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.

Interesting Reading-Wednesday

Investors Pile Into Stocks as Risk Appetite Jumps. Contrary indicator?

The Greenback Effect (Warren Buffett's Op-Ed). Weird timing on this one. I don't think anyone has missed the story about the exploding deficit. But, when Buffett speaks, people listen, so its good that he brought it up.

Favre's Return to NFL May Boost Vikings on and off the Field. As a Viking fan, I couldn't help myself. Sorry.

Monday, August 17, 2009

Interesting Reading-Monday

Goldman Sach's Cohen Says Recession is Ending 'Now'. I'm sorry, but I don't listen to perma-bulls. Or perma-bears for that matter.

Hurricane Bill Strengthens in Atlantic as Storm Ana Weakens. When holding natural gas, we have to keep an eye on the hurricane activity.

Lowe's Gives Dismal Quarterly Outlook. My money is on Loews, not Lowe's.

No Respect? Cheap Natural Gas Draws Political Crowd. Washington is so behind the curve on energy issues, but eventually, they'll catch up and realize that natural gas is right there for the taking. Its clean(er), its domestic, and we have plenty of it.

Interesting Morning

First off, we have futures lower by almost two percent. I've been expecting a correction now for awhile, and maybe this is the start. I'm not overly bearish, but rather feel stocks have gone too far, too fast. Thus, I'll be looking to buy some stocks if we get the opportunity at better prices. For that, we'll have to wait and see a little.

At the end of the week, the quarterly filings came in and there were a couple of things that jumped out at me. A few fund managers I follow are clearly growing more cautious. Many were trimming stakes in their larger positions. David Einhorn of Greenlight capital bought some puts for the S&P and GE. He also added a lot of shares to his Pfizer and Wyeth stakes, although that could be tied to some arbitrage on the pending acquisition. Warren Buffet moved into a more defensive position, adding to his Johnson and Johnson stake. We can't read too far into these filings as these stocks could already be sold, but its nice to spot any trends out there, and see what their core holdings are.

Should be an interesting week ahead. A quick wrap up on the PGA Championship. Congrats to Y.E. Yang, as he deserved it. The chip in on 14 was a little flukey, but that shot on 18 was money. Tiger is a better golfer, but you can't take this one away from Yang. To me, Tiger is so used to the field wilting to him that it was nice to see this. I was excited when Yang eagled 14 because I thought, "good, lets make Tiger win by pulling out some birdies, not just two-putting in." Oh well.

Thursday, August 13, 2009

What I'm Watching Today

Some retailers are reporting today, and I already reported Walmart's solid quarter. I've got my eye on a couple of data releases today, the railroad data and natural gas inventories.

-The Association of American Railroads will be posting their weekly rail freight data. This is one indicator that hasn't moved much so far this summer. If I see these numbers starting to move meaningfully higher, I will become much more bullish.

-We've also got the weekly natural gas inventories. I don't get to excited about this as the numbers can vary from week to week without showing much of a pattern. But, it always moves prices, and particularly the ETF UNG, which I hold. Lately, these inventory numbers have been good for a 5% move either way depending on where the numbers are relative to expectations. Those come out at 10:30 Eastern time, I believe.

I'll also be watching a few other random earnings numbers. And, oh yeah, I'll be keeping my eye on the PGA Championship, at Hazeltine. I had the pleasure of playing that course a couple of years ago, so it makes it even more fun to watch. The weather is great, and it should be an exciting tournament.

Here's me a few years ago at Hazeltine's 18th tee.




Disclosure: Long UNG

Walmart Posts Solid Results

Solid earnings from Walmart today. I'm not surprised, as I've been following the story for awhile now. Although the market is telling us recovery is here, I still feel many, many consumers are in much different situations from where they were a year or two ago. Walmart has been picking up new shoppers as price is becoming #1 for more consumers than ever before. The numbers aren't anything eye-popping, just steady results. (via Marketwatch).

Walmart Stores Inc. said Thursday fiscal second-quarter profit came in at $3.44 billion, or 88 cents a share, vs. $3.45 billion, or 87 cents a share, a year earlier. Sales in the quarter ended July 31 fell to $100.9 billion from $102.3 billion, the No. 1 U.S. discounter and the world's largest retailer said.

