thing moved so quickly that it seems a little too good to be true. I bought it at 7.05 near the bottom of its range last Friday, and sold today at 8.37, for a 18.7% gain. Not bad for about 3 days. I wish they all were that easy. I'll likely get back into this stock and it could be before too long.

The Intel report was the big news today. I was impressed by their numbers, but lets face it, it wasn't anything earth shattering. The market is obviously decided to go into earnings season with low expectations and there appear to be plenty of buyers out there. I'm a little skeptical here around S&P 930. If you take a look at the chart, that was our previous high right at the end of June. If we fail to break that, I'd get bearish as we'd be continuing the pattern of lower highs and lower lowers (although it just started). This would also pretty much confirm that head-and-shoulders pattern. But....

This is earnings season, and if the market continues to react to reports the way they did Intel's, we could easily blow right through 930 and higher (heck, it could still happen today). So I urge caution here. Not a bad idea to take some profits here, but I can't blame you if you want to hold.

The earnings really start heating up tomorrow, and I'll be doing plenty of posts in the days ahead.

Disclosure: None

Natural Gas Not Influencing Washington

When it comes to power generation, there is a big battle is between coal and natural gas. Most of the new debate is due to massive energy policy coming soon. Realizing that natural gas is a cleaner burning fuel than coal, and considering we have plenty of it, you'd think natural gas would be getting a little more support. But this piece in the NY Times picks up on why that isn't happening.

-Saying they failed to protect their interests as a landmark bill came together and passed the House last month, natural gas executives are forming a strategy to influence rewrites in the Senate.

-"There are a lot of people in the industry who are scrambling their forces right now," said Fred Julander, founder and chairman of the Rocky Mountain Natural Gas Strategy Conference, an annual event that drew 1,800 industry people to Denver last week. "Whether we can learn and get up to speed -- and it's a steep learning curve -- is the question."

-Coal lobbyists have been talking to senators and aides for months, with their contacts becoming more frequent since the House bill passed. Coal lobbyists want to slow down the pace of the House measure's plan to cap greenhouse gas emissions and make businesses buy allowances for those emissions.

-Natural gas also will have to compete against the utility industry, which has been lobbying heavily on energy legislation. While they represent natural gas and coal, utilities have big reasons to favor coal.

-Electric utilities used coal for 59 percent of their power generation in 2007, while natural gas was used 13 percent of the time, according to the Energy Information Administration. Coal has been less expensive, making it more profitable for utilities to use as a fuel source.

So the bottom line here is that coal is cheaper for utilities, and the utilities are very organized and a powerful group of lobbyists.

-Lobbying by utility interests so far has dwarfed competitors. In the first quarter of this year, utilities spent $35.1 million on lobbying. The natural gas industry spent less than a tenth of that, $3.3 million. Of the top 10 industries with a stake in climate legislation, natural gas put the least money into lobbying in the first quarter, according to a recent E&E analysis."As a whole, we're not very sophisticated in terms of public relations, and we need to be," Julander said. "We need to grow up and get in this game. No one is going to give us anything, even though we're the best for the environment."

Although both coal and natural gas are abundant in the United States, you'd think this administration would take a major stand as climate change was supposed to be one of their major issues. Although natural gas still throws off emissions, its certainly cleaner than coal. It sure seems like it could provide us with an excellent bridge into the next generation of energy policy. We have a fuel we can use right now to generate electricity and power vehicles while we give technology time to develop alternative sources.

It all comes down to lobbying and power in Washington; it doesn't really matter what party is running things, or at least it seems. And right now coal is winning.

Disclosure: Long UNG

Tuesday, July 14, 2009

Bloomberg: Einhorn Switches From Gold ETF to Bullion

Just saw this out from Bloomberg. I'm not heavy into gold, but keep an eye on it now that David Einhorn and John Paulson have been buying it. I owned the silver ETF for a short time, and may buy it again as it has come down a bit in recent weeks. Although ETF's are great, when you're buying in these volumes, they can defeat their purpose.

-Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter.

-The New York-based fund said the cost of keeping gold in a storage facility is less than it paid in fees for the SPDR Gold Trust, according to a letter sent to investors yesterday.

-Greenlight, started by Einhorn, 40, in 1996, told clients in January it was buying gold for the first time amid the threat of inflation from higher government spending. The firm held 4.2 million shares of SPDR Gold Trust in the first quarter, making the gold-backed ETF its biggest holding.

This will only add to the ETF debate. ETF's are wildly popular and are very useful, especially for smaller investors. But when you look at instances like this, and also with what has been happening with the oil and natural gas ETF's, its clear that these funds aren't perfect.

