Qucik overview of Portfolio
I am a bit behind in my posts, so let me start with a brief synopsis of the individual stocks.
In general, the energy calls are suffering, and our shorts are messed around by this mini-rally.
I am counting on this being a short term event.
Volatile market the last 2 weeks. Several factors played a role:
1. Options season – It now looks like some hedge funds panicked and drove the price of oil high. They are unwinding their positions and oil is moving accordingly. The unwinding of positions also probably explains the sudden rush out of all energy related stocks
2. Lower oil prices – Falling oil prices will eventually free up some consumer income, which makes the markets relieved. Plus it demonstrated that the government is more in charge than previously imagined
3. More banking stability – The majors are wounded, but not yet failing. Again, a sigh of relief
4. Earnings season – Buy on the rumor, sell on the fact. In other words, it’s a pre-earnings rally.
In essence, the market is being driven more by psychology than fundamentals.
Update on Energy Fundamentals:
The fact is that oil ran up to $147 because of hedge funds speculating and having to cover their positions. In response to soaring oil prices, the Fed and other entities staged a major with hunt to scare folks out of oil.
But this won’t last. Where will money rotate to? Financials? Not likely – still too much blood being spilled. Healthcare? Not very exciting (although my ILMN has been strong and I wish I owned ISRG). Only energy is booming. ACI (a major coal producer) showed profits up 300%+.
My conclusion: money will roll back in. Oil may be soft, but Natural gas and coal will remain strong. And oil >$100 still makes these oil service and equipment companies strong.
In general, energy stocks are oversold. They are now at 200 day moving averages and some even lower. That makes no sense – even if oil predictions are correct and it drifts to $100, that’s still higher than it was 6 months ago. And forward PEs are ~7.
Prices could break down some, but overall, these stocks are oversold and that represents a bounce in the near future. My play has been that oil/NG prices are disconnected from these companies’ profits. That is probably more true than not, but the market moved the stock prices up based on the oil/NG prices. Which means that I pulled the trigger too soon. But we have a lot of time to see them move back up.
AN – Surged after it was announced the Gates Foundation had achieved a 5.5% position. So that explains why the stock stayed strong in May and June. The news also drove others into the stock. But it’s fading again in the face of fundamentals: profits dropped 33% and sales dropped 13%. (http://www.forbes.com/feeds/ap/2008/07/24/ap5251877.html).
I expect accelerating drops in sales because AN sells primarily US cars and US car makers are reporting massive sales drops.
Meanwhile, Chrysler announced that they won’t be leasing cars. That won’t be good for AN.
Once the Gates hype blows away, I expect AN to drop back down <$8.
TRID – No news.
ETFC – Big miss on earnings and a big grand slam homerun on revenue. I’ll review in a separate posting, but I like what I see (even if the stock is temporarily hit). I may buy more at this level and continue to average the cost down.
Two things of note:
To use a sports metaphor, they are off the disabled list. They aren’t going bankrupt, so it’s now just a matter of time for profits to appear
The short interest rose to 27%, and is now at a point where a short squeeze is likely. I expect covering to push it back above $4, at which point I’ll write some calls
MUR – Down 25% from its high a few weeks ago. More interestingly, it is now at February levels. Yet oil is well above that level, despite the recent pullback. That indicates to me that the market has over-reacted.
DUG – Up 33% since we bought a few weeks ago. I do think oil will continue to drop and so will natural gas, at least until the Fall. BTW, someone said that DUG is not the anti-oil ET. They are wrong: DUG trades against the DJUSEN, which is to say, the Dow Jones US Gas and Oil exchange.
SZK – I’m not getting the bounce here that I want. With consumer goods companies imploding, this ETF isn’t performing. I can’t get visibility to its holdings, so I don’t have any thoughts here. The low volume may be a factor as well. I think we may exit sooner than later
SIJ – Same as SZK, just not getting the bounce.
SCC – Same as SZK, just not getting the bounce
SRS – I am not getting the bounce yet, but I see commercial real estate crashing very hard very soon.
VMC – A huge rally after falling to $50: a bounce to ~$65 and then down to ~$61. They’ll be revisiting the 50s soon.