Analysts surveyed by Thomson Reuters estimated that the Bentonville, Ark., company's profit was 86 cents a share on sales of $103.1 billion. Wal-Mart raised the bottom end of its full-year profit forecast to $3.50 to $3.60 a share from $3.45 to $3.60.

Per-share profit for the third quarter is forecast to be 78 cents to 82 cents a share, including a three-cent negative impact from currency exchange rates. Analysts surveyed by Thomson estimated profit of 80 cents a share in the third quarter and $3.56 for the year.


How many companies that reported all these "great numbers" beat quarterly profits on a year-over-year basis? Not many. Walmart isn't going to be a pick of the traders out there, but will continue to generate solid returns for shareholders. There is also still room for overseas growth as well. Walmart has clear advantages in areas like grocery, and didn't get into trouble with holding consumer debt. The stock is a good "value" here.

Disclosure: None

Tuesday, August 11, 2009

My Current Game Plan

As I've been outlining for a couple of weeks, there are still some good values out there. I'm still concerned we will see a meaningful correction sometime before year end. Its impossible to try to predict when, but I'm hoping to use that opportunity to take some larger positions. I've been extremely patient as of late (holding current longs, doing research but little buying). Here are a couple of stocks I'm looking to buy:

Compass Diversified Holdings (CODI). They just reported a solid quarter. They key here is that they've got the cash ready to make their next acquisition which will increase cash flow. The question now is what and when. We got some insight into the when, as the CEO said it would be accurate to expect it to happen in 2009. I see this event as being the largest near term catalyst for this stock. Its still a cheap stock and I may buy some shares without it pulling back much.

RHI Entertainment (RHIE). This is a stock that I feel scares away a lot of investors. But in listening to the conference call (the best spot for nuggets of info), they have a plan to pay down a large portion of their debt and still cash flow. Their quarterly numbers were weak, but this is a highly unique business due to their seasonality. The second half of the year should see plenty of activity for them. The stock is very cheap, and if I could get some shares under 2.00, I'd jump at the chance.

Wal Mart (WMT). I'm still interested in shares as I feel they are best positioned in this type of environment. They do well if the economy rebounds, and are somewhat insulated (especially on a relative basis) if we see a double-dip in the recession. They report this week and I won't be doing anything for sure until after that.

Loews (L). Great management. Good mix of brands. Good value on the stock here. The stock is still over 31 on the post-earnings jump. Prime example of stock I'm waiting for a pullback on, but I'd feel comfortable owning a large stake in this company.

There are a handful of others that I'm seriously pursuing, and you'll likely be hearing about those as well. Obviously I pay a lot of attention to whats happening with oil and gas too.

Again, a lot of opinions I respect have been speaking a little cautious about where we're currently trading. But like I said, there are values out there. That's what I'm working on.

Disclosure: Long UNG

Interesting Reading-Tuesday

Congress Drops Plan to Spend $550 Million on New Jets. This is such BS. Congress acts like they are listening to what the Dept. of Defense wants. They tried to sneak extra planes into the deal. Its time congress starts serving the public's best interest and not their own.

Renewable Power Industry Says US Moving Too Slowly. "BrightSource Energy President and Chief Executive John Woolard said that he was "two and a half years into a one-year process" to get permission to build a California solar thermal plant, which would use heat from the sun to power a turbine."

Clean Energy Summit. Sen. Reid opened his remarks by saying, “I’ve been converted. I now belong to the Pickens church," The important thing here is that Washington is starting to wake up and realize the potential of natural gas as a bridge fuel for the next couple of decades.

Monday, August 10, 2009

Follow Up on Compass Diversified Holdings

As I mentioned earlier today, I listened to the full conference call and was pleased with what they had to say regarding the environment moving forward, but mostly was happy with the strength of their company. They are holding their own or improving during this recession, and will likely come out of it much stronger. There were a couple of key phrases that I was going to re-post here from CEO Joe Massoud, but I noticed Todd Sullivan just did a post covering these, so I'll just refer you there.

Compass Diversified Q2 Results & Earning Call Notes.


Disclosure: None

Bloomberg: Mobius Says Stocks Face 30% Correction

I found this interesting story about emerging market specialist Mark Mobius. I've copied a couple of quotes here:

Mark Mobius said global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares.