Mises Institute Gaining Popularity

With more and more people feeling disillusioned with what has been happening in Washington, its no surprise they're looking for an alternative. The Ludwig von Mises Institute promotes free-market thinking at its purest, and can be categorized as the Austrian School of Economics, or simply Libertarian Economics.

Anyways, I found this interesting piece showing that the Mises Institutes's website traffic is up 80% year over year. Clearly more people are looking into this line of thinking.

Its a great site by the way and they provide their viewpoint as well as alternatives about many current issues. Ron Paul is one of their more popular supporters.

CSX -What Does This Tell Us?

The first of the major railroads, CSX, reported last night. I like to look to railroads for a accurate representation of the broad economy, and CSX beat expectations.

-Railroad operator CSX said Monday that second-quarter earnings fell 20 percent as it collected fewer fuel surcharges and shipments continued to drop.

-The results still topped Wall Street's expectations, as the company slashed expenses by 27 percent.

-The Jacksonville, Fla.-based company, which runs its signature blue and yellow locomotives from Canada to Florida and west to the Mississippi River, said Monday it earned $308 million, or 78 cents per share, compared with $385 million, or 93 cents a share, last year.

-Revenue fell 25 percent to $2.19 billion.

-CSX's shipping volume fell 21 percent in the period, compared with 22 percent industrywide. Railroad shipping volumes are viewed as a key economic indicator because so many consumer and manufactured goods are moved on the tracks.

-"While the economy continues to significantly impact our business, there are some signs that we may be seeing the bottom in many markets," CEO Michael Ward said. "Even in this difficult business environment, we are still strengthening our operations, optimizing our resources and making the right investments to prepare our network for the future."

My take:

Although their are a lot of headwinds, they also had significantly lower fuel prices, which had to help. Obviously lower auto-related shipments hurt (specifically Eastern carriers like CSX and NSC). Metals were down, as well as coal, which is just broad weakness in the economy. The CEO's comment was what I expect to hear from about 90% of industrial companies this quarter. They'll say there are some signs of a bottom, and although their numbers don't necessarily reflect it, they think things are improving.

For whatever its worth, CSX shares are up 5.5% this morning. It was a fairly significant beat on the bottom line, but revenue's were pretty weak. Clearly expectations are still low and this could bode well for stocks as we get further into earnings' season. I'll continue to track these companies as a sort of barometer of the real economy.

Goldman's Big Quarter

Goldman Sachs of course reported a huge quarter, which was no big surprise. Zero Hedge covers it best, so I'll just defer to the experts on this one.

Interesting to see massively high trading revenues. You can't really blame Goldman, because its part of what they do and do it well. But it just feels like the taxpayer was played (not like they had a choice), and I expect this to continue.

Oh yeah, and compensation was up! All this when they reduced their workforce by 1%. $772,925 per employee.

Moving on...

Monday, July 13, 2009

Good Luck Goldman Owners/Monday Observations

The market rallied strongly on the back of Meredith Whitney's upgrade of Goldman Sachs. Boy that's really going on out a limb there. Yes, they are going to report a great quarter (massive secondary issuances, not to mention Goldman's other trading activities). But they better blow the doors off if you expect the stock to go up again tomorrow. A lot of this "great quarter" is priced into the stock, but who knows in this market. Not much surprises me anymore.

American Railcar (ARII) was up another 8% today. I bought it Friday at 7.05, and the entry was almost pure luck as it almost instantly rallied and is now up about 14% in less than two trading sessions. When this happens, I often take the profits, but I've still got the shares. Its been trading in a fairly predictable range with 7.00 at the low end, and until it breaks that, I'll look to trade the range. I would like to hold some shares a bit longer though, as I feel the company is undervalued and I think Carl Icahn can pull some extra value out for shareholders in spite of the difficult environment for a company like this.

As for Natural Gas, I found this little story:

US Oil And Gas Drilling Activity Fell 46% In 2Q

The more they continue to shut off drilling activity, the better it looks for oil and gas prices to go up.

Disclosure: Long ARII, UNG

Heebner Having Another Tough Year

Interesting piece out at Bloomberg about CGM's Ken Heebner trailing the market again for a 2nd year in a row after a huge 80% return in 2007:

  • Kenneth Heebner’s CGM Focus Fund is at the bottom of the heap for the second consecutive year after investments in insurers such as Hartford Financial Group Inc. and retailer Wal-Mart Stores Inc. went awry.
  • CGM Focus, with $3.6 billion in assets, trailed 96 percent of similarly managed funds in 2008 and 99 percent this year through July 9, according to data compiled by Morningstar Inc. Heebner, co-founder of Boston-based Capital Growth Management LP, had the only fund in the group with $100 million or more that ranked in the bottom 5 percent in both years, the Chicago- based research firm said.
  • CGM Focus was the top U.S. equity fund in 2007 as commodity-stock gains fueled an 80 percent return. Since then, the manager known as “Bigfoot” for his rapid movements in and out of stocks has lost 55 percent, including 13 percent this year. The Standard & Poor’s 500 dropped 0.87 percent, including reinvested dividends, this year through July 9.
If anyone remembers, assets poured into Heebner's funds after 2007, only to get decimated in 2008 and so far in 2009. Consistency is incredibly tough in this game. My point here isn't to specifically say much about Heebner, as he is a good fund manager, but rather about how quickly things can change, and that no one is immune (forever).