It isn’t just that oil prices hurt their margins – it’s clear that their commercial business is dying as developments slow and even stop. In addition, I expect major municipal project cancellations.
HOG – Enjoyed a bounce off $33 on the basis that their news wasn’t as bad as expected. I see nothing but accounting chicanery (like stuffing the channels) and this will last another quarter.
An example: HOG closed two major production lines because sales were down 2.9%. That makes no sense, unless sales are down a lot more and they artificially boosted the number.
NKE – They are depending on the Olympics for a bull run, and I just don’t see it happening. The Olympics is clearly looking to be the anti-party of the year. A stronger dollar hurts them because it reduces the value of overseas sales, and that’s what’s been propelling their earnings.
ZLC – This is the one that just confuses me. We know discretionary spending is way down, just look at the implosion in Vegas. They have a forward P/E of ~25. But this stock stays ~$20. The only thing I can imagine is the shorts are covering a bit: 46%+ of the float is currently shorted. We may have to wait until January on this one – because holiday sales are their major income. In other words: wait for proof that the company is dying.
UNT – Down 10% from our purchase price and 25% from their recent high. Drilling has not slackened, so this is just a sector rotation issue.
SM – Down 20% from our buy-in and 30%+ from the recent high.
WLL – Stable but below our purchase price.
SD – Down 15% from our buy-in and 30% from the recent high
PXD – Flat
MMR – Up a bit.
GTLS – Flat
SE – Flat
OSG – Up a bit
MEE – Down 10% and was down even more. BTU and ACI’s earnings seemed to show that coal is doing quite well.
CPX – Earnings came in and they met but did not beat. Which means that they are relatively fairly valued and I don’t expect this option to pay out unless the sector comes back in favor.
CLF – Flat. They announced plans to buy ANR, a large coal company, and that shook the stock a bit.
BIG – This play was about catching folks who are trying to stretch their dollars. Like a cheaper Walmart. Shorts are very involved here: 47% of float I shorted
FRO – Flat.
In general, the energy calls are suffering, and our shorts are messed around by this mini-rally.
I am counting on this being a short term event.
Volatile market the last 2 weeks. Several factors played a role:
1. Options season – It now looks like some hedge funds panicked and drove the price of oil high. They are unwinding their positions and oil is moving accordingly. The unwinding of positions also probably explains the sudden rush out of all energy related stocks
2. Lower oil prices – Falling oil prices will eventually free up some consumer income, which makes the markets relieved. Plus it demonstrated that the government is more in charge than previously imagined
3. More banking stability – The majors are wounded, but not yet failing. Again, a sigh of relief
4. Earnings season – Buy on the rumor, sell on the fact. In other words, it’s a pre-earnings rally.
In essence, the market is being driven more by psychology than fundamentals.
Update on Energy Fundamentals:
The fact is that oil ran up to $147 because of hedge funds speculating and having to cover their positions. In response to soaring oil prices, the Fed and other entities staged a major with hunt to scare folks out of oil.
But this won’t last. Where will money rotate to? Financials? Not likely – still too much blood being spilled. Healthcare? Not very exciting (although my ILMN has been strong and I wish I owned ISRG). Only energy is booming. ACI (a major coal producer) showed profits up 300%+.
My conclusion: money will roll back in. Oil may be soft, but Natural gas and coal will remain strong. And oil >$100 still makes these oil service and equipment companies strong.
In general, energy stocks are oversold. They are now at 200 day moving averages and some even lower. That makes no sense – even if oil predictions are correct and it drifts to $100, that’s still higher than it was 6 months ago. And forward PEs are ~7.
Prices could break down some, but overall, these stocks are oversold and that represents a bounce in the near future. My play has been that oil/NG prices are disconnected from these companies’ profits. That is probably more true than not, but the market moved the stock prices up based on the oil/NG prices. Which means that I pulled the trigger too soon. But we have a lot of time to see them move back up.
AN – Surged after it was announced the Gates Foundation had achieved a 5.5% position. So that explains why the stock stayed strong in May and June. The news also drove others into the stock. But it’s fading again in the face of fundamentals: profits dropped 33% and sales dropped 13%. (http://www.forbes.com/feeds/ap/2008/07/24/ap5251877.html).