“When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”

The biggest risk for global stocks is the increase in initial share sales and bond issues, Mobius said today. Investors will be “selling to take up new stocks, that will impact the prices,” he said. Mobius, who oversees about $25 billion, on July 29 said he plans to double Templeton Asset Management’s emerging-market assets within two years.

The so-called correction “can happen anytime, probably this year,” Mobius said. “It may not be all at once, you may not see a decrease of 20 percent suddenly, it could be 10 percent here, and a rise of 5 percent then another 10 percent, you’ll see this kind of volatility in the markets.” He added that he was referring to shares “globally.”

“I don’t think it’s a bubble,” because “you don’t have the irrational exuberance so to speak that you would normally find in a bubble activity,” Mobius said. The government’s policies to rein in bank lending are a “good thing,” he said.


My take on this: This is the line of thinking that I tend to align with. If you look back last week, I posted some commentary by Ken Fisher where he said there is "zero incentive" for China to curb lending. I agree with Mobius.

I think a correction is only natural after a strong bounce back rally. If we don't see a correction, it would likely lead to a good sized bubble in emerging markets, if that hasn't already begun.

I say this not to imply that emerging markets aren't good investments. They will be leading growth for many years to come. Its more just a shorter term trend that I'm looking at. I still like China and particularly Brazil.

Compass Diversified Reports Earnings

Just wanted to put together something quick on Compass Diversified (CODI) as they reported earnings this morning. I caught the end of their conference call, and I'll probably add some more commentary after I hear the replay. But here is a little bit from the release:

Second Quarter 2009 Highlights

Generated Cash Flow Available for Distribution and Reinvestment ("Cash Flow" or "CAD") of $7.8 million for the second quarter of 2009;

Reported a net loss of $0.2 million for the second quarter of 2009;

Paid second quarter 2009 cash distribution of $0.34 per share, bringing cumulative distributions paid to $3.9552 per share since CODI's IPO in May of 2006; and

Completed a 5.1 million share offering.


CODI reported Cash Flow (see note regarding use of Non-GAAP Financial Measures below) of $7.8 million for the quarter ended June 30, 2009, as compared to $13.9 million for the prior year period, a period during which CODI owned two additional businesses, both of which were sold in June 2008 for a cumulative gain of more than $73 million.

CODI's Cash Flow decline for the second quarter as compared to the prior year quarter was largely attributable to the sale of the two business segments referenced above, as well as the impact of the economy on the Company's Staffmark subsidiary. CODI's weighted average number of shares for the quarter ending June 30, 2009 was approximately 32.8 million.

CODI's Cash Flow is calculated after taking into account all interest expense, cash taxes paid and maintenance capital expenditures, and includes the operating results of each subsidiary for the periods during which CODI owned them. However, Cash Flow excludes the gains from sales of businesses, which have totaled over $109 million since CODI's initial public offering.

The net loss for the quarter ended June 30, 2009 was $0.2 million, as compared to net income of $73.8 million for the quarter ended June 30, 2008 which included $72.3 million of gains from the sale of Aeroglide Corporation and Silvue Technologies, Inc.

As of June 30, 2009, CODI had $77 million outstanding on its term debt facility, $58.2 million in cash and cash equivalents on hand and a $340 million revolving credit facility that had $0.5 million of borrowing outstanding on the facility. The Company has no significant debt maturities until 2013.

On July 10, 2009, CODI's Board of Directors declared a distribution of $0.34 per share. The distribution was paid on July 30, 2009 to all holders of record as of July 24, 2009.

Commenting on the quarter, Joe Massoud, CEO of Compass Diversified Holdings, said, "During the second quarter, we generated Cash Flow in excess of our expectations. We continued to reduce costs during the period, while retaining the infrastructure necessary to capitalize on future growth opportunities. In addition, at a number of our subsidiaries, we also built market share and succeeded in increasing customer penetration levels. These factors, as well as a general stabilization in business fundamentals, put us on track to meet our previously stated financial guidance for 2009, as well as achieve growth in Cash Flow for 2010, even before the impact of any new platform businesses we may acquire."