Commodities moving lower again this morning. Diamond Offshore (DO) is back on my radar, and this is a stock I'd love to be back into, but only at the right price, of course!

Lots of economic data upcoming, but earnings should dominate the next couple of weeks.

Saturday, July 11, 2009

The Fed Under Fire

This needs to happen. Thank you Ron Paul.

Friday, July 10, 2009

Interesting Take on Nuclear Energy

Found this over at, which is a great resource for those who follow Austrian Economics. Discusses the truths about nuclear power that you never hear in the main stream media. I'm all in favor of a new energy plan and new technologies, but I do believe that nuclear has a lot to offer.

Here's the story.

End of Week Wrap-Up

Interesting week as the bottle for S&P 875 continues. As Doug Kass said, it could be a summer snoozefest. Although the market may not move much, there will be plenty to keep us interested. Earnings are on tap and will get heavy late next week and especially the week after. This should give us a clearer picture of the "real world economy." Last quarter earnings came in better than expected due to major cost cutting (thus jobs numbers are weak), and lowered expectations. This time around, it could be a little different. Up until a week or so ago the "green shoots" trade was on and expectations were being raised. The market took a step (dang jobs report) backward this week and reality could be a little more dim than previously anticipated. I'm guessing that some earnings will be okay, and some will still be bad. This plays into Kass' snoozefest thesis as this battle could keep stocks from moving much.

My purchase of American Railcar gives me a little positive energy going into the weekend. Although it wasn't a full position, it bounced nicely off its lows at 7.03 (I paid 7.05) to a close of 7.41. Not bad for a couple of hours. The bulls have protected 7.00 a few times and did again.

I posted that one as well as all my trades real time on Twitter. Go ahead an follow me to get the latest.

Disclosure: Long ARII.

A Look at Fuel Systems Solutions

Fuel Systems Solutions Inc. (FSYS) is in the whole alternative fuel/vehicle arena. This is an interesting space to me right now as prices remain depressed, while the two main drivers for their business (1. Potential for conventional fuel prices to spike again, and 2. Alternative energy/fuels gain traction in Washington. (NAT GAS act has reached the senate)). To me, these two are both there, and could very well both happen in a big way. First, lets take a quick step back for a description of the company(this is all directly from Yahoo Finance):

  • Fuel Systems Solutions, Inc. engages in the design, manufacture, and supply of alternative fuel components and systems for use in the transportation, industrial, and power generation industries. Its components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas used in internal combustion engines.
  • The company offers a range of gaseous fuel components, including fuel delivery—pressure regulators, fuel injectors, flow control valves, and other components to control the pressure, flow, and/or metering of gaseous fuels; electronic controls, such as solid-state components and proprietary software that monitor and optimize fuel pressure and flow for engine requirements; and gaseous fueled internal combustion engines. It also provides systems integration support to integrate the gaseous fuel storage, fuel delivery, and/or electronic control components and sub-systems; various ancillary components for systems operation on alternative fuels; and engineering and systems integration services.
  • The company supplies its products and systems primarily to automobile manufacturers, taxi companies, transit and shuttle bus companies, and delivery fleets through a network of distributors and dealers, as well as through a sales force that develops sales with distributors, original equipment manufacturers, and end-users.
Earnings wise, they're estimated to make 1.37 in 2009 and 1.73 in 2010, while trading at 12x current year earnings, and 1.8x book value. To me, they're being valued as a value play while earning like a growth company. Last quarter, expectations had dropped and they really surprised to the upside:

  • Shares of Fuel Systems Solutions Inc. jumped Friday, a day after it said first quarter earnings rose 15 percent and reaffirmed its 2009 sales expectations.
  • Fuel Systems reported a profit of $7.1 million, or 44 cents per share, in the first three months of the year, compared with $6.2 million, or 40 cents per share, for the same period in 2008.
  • First-quarter revenue was $80.1 million, down from $94.6 million in the first quarter of 2008. The Santa Ana, Calif.-based company said the drop in revenue was due to lower demand in the market for industrial forklifts and a negative foreign exchange impact of about $9.8 million.
  • Analyst Robert Brown with Craig-Hallum Capital praised the company's recent decision to acquire FuelMaker, a manufacturer of natural gas and hydrogen fueling systems, for $7 million. Brown said Fuel Systems should meet or beat earnings of $2 a share in 2010.

