Increasing a Telecom Position
09/21/11 - 12:19 PM EDT
Weekly oil inventories posted a large draw this morning, which was more than forecasts, yet energy and the entire commodity complex is down after negative macro commentary from Alpha Natural Resources (ANR:NYSE), Walter Energy (WLT:NYSE) and Rio Tinto (RIO:NYSE).
An interesting offsetting comment has just come out of the Citigroup conference where Norfolk Sothern's CFO said they are seeing no slowdown in export coal demand. And by segment, demand is up 9% in auto, 8% intermodal, construction up 7%, coal up 1%, and paper up 5%.
With many cross currents out there volatility continues to be high. We sold out of CAT, but will continue to hold onto the other cyclicals: Cummins (CMI:NYSE), DuPont (DD:NYSE), Freeport (FCX:NYSE), Johnson Controls (JCI:NYSE), and UPS (UPS:NYSE). We'll look to add to these positions on the weakness (based on yield). These are stocks that are out of favor right now (and already down a lot from their highs) but are very strong companies with good long-term fundamentals, solid balance sheets and dividends.
One stock that is bucking the energy decline is Apache (APA:NYSE). It announced plans to acquire ExxonMobil's North Seas assets for $1.7 billion. This includes interests in 6 oil/gas fields, an operating interest in the Beryl/Brae gas pipeline and SAGE plant, and nonoperating interests in 3 oil/gas fields. The acquired assets had proved reserves of 68.3 MMBOE at the end of 2010 and value the deal at $25.62/BOE of proved reserves. This compares to an average of $40.01BOE for North Sea transactions and will be accretive to APA's earnings and cash flow.
Shares have been hit hard in the energy sell off (down 20%) despite stellar fundamentals. But without dividend support the volatility is greater and investors at the moment are reducing risk. We'll stick with this story for the long run as it produces above-average production growth, has a strong balance sheet (will have $11 billion in cash at the end of 2011) and trades at a discount to the group (despite faster growth).
Finally we'll add to the AT&T (T:NYSE) position today on weakness with 400 shares at $28.61. We like the 6% dividend yield, the 10% discount to Verizon, and the strong wireless positioning (with or without the deal).
As we've written, the company has ample cash to fund a breakup fee if T-Mobile doesn't go through (it raised $8 billion in two recent debt offerings) and if it does, all the better with more spectrum and consumer reach.
After our trade we'll own 2,000 T or 2.14%
Adding to an Industrial on an Upbeat Presentation
09/21/11 - 02:30 PM EDT
Fluor (FLR:NYSE) management presented this morning at an industry conference and remained upbeat about its business, backlog growth and global demand trends. With shares down $20 from their highs we are going to buy 100 shares at $55.20.
The lack of a big dividend makes it volatile, but the company is very well positioned in the long term and continues to see market-share growth in its mining projects and industrial/infrastructure projects, fueled by the global higher standard of living and the aging infrastructure. New awards remain strong, with $9.7 billion as of the end of the second quarter (the recent Rio Tinto deal has not been included), and its $40 billion total backlog provides strong visibility going forward (24% are fixed price and 76% reimbursable).
Fluor just reiterated its $3.10-$3.40 earnings guidance for the year and has $2.5 billion in cash with very little debt (13% debt-to-cap). That puts the stock at 17x (at the midpoint), which is below its 20-22x average. The short term will be volatile, but the long-term story remains powerful, and at this price the stock is attractive. After our trade, we will own 1,700 shares of FLR, or 3.55% of the portfolio.
Closing Out One Holding, Adding to Another
09/14/11 - 02:53 PM EDT
Stocks have reversed earlier losses and are trading higher for the third straight session this week. After you receive this Alert, we are going to make two trades for the model portfolio.
First, we will sell our final 250 shares of Stein Mart (SMRT:Nasdaq). Recently trading at $7.22, the Three-rated stock is up 20% from its recent lows. The retailer has limited near-term earnings visibility, so we would rather use the funds to build up some of our other positions in the model portfolio.
With that in mind, we will buy shares of TriQuint Semiconductor (TQNT:Nasdaq), which is currently at $5.96. This purchase gives us a total of 850 shares, which accounts for 4.2% of the overall portfolio.