Mr. Massoud concluded, "Complementing our quarterly results, we took important steps to further strengthen our balance sheet by completing a 5.1 million share offering, resulting in net proceeds of $42.1 million and underscoring the ongoing support we have received from the capital markets. This offering, combined with our past generation of Cash Flow in excess of distributions and the substantial gains we have produced through monetization of certain of our subsidiaries, has positioned our Company very well to execute our growth strategy in this market. We have a great deal of financial flexibility, including $58.2 million in cash and considerable availability under our revolving credit facility. We intend to use this capacity to our advantage
through the consummation of attractive acquisitions on behalf of our shareholders."

The next acquisition is what shareholders have been anticipating, as its likely to be the key to unlocking further upside here. Although I haven't had time to go through everything here, I really liked the statement that said they are on track for cash flow growth in 2010 even without the next acquisition.

Disclosure: No Positions. I'll likely be buying some shares soon.

Friday, August 7, 2009

Fuel Systems Solutions Earnings Strong

Fuel Systems Solutions (FSYS) reported strong quarterly earnings and gave a solid outlook for the remainder of the year. Here's the release (via Reuters):

* Q2 EPS $0.46 vs. est $0.32
* Q2 rev $92.3 mln vs. est $87.8 mln
* Raises '09 revenue outlook

Aug 6 (Reuters) - Fuel Systems Solutions Inc, an alternative fuel components maker, posted better-than-expected quarterly results, helped by a rise in demand for its delayed original equipment manufacturer products, and it raised its revenue outlook for the full year. Shares of the company rose 8 percent to $29 in trading after the bell. They closed at $26.82 Thursday on Nasdaq.

The company posted second-quarter earnings of $7.4 million, or 46 cents a share, compared with $4.6 million, 29 cents a share, a year earlier. Revenue fell 6 percent to $92.3 million.

Analysts on average were expecting earnings of 32 cents a share, on revenue
of $87.8 million, according to Reuters Estimates.

The company raised its full-year revenue outlook to a range of $370 million to $380 million from its previous forecast of $330 million to $360 million.


This company is well positioned in the alternative fuel space and gets a lot of business outside the US, which seems to be the driver of growth these days.

I regret not buying the stock when I first posted about it at $18. I'd still like to own it if I get the opportunity at a better price, but I probably won't be buying when the shares rise 10% like today.

Disclosure: None

Thursday, August 6, 2009

American Railcar Earnings/CIT Exposure

Ah, the things we can learn by listening to earnings conference calls. Interesting tidbit came out during American Railcar's (ARII) call. They have some serious exposure to CIT not only from the current quarter's earnings, but large part of their order backlog.

American Railcar Industries Inc. reported an 82 percent drop in profit in the second quarter, prompting the company to foreshadow more layoffs.

The covered hopper and tank railcar manufacturer (Nasdaq: ARII) also raised concerns about how the troubles of its largest customer, struggling commercial lender CIT Group Inc., may hurt business.

CIT, which is trying to avoid bankruptcy, accounted for 13 percent of American Railcar’s revenue in the second quarter and accounts for 53 percent of orders included in the backlog of 1,770 railcars as of June 30.

In the event of a bankruptcy, CIT, among other things, may have the right to
cancel or could renegotiate its orders included in the backlog.

Even if CIT does not seek bankruptcy relief, any continued financial difficulties of CIT could materially adversely affect American Railcar’s business relationship with CIT and its financial condition, American Railcar said.

"We are going to lose some orders if they file for bankruptcy," said Dale Davies, chief financial officer. "We build a lot of cars for them."

The earnings numbers aren't real significant as I knew they would be very weak. This is a very cyclical business, but if you want to buy the stock for cheap, you need to buy at it the low point of the cycle. This CIT exposure throws a wrench into things though. I'm not entirely plugged into the CIT situation, but I can't say this gives me confidence to buy the shares, especially when there are alternatives.

Disclosure: None

Natural Gas Supplies Come in Higher

In the weekly report that always seems to move prices 5% one way or the other, the natural gas supply report showed a higher than expected supply in natural gas. Here's the story from Bloomberg:

Natural gas futures fell the most in two months after a government report showed a bigger-than- estimated increase in U.S. stockpiles. Supplies in storage gained 66 billion cubic feet in the week ended July 31 to 3.089 trillion cubic feet, the Energy Department said. Analysts forecast a gain of 61 billion. The total was a record for late July, based on weekly department data going back to 1994.