This stock was on fire in 2008 as we saw that same perfect storm of high energy prices and political pressure for alternative energies (Pickens plan launched almost exactly one year ago). I could see the same sort of thing happening again for Fuel Systems Solutions. Stock wise, they had a pretty sizable share issuance (who didn't in the past two months?), which has hurt shares. We have some time here before they report quarterly earnings, and I'm likely going to pick up some shares at these levels, and definitely if they sell off further. Here are two charts (weekly and daily).

Disclosure: None.

Railroad Traffic Still Down

An important indicator to watch, if you want a true picture of the economy, is railroad traffic. Warren Buffett also pays close attention to this.

Buffett follows this gauge more closely than any other index, Bianna Golodryga, a reporter for ABC’s “Good Morning America” program, said yesterday after she interviewed the billionaire investor. Its drop worries him, she reported.

Let's take a look at last weeks data:

  • The Association American Railroads today reported that freight traffic on U.S. railroads continues to parallel the nation’s overall economic condition, as traffic remained down year over year for the week ended July 4, 2009. U.S railroads reported originating 241,240 cars, down 15.6 percent compared with the same week in 2008. Total volume on U.S. railroads for the week ending July 4 was estimated at 25.7 billion ton-miles, off 14.3 percent from the same week last year.
  • Regionally, carloadings were down 11.1 percent in the West and 23.0 percent in the East. Intermodal volume of 169,290 trailers or containers was down 12.8 percent from the same week last year. Container volume fell 6.4 percent and trailer volume dropped 34.9 percent.
  • Eighteen of 19 carload freight commodity groups were down from last year, with declines ranging from 3.3 percent for coal to 72.4 percent for metallic ores. The lone group showing an increase was grain-mill products, which was up 4.3 percent.
  • For the first 26 weeks of 2009, U.S. railroads reported cumulative volume of 6,806,892 carloads, down 19.2 percent from 2008; 4,816,358 trailers or containers, down 16.8 percent, and total volume of an estimated 723.7 billion ton-miles, down 18.3 percent.
Specifically, here are a few things from this report that jump out at me:

-The declines is the West (11.1%) are less than half than that of the East (23%), which plays into the thesis I was looking for in investing in Western Railroads (Specifically BNI).

-Coal only declined 3.3 percent, and grain-mill products actually gained 4.3 percent, while metallic ores dropped 72.4% (gulp!)

Anyways, I'm looking out a little ways here, but its time to look hard at rail stocks. If you wait for an economic recovery, these stocks will already have appreciated closer to full value.

I'm specifically looking to buy Burlington Northern (BNI), and would like to start my position in the lower 60's if I can.

I also picked up some shares of American Railcar (ARII) today as well. This is a little different story, and more of a deep value play (click on the American Railcar tag to see my analysis on this). The bulls have seem to protected 7.00, so I bought some at 7.05. I will add if it drops below 7.00.

There you have it. I really think the market wanted to turn higher today, but the data has been weighing it down. I wouldn't be surprised to see a move higher into the weekend. 875 continues to be a number to watch on the S&P, and as long as that holds, you should be okay on the long side.

Disclosure: Long ARII.

Thursday, July 9, 2009

Update/What I've Been Looking to Buy

Interesting market today as a few items on my watch list were moving lower. I was tempted to pull the trigger on a few, and put some orders out there, but nothing filled.

-Natural Gas inventories came in lighter than expected, and this helped move UNG higher. Not adding to this unless it gets below 12.00

-I saw Todd Sullivan and Doug F/ bought some Saks (SKS), and considered some myself. This stock seems to be quite volatile as it has the uncommon pairing of low share price and average daily volume. Their same store sales came in better than expected, and Todd has done a nice job explaining their advantages over their peers. Check out his blog for more info on Saks.

-I had an order out at the end of the day to pick up more General Growth Properties (GGWPQ) but it didn't fill. Just picking away at small positions. This looks like it will take until next year to resolve, but will likely emerge from bankruptcy with some value for shareholders.

-American Railcar (ARII) is moving back toward 7.00, which is where I'd like to buy it. This is less than half of book value, and they're siting on 14.00/share in cash.

-RHI Entertainment (RHIE) is also moving lower, now below 2.50. Very cheap stock. I'd love to get it below 2.00 if I can, but may pull the trigger on a starting position tomorrow depending on what action we see.

The rest of my watch list consists of BNI, NWSA, NGAS, WMI, DO, DXO,

Disclosure: Long UNG, GGWPQ,