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San Juan Basin Royalty Trust Message Board

  • ic4x ic4x Mar 22, 2006 9:57 AM Flag

    FDG negativity

    I have been reading a lot of negative comments re: FDG on various message boards, including that of some credible posters I know. They seem to think the FDG dividend will get cut more later in the year as the new pricing rolls in beginning April 1st and that there may be some demand problems, such as customers buying lower grade met coal from other producers rather than the high grade stuff from FDG.

    Makes yesterday's CIBC downgrade ---- leaving the target price unchanged at US $40 --- even all the more strange.

    I am in kind of a quandry, I may sell 1/2 my core FDG position and look for a re-entry later in the year when things become clearer.

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    • I recently held fdg and sold at 42. What troubled me were the numbers going forward. First, sales would be down; second, the price of met coal also down; third, the cost of goods sold would be up; fourth, a good portion of the profits through Q4 '05 could be traced to a very favorable currency hedge in place then but expiring in 2006. Finally, the whole tire shortage matter gave me some concern about management. Normally, I would try to find a good reason to hold or cut back a position if I could see a possible turn up in eps down the line (like sjt going out 12 months) but at least in my case I couldn't see the upside in fdg asmuch as I wanted to see it. The filings make it fairly easy to project out eps for fdg with the new contract assumptions if sales come through and based on my work I would take another look at fdg in the $30-$32 range as a yield hold. FWIW I hope that the stock stays up for the sake of the longs but I'm thinking that it could very well see the low 30's this year once the numbers are reported. JMO-- good luck

    • I believe that FDG is a very good stock to hold because of their strong position in Metcoal reserves. Steel will be in substantial demand when the largee gas pipeline projects get underway fron Alaska. In the meantime, the dividends will be well above the average distributions from most other funds. Whats not to like?

    • Another possibility for those who don't want to sell is to write a covered call. For example, the Sept 40s can get one at least 1.50. If the stock stays in a fairly narrow range, the 8% annualized from the call premiums plus the dividend makes it a very decent income investment. Of course, if one is predicting a substantial decline, an outright sale would be preferable but I'm not. The '06 prices should be good enough for 1.20 Canadian (a .20 decline from the Q1 div) which is close to 11% at 38 (assuming full recovery of the 15% WH).

      • 1 Reply to hotpanera2
      • I have been thinking real hard that selling covered calls is something I should do. If my stock gets called away moving up, there's nothing to prevent me from immediately buying more for my own account, is there? I'd lose (or gain, as the case may be) whatever happened in the stock between the time I found my stock was called away, and the time I bought more, correct?

    • I read excerpts from CIBC report but can't remember on what board. Anyway, I do remember the price (40) was canadian $. I also think that it was quoting the current price and not giving 40 as a target. I could be mistaken on this point.

    • hstybuf@pacbell.net hstybuf Mar 22, 2006 11:38 AM Flag

      I put all my fdg on mid 37 stops and got taken out yesterday. May buy back later this year like you.

    • I have also heard the rumor that the FDG dividend might be cut later in the year.

      I also have a lower basis and I'm thinking of taking 1/2 off the table and looking for other investments.

 
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