“We have a lot of supply and it really weighs on the market,” said Phil Flynn, vice
president of research at PFG Best in Chicago. “The dollar is also a little firmer, so with the bearish storage report, natural gas is having a tough time hanging on.”

Natural gas for September delivery fell 26.6 cents, or 6.6 percent, to $3.776 per million British thermal units at 11:15 a.m. on the New York Mercantile Exchange, the biggest one-day decline since June 3. The fuel was trading at $3.945 before the report was released at 10:30 a.m. in Washington. Gas has declined 33 percent this year.

A stronger dollar makes commodities less attractive to some investors, prompting them to sell holdings of natural gas, oil and metals.

Stockpiles were 19 percent higher than the five-year average last week. The average supply increase for the week over the past five years is 48 billion cubic feet, according to department data.

The shutting of a Gulf of Mexico pipeline by Enterprise Products Partners LP propelled prices higher yesterday, Flynn said. Gas had advanced 11 percent this week through yesterday. “Even with these outages, it’s just another reminder that we have a lot of supply,” he said. Stockpile Glut

A glut of gas in storage may persist longer than anticipated as some of the largest U.S. natural gas producers increase output.

XTO Energy Inc. and Devon Energy Corp., two of the five largest producers of U.S. gas, yesterday reported record output and smaller declines in earnings than analysts estimated. Anadarko Petroleum Corp., London-based BP Plc and Chesapeake Energy Corp. previously reported second-quarter output gains that helped them beat estimates.

The National Oceanic and Atmospheric Administration today cut the number of Atlantic hurricanes it expects this year to a range of three to six of the storms. In May, NOAA predicted a “near-normal,” 2009 Atlantic season, with four to seven hurricanes, out of a range of nine to 14 named Atlantic storms it expected at the time. The agency now forecasts a range of seven to 11 named storms.

Slow Hurricane Season
The Atlantic has yet to produce a named storm this season, which runs from June 1 to Nov. 30. This is the longest the Atlantic has gone without a named storm since 1988. A reduced risk of hurricanes lessens the chance that oil and gas production will be disrupted at offshore platforms in the Gulf of Mexico.

Demand for natural gas may lag behind the overall recovery in the U.S. economy next year, Biliana Pehlivanova and Michael Zenker, analysts at Barclays Capital said in report on Aug. 4. Barclays Capital expects the U.S. economy to expand 2.9 percent next year. Prospects for gas-intensive industries of chemicals, petroleum, coal products, primary metals and food industries, which account for 65 percent of demand, “are more muted,” the report said.

Industrial demand should rise 1.9 percent to 16.9 billion cubic feet a day in 2010, the analysts said.

Overall U.S. gas consumption may contract by 2.3 percent this year as the recession that began in December 2007 cuts demand, the Energy Department said on July 7. Gas demand at factories is forecast to tumble 8.2 percent.



I'm not reading much into this report. I'm not 100% convinced we need weekly supply reports on these commodities, but it helps to track trends. Also keep in mind that you can't put too much into one report. Last week, supplies came in lower than expectations and gas went up. The trend still points to higher supply which will take time to work out. I posted a couple of days ago that Chesapeake CEO Aubrey McClendon sees 2010 as a much better year for natural gas, with prices between $6-$8.

Disclosure: Long UNG

RHI Entertainment Earnings/Conference Call

I listened to the RHI Entertainment (RHIE) conference call replay last night. They are a company affected so much by seasonality in their business that earnings numbers need to be looked at differently. From the surface, total revenue and library revenue were down significantly, but you have to look deeper. They make money not only on new productions, which include mini-series and made for tv movies, but also selling titles from their library. I made some notes while listening to the call from yesterday. This is paraphrasing from answers mostly from their CEO:

-Lower earnings and revenue entirely due to seasonality and not lower demand. Its taking longer to get contracts signed, but demand is still there. Lots of new products coming in 2nd half of this year.

-Such a large library that they can meet demand at different price points. Cheaper stuff. Networks can't stop running programming; they have to run something. So they are well positioned.