Even though expectations are low for the third quarter, the company has a pristine balance sheet and is inexpensive, as it is trading at less than 8x expected 2012 earnings. Plus, its order activity will likely pick up in the fourth quarter as Apple (AAPL:Nasdaq) ramps up production of its next-generation iPhone.
Taking Some Profits, Buying More Shares
08/29/11 - 01:27 PM EDT
After you receive this Alert, we will take some profits in American Express (AXP:NYSE) selling shares at $48.58 and buy shares of Juniper Networks (JNPR:Nasdaq) at $21.74, shares of Johnson Controls (JCI:NYSE) at $31.21, and shares of USB (USB:NSYE) at $23.06. Technology, industrials and financials underperformed the S&P 500 in for the past three quarters falling 12%, 17.3% and 16.9%, respectively, and much of the "bad" news of a slowing economy is reflected in each group.
Seasonally, tech is about to enter its seasonally strong period as corporate IT budgets improve, and we believe that the group might start to move earlier than the typical fourth quarter, after August's brutal collapse in the sector. Expectations are quite low, the valuations are very cheap and it's time to pick at the long-term winners.
JNPR has a tough quarter ahead of it with low expectations for the third-quarter performance, but fourth-quarter guidance will be key, as many doubt the 18% growth assumptions.
However, with one-third of its market cap in cash and a huge product cycle story in front of it (mainly benefitting in 2011), we'll slowly pick at this one. Also, we are watching Oracle (ORCL:Nasdaq) for an opportunity to add more shares.
We have stayed overweight industrials because we expect demand will continue to be solid, capex budgets firm and utilization rates tight after years of underinvestment. We continue to like trucks and autos and will add to JCI, the world's leading auto parts company with a profitable battery division and one of the largest energy management brands in the world. Its battery and HVAC opportunities in China alone are compelling and it's on track to be the largest U.S. auto parts company in this country. Shares have fallen 25% since it reported its record quarter, and it is much oversold in our view.
Finally, financials have been a tough group to own, but the last few weeks have shown signs of life as Bank of America (BAC:NYSE) has stabilized, and the much-anticipated compression in net interest margins priced in. European banks remain a wild card, but the U.S. banks have very little European exposure, if any.
Our favorite financials continue to be "non-banks" like Prudential (PRU:NYSE), but USB's valuation is too compelling for the industry-leading deposit grower with above-average lending growth. We continue to like AXP, but recently bought shares at $44.88, and they are up 8.3% in just two weeks. Should it pull back to below $45, we'll buy it back.
After our trade we'll own 1700 shares of AXP or 3.04%, 3000 of JNPR or 2.39%, 2200 JCI or 2.51% and 3500 USB or 2.96%
NLY Annaly Capital 120M share Spot Secondary priced at $17.70
The deal size was increased to 120M shares from 100M shares and priced between the $17.61-$17.68 range. Credit Suisse acted as lead book running manager for the offering
A Speculative Play in KRA
6/30/2011 1:38 PM EDT
Kraton Performance Polymers (KRA) is a specialty chemicals company that manufactures adhesives and coatings for a wide range of applications. The stock pulled back more than 25% from its May high and began trading below the $40 level and 50-day moving average, and above a long term uptrend line. Within these converging trend lines are two interior trading ranges divided by a minor support line at $37.70. Price is in the upper level of the rising wedge-like pattern. It is also in the upper range of tightly compressed Bollinger bands and may be preparing for a volatile break.
The RSI recently crossed above its 21-period average, and the MacD has been tracking higher and is above its centerline. Volume is light but the Chaikin money flow index is just above its centerline and indicating modest buying interest.
The trade is to buy a break above resistance with a stop below the 20-period Bollinger band center average. A successful breakout projects a target price in the $44 area.
Now cramer says try stopping it at 113 dollars a share! He sent the stock from $96 to $83 from May 26th to June8th. Unreal! he loses everyone money!
I bought some at 2.16! I believe in this co. I missed most of the shares but I got 700. I think it was an errant trade. I am long. I have owned this Co. many times. Just asking!