I expect accelerating drops in sales because AN sells primarily US cars and US car makers are reporting massive sales drops.
Meanwhile, Chrysler announced that they won’t be leasing cars. That won’t be good for AN.
Once the Gates hype blows away, I expect AN to drop back down <$8.
TRID – No news.
ETFC – Big miss on earnings and a big grand slam homerun on revenue. I’ll review in a separate posting, but I like what I see (even if the stock is temporarily hit). I may buy more at this level and continue to average the cost down.
Two things of note:
To use a sports metaphor, they are off the disabled list. They aren’t going bankrupt, so it’s now just a matter of time for profits to appear
The short interest rose to 27%, and is now at a point where a short squeeze is likely. I expect covering to push it back above $4, at which point I’ll write some calls
MUR – Down 25% from its high a few weeks ago. More interestingly, it is now at February levels. Yet oil is well above that level, despite the recent pullback. That indicates to me that the market has over-reacted.
DUG – Up 33% since we bought a few weeks ago. I do think oil will continue to drop and so will natural gas, at least until the Fall. BTW, someone said that DUG is not the anti-oil ET. They are wrong: DUG trades against the DJUSEN, which is to say, the Dow Jones US Gas and Oil exchange.
SZK – I’m not getting the bounce here that I want. With consumer goods companies imploding, this ETF isn’t performing. I can’t get visibility to its holdings, so I don’t have any thoughts here. The low volume may be a factor as well. I think we may exit sooner than later
SIJ – Same as SZK, just not getting the bounce.
SCC – Same as SZK, just not getting the bounce
SRS – I am not getting the bounce yet, but I see commercial real estate crashing very hard very soon.
VMC – A huge rally after falling to $50: a bounce to ~$65 and then down to ~$61. They’ll be revisiting the 50s soon.
It isn’t just that oil prices hurt their margins – it’s clear that their commercial business is dying as developments slow and even stop. In addition, I expect major municipal project cancellations.
HOG – Enjoyed a bounce off $33 on the basis that their news wasn’t as bad as expected. I see nothing but accounting chicanery (like stuffing the channels) and this will last another quarter.
An example: HOG closed two major production lines because sales were down 2.9%. That makes no sense, unless sales are down a lot more and they artificially boosted the number.
NKE – They are depending on the Olympics for a bull run, and I just don’t see it happening. The Olympics is clearly looking to be the anti-party of the year. A stronger dollar hurts them because it reduces the value of overseas sales, and that’s what’s been propelling their earnings.
ZLC – This is the one that just confuses me. We know discretionary spending is way down, just look at the implosion in Vegas. They have a forward P/E of ~25. But this stock stays ~$20. The only thing I can imagine is the shorts are covering a bit: 46%+ of the float is currently shorted. We may have to wait until January on this one – because holiday sales are their major income. In other words: wait for proof that the company is dying.
UNT – Down 10% from our purchase price and 25% from their recent high. Drilling has not slackened, so this is just a sector rotation issue.
SM – Down 20% from our buy-in and 30%+ from the recent high.
WLL – Stable but below our purchase price.
SD – Down 15% from our buy-in and 30% from the recent high
PXD – Flat
MMR – Up a bit.
GTLS – Flat
SE – Flat
OSG – Up a bit
MEE – Down 10% and was down even more. BTU and ACI’s earnings seemed to show that coal is doing quite well.
CPX – Earnings came in and they met but did not beat. Which means that they are relatively fairly valued and I don’t expect this option to pay out unless the sector comes back in favor.
CLF – Flat. They announced plans to buy ANR, a large coal company, and that shook the stock a bit.
BIG – This play was about catching folks who are trying to stretch their dollars. Like a cheaper Walmart. Shorts are very involved here: 47% of float I shorted
FRO – Flat.
posted by Andrew at
12:59 PM
2 Comments
I expect the US consumer will do the same this time - conserve a bit and then adjust to higher prices and go back to old habits. Already some pullback is evident and planes are being grounded - all of which reduces oil consumption.