-Orders from NBC and ABC which weren't in the market a year ago.

-Going to pay down debt with free cash flow. About 200MM over next four years. Number one concern.

-Lots of new clients. Family products and action/adventure.

-More to cable and less to big networks. Expanding of amount of channels on cable and sat, many which run no original programming.

I like the fact that they can service not only cable networks, but some large networks who may not be interested in spending productions dollars on major series in this market.

Although they are sitting on a lot of debt for a company this size, they assured investors that they are going to create free cash flow and have specific goals of paying down approximately 200m in debt over the next four years. I'm happy to hear they have those specific goals about reducing debt. The company itself is well positioned, and I feel would be priced much higher if it weren't for that debt. The debt is allowing us to buy shares at a discount.

I'll be looking to pick up some shares soon. I'll post here when I do.

Disclosure: None

Wednesday, August 5, 2009

Earnings Preview For Wednesday Afternoon

I've got my eye on a few earnings reports after the bell. Here's what I'm looking at:

-American Railcar (ARII). I held this stock and sold my shares after a nice gain a couple of weeks ago. I'm looking to see the markets reaction to their results, which aren't likely to be too terribly strong. Its is an undervalued stock (trading at less than 1x cash on hand), and it they try to sell the hope like many have done, this stock could rally off of poor earnings.

-Cisco (CSCO). Not a stock I own or typically follow, but they give a great look into corporate health and tech spending.

-Ormat Technologies (ORA). Geothermal stock that has been reporting solid growth, and the stock price reflects that. Its a stock I've wanted to own for 6+ months but haven't been willing to pay up for it. Last quarter earnings were solid from them and I expect this quarter to be the same. I'm curious if there's anything new on the regulatory front and how spending on alternative energy projects is coming. I'm hoping they can shed some light on that.

-News Corp. (NWSA). Another stock I owned briefly in May and sold after a nice gain. I still believe they are undervalued when you look at the sum of its parts. The market has been catching on to this as the stock has been pretty strong. Murdoch's thoughts on the economy and newspaper biz have the ability to really move the market as well as this stock. I wouldn't be surprised if they beat expectations and guide higher.

Disclosure: None

Tuesday, August 4, 2009

Chesapeake CEO McClendon on Natural Gas Prices

I was just reading the Chesapeake conference call and found this interesting quote from CEO Aubrey McClendon about gas prices:

Yes, 675. So I would expect let's say, let's call it around 900 than with another 200 working on oil projects and I think you will see gas prices in the $6, $7, $8 range. There is a lot I like about 2010. I think it is all setting up right now and there is going to be a lot of kind of wailing and gnashing of teeth here on the next 60 days as we get full on storage but after that you got an improving economy. You’ve got oil at $12 per Mcf gas equivalency. You’ve got decline curves starting to kick in pretty aggressively. You’ve got every E&P company that I have watched pretty scared about gas prices so, and you got a net expected short position that will have to turn
around at some point.


So I think it is all shaping up to be a pretty favorable summer of 2010 and you're not likely to get weather as unhelpful as it has been this summer with New York having the second coldest summer since 1888 I think, and Chicago having the fourth coldest summer since 1935 or something like that. So our hope is that that foreshadows a little colder winter and we would suspect next summer would be a little warmer. We like 2010 and, we're looking forward to getting there.

Its nice to get some insight from people pretty plugged into the situation.

Disclosure: Long UNG

Ron Paul: "Cash for Clunkers" Hurts the Poor

Interesting Reading-Tuesday

Here's what I'm looking at today:

Peter Schiff's new video discussing the US vs. Global economy. This is one of the few guys getting media play that actually gets it. Video via Zero Hedge.

Even if the US economy is weak, prices are still likely to rise and don't be surprised if stocks follow.

Ford Shares Jump on Sales, Clunkers: Can it last? I think the attitude of the American Consumer is giving Ford a shot due to it remaining outside the grasp of the government. Can you blame them? The sales jump is due to pent up demand as no one was buying during the market "crisis" and they were waiting for the federal program to start.

Goldman Employees Told No Big Purchases. What are they going to do with all those millions?

Monday, August 3, 2009

Following Up on Loews Earnings and Call

I finally got a chance to read through Loews' conference call from this morning. By the way, Seeking Alpha is an awesome resource not only for stock research, but they post transcripts of conference calls if you don't have a change to listen to it. I do post things there from time to time as well, so feel free to check that out.

I thought Loews had a pretty darn good quarter. I've read great things about the Tisch family and their ability to manage businesses as well as buy assets at the right price. Here are a couple of quotes from CEO Jim Tisch, about their various businesses:

Diamond Offshore:

Diamond Offshore had an excellent quarter, reporting its second highest earnings on record. For the quarter, average day rates and utilization for Diamond’s fleet were strong. Its revenue backlog currently stands at approximately $8.7 billion. Diamond recently completed the acquisition of its newest rig, the Ocean Courage. This new build, sixth generation rig was purchased through a foreclosure auction for $460 million. Last year, prices for similar new build rigs peaked at approximately $750 million. We feel comfortable that this acquisition represents an excellent opportunity that is consistent with Diamond’s proven strategy of acquiring and upgrading rigs at times when the market is well off of its cyclical peak. Diamond’s board of directors
recently declared a special quarterly dividend in addition to the regular quarterly dividend which together totaled $2.00 per share. This marks a continuation of Diamond’s policy of paying out special cash dividends, reflecting the earnings and the financial position at Diamond.

CNA Financial:

CNA achieved must improved results, reporting a 22% increase in operating income over the prior year. In its core property and casualty operations, CNA had another quarter of steady performance, reporting a 98.1% combined ratio. It also had favorable rate trends and renewal retention, as well as strength in writing new business. Further reinforcing CNA’s underwriting discipline and conservatism, the company reported favorable reserve development for the 10th consecutive quarter. We have seen continuing improvement in the financial markets and as of June 30, CNA’s book value per share had included by more than 31% since the beginning of the year, even after taking into account the quarter’s realized losses. The recovery in the market value of CNA’s portfolio was primarily led by corporate and municipal bonds.

They also have significant investments into natural gas production and transportation, which you can read more about in the transcript. Anyone who reads this blog knows my feelings about natural gas.

You also get Loews Hotels, which is an excellent business. Oh, and they have $2.4 billion in cash.

They increased their book value this quarter from $30.73 to $34.60. The stock is still trading well below book value after today's solid gains.

Jim Tisch briefly touched on the market undervaluing Loews, and laid out many positives.

You know from my perspective it’s really frustrating. The stock, as you said the stock trades recently as much as $1 below the value of the public pieces. That doesn’t take into account the nonpublic pieces. And the nonpublic pieces include our cash net of debt. So $2.4 billion less the $867 million of long term debt. It includes our GP interest in Boardwalk Pipeline. It includes Loews Hotels. It includes our investment in HighMount Exploration. It includes $200 million that we have in debt of Boardwalk Pipeline. And it includes $1.25 billion of CNA preferred stock. So sometimes I feel, when I think about Loews, like the guy who’s hawking something on TV saying, “But there’s more. And there’s more. And there’s more.” And listen, the market is well aware of that but it selects not to pay attention to it.
The market is also well aware, I’m sure, of although I’ll reiterate it now just to make sure, the market is well aware of number one, our quest to build long term value, our track record in doing that. The last number I saw was a 16% compound annual rate of return over the past 49 or 50 years. And if you go back more recently, I saw a figure from 1981 of a 19% compound annual rate of return. So I’m not complaining, because rather than complain what we have done from time to time when the market doesn’t recognize the value is repurchase shares. And just to repeat one more time, we have a history of repurchasing shares going back to the seventies and every decade, we have purchased at least 25% of our outstanding shares in that decade. So that in 1970 we started off with the equivalent today of 1.300 billion shares and at
last count that’s down to about 433 million. So thank you for that question allowing me to stand up on my soapbox and give a little rant.

I see a lot of value here. I can tell you right now I'll be buying shares. And likely soon. Companies like this with savvy management that don't get over leveraged and are transparent with what they're doing are what every investor dreams about.

Disclosure: No Positions.

Mid-Morning Thoughts

The market is moving higher again today, and the S&P briefly touched 1000. Here's what I'm following this morning:

Loews reported and missed on estimates. Yet were still seeing the stock rally 5+%. Their results have been hurt mostly by CNA financial (CNA) and their exposure to mortgage-related investments. I kind of view this as a back door way to play Diamond Offshore, which is a great company. Loews is an interesting play as you can buy most of their assets (which the exception of Loews Hotels) directly on the open market. But by buying Loews stock you get a little more diversification, but still ownership in some great businesses, and you get Loews management, which is outstanding. And because of their ownership in things that have seen their value decrease, you can buy the entire company at a discount, which potentially gives you access to shares of a company like Diamond Offshore at a discount.

Natural gas is up again today. UNG specifically is up close to 7% as a write. I'm holding all my shares here, and like the prospects of gas moving ahead.

Also in the natural gas realm, I spotted a company called Contango Oil and Gas (MCF). Here's where I first spotted it. I did some more digging and read an interesting presentation on their website. They are in an interesting niche as they attempt to be a super low cost producer. These companies are interesting as they often produce gas for $1 to $2, and are still coming out okay with prices at extreme low levels like $3.50 to $4 right now. You can only imagine how profits would improve if gas spikes again. They are one of the only companies like this with virtually no debt as well, which obviously is appealing.

Lots more earnings-related stuff coming up this week.

Saturday, August 1, 2009

ABB Wins $540 Million Order in Brazil

I'm a shareholder and pretty frequent follower of Swiss industrial/electrical company ABB (ABB). They are constantly getting new orders, and I don't report them all, but this is a big one.

ABB, the leading power and automation technology group, has won orders worth over $540 million from the Abengoa Group to deliver the key technology for the world’s longest power transmission link to be constructed in Brazil.

The power highway will link two new hydropower plants in the northwest of the country with São Paulo, Brazil's main economic center, over a distance of 2,500 kilometers. Power will be transmitted at very high voltage (600 kilovolts) to minimize transmission losses.

This will be the second transmission project in Brazil using HVDC (high-voltage direct current) at 600 kV. The Itaipu project, with two transmission lines built by ABB in 1984 and 1987, is the world’s highest-voltage DC power transmission system currently in operation. ABB pioneered HVDC transmission technology more than 50 years ago and remains the world leader in this domain.

“HVDC technology is ideally suited for the efficient transmission of renewable energy generated in remote areas, such as hydropower,” said Peter Leupp, head of ABB’s Power Systems division. “With the Itaipu project celebrating 25 years of successful operation this year, ABB is proud to continue partnering Brazil in its ongoing efforts to strengthen the country's power network.”

ABB will provide two 3,150 megawatt HVDC converter stations, and an 800-MW HVDC back to back station to transmit power to São Paulo and the alternating current network in the northwest of the country. The stations are scheduled for completion in 2012 and are a part of the government’s Accelerated Development program.

HVDC has lower losses and a smaller footprint than traditional AC transmission systems, and is able to stabilize intermittent power supplies that might otherwise disrupt the grid. For these reasons, it is the technology of choice for long-distance transmission projects which can deliver electricity from remote generation sources to the centers where it is needed.

Abengoa is a technology-based company that applies innovative solutions for the sustainable development of the infrastructure, environmental and energy sectors. It is present in more than 70 countries, where it operates with its five Business Groups: Solar, Bio-energy, Environmental Services, Information Technology and Industrial Engineering and Construction.

ABB (www.abb.com) is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 120,000 people.

Rio Madeira will be the longest HVDC link ever built

The 2,500-kilometer long high voltage direct current transmission link will connect two new hydropower plants in northwest Brazil with São Paulo, the country's main economic center on the east coast. Power transmitted at very high voltage (600 kilovolts) will minimize electricity losses.This is the second ABB-built power link in Brazil using 600-kV HVDC transmission.

ABB is at the center of the "growing faster than the rest of the world, which is contracting" emerging markets. Brazil is a great market that is commodity independent, and is experiencing solid growth.

Their stock has been moving as it trades as a proxy to emerging markets at this point (even though they get a lot of orders in Europe). They haven't been unscathed in this recession, but appear to being positioned for good performance once we return to more normal times.

Not buying the stock here, but would add if we got back to the lower teens again.

Disclosure: Long ABB.