Archive for June, 2011

  • Apco’s Stunning Rise
    , June 9th, 2011 at 10:12 am

    Ever heard of Apco Oil and Gas International ($APAGF)? Don’t worry, you’re not alone.

    On its website, Apco describes itself as:

    An international oil and gas exploration and production company with a focus on South America. Apco began exploration and production activities in Argentina in the late 1960s and has interests in eight oil and gas producing concessions and two exploration permits in Argentina, and three exploration and production contracts in Colombia.

    Our producing operations are located in the Neuquén, Austral, and Northwest basins in Argentina. We also have exploration activitiesin both Argentina and Colombia. Our core assets are located in the Neuquén basin in the provinces of Rio Negro and Neuquén in southwest Argentina.

    Our strategy is to develop and grow our assets in Argentina and Colombia, and conduct business development efforts with a goal of expanding the company into other South American countries.

    Apco became a public company in 1978 and is a Cayman Islands company with headquarters located in Tulsa, Oklahoma, a branch office in Buenos Aires, Argentina, and a branch office in Bogota Colombia. Apco is 69 percent owned by The Williams Companies, Inc. (WMB: NYSE).

    I can’t be positive, but I believe this is the single-best performing stock of the last 30 years. If not #1, then it’s in the Top 10. Most of the surge came in the late-1980s, but the stock is also up more than 10-fold from its 2009 low. The stock also pays a very modest dividend.

    I honestly don’t know anything about this stock, but it’s another good example of a company that’s nearly invisible to most of Wall Street yet it has performed spectacularly well.

  • Ford’s Plans Don’t Excite Investors
    , June 9th, 2011 at 9:44 am

    Yesterday, Ford ($F) held an Investor Day presentation. Although the company’s plans are bold and the turnaround is real, investors are still put off by the stock. I like Ford a lot but the stock is down more than 18% on the year.

    Management’s investment day tone was “ever more confident,” according to a report Wednesday by J.P. Morgan analyst Himanshu Patel. He has a $20 price target.

    UBS analyst Colin Langan wrote Wednesday that “overall, we were pleased with the takeaways from Ford’s analyst day, as management’s mid-decade targets are in line with our model and thus imply our above-consensus view of the company is on track.” Langan has a $22 price target.

    The revelation at investor day was that Ford attached specific numbers to its plans, saying it wants worldwide sales of about 8 million vehicles by 2015, up about 50% from 5.3 million vehicles in 2010. The automaker also anticipates 2015 global automotive operating margins to increase the 8% to 9% range, from 6.1% in 2010.

    Patel said the expectations imply mid-decade earnings per share of about $3, up from consensus estimates of $1.93 in 2011 and $2.02 in 2012, according to Thomson Reuters. It is here that an explanation for the shares’ lagging performance may lie. Said Patel, “The $3 level effectively implied by management yesterday is likely to keep the stock range-bound near term.

    “We have a positive bias on Ford operationally, but also from a stock trading range perspective, but we believe Ford shares, along with the broader US autos groups, is unlikely to regain its shine until near-term U.S. consumer soft patch concerns dissipate,” wrote Patel.

    I don’t see why a $3 per share estimate ought to keep Ford range-bound. That seems up in the air, but what’s not up in the air is that Ford is going for a very low earnings multiple. Right now, shares of Ford are going for just 7.11 times this year’s earnings estimate.

    Let’s also remember that except for the January earnings debacle, Ford has beaten its earnings pretty soundly for the past few quarters.

  • Target Raises Dividend for 44th Year in a Row
    , June 9th, 2011 at 9:07 am

    Two weeks ago, I highlighted the big performance gap between Target ($TGT) and TJX Companies ($TJX). Even though Target’s stock hasn’t done much for a few years, the company just announced a 20% dividend increase. The company will now pay out 30 cents per share each quarter which works out to a yield of 2.56%. This is the 44th-consecutive year that Target has increased its dividend. The stock is now going for just under 10.5 times earnings.

  • Morning News: June 9, 2011
    , June 9th, 2011 at 7:48 am

    Bank of England Keeps Interest Rate at Record Low

    In Beijing, Lagarde Backs Bigger Say for China at I.M.F.

    Split by Infighting, OPEC Keeps a Cap on Oil

    Bank Said No? Hedge Funds Fill a Void in Lending

    Dimon Challenges Bernanke on Wall Street Regulation

    Visa, MasterCard Fall As Plan To Delay New Debit-Card Rule Fails

    EX-BP Chief Hayward Plans $1.6 Billion Oil IPO

    Coupons.com Raises $200 Million

    Texas Instruments Lowers Quarterly Profit Estimate

    Exxon Predicts Big Yields From Discoveries in Gulf

    PIMCO Planning Foreign Currency Strategy ETF

    Citigroup Card Customers’ Data Hacked

    5 Reasons I’m Banking on Bank Stocks Now

    Joshua Brown: Behind the Bank Spanking

    Todd Sullivan: Ford’s Big Day

    Howard Lindzon: StockTwits Launches Investor Relations Solution for Public Companies

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  • Assorted Links
    , June 9th, 2011 at 12:21 am

    Here are a few unconnected items that I wanted to pass on.

    The first is an interesting post from Andrew Ross Sorkin at DealBook that defends Goldman’s ($GS) CEO Lloyd Blankfein from the charge of lying to Congress. Sorkin is careful to say that Goldman did a lot of bad things, but if you look at what he said, it stands up to the facts:

    Based on the subcommittee’s report, which was referred to the Justice Department, I wrote a column raising questions about Mr. Blankfein’s comments. At the time, his testimony seemed ridiculous in the face of evidence that Mr. Levin presented, which showed that the firm had regularly made large bets against the subprime market.

    But upon further reporting — talking with executives at Goldman, who pointed me to other documents, and with officials in Washington, and then poring through the report, following the footnotes to the original sources and then cross-referencing them against other public records — I have come to a different and perhaps unsatisfying conclusion for those readers looking for a big scalp: Mr. Blankfein wasn’t lying.

    This is interesting for several reasons. The first is that Goldman is the most prestigious house on Wall Street so anything they do is important. But it’s also noteworthy because Goldman is so widely hated and many of the charges against them are absurd. I have no independent feelings for Goldman but as an investor, I keep my eyes open for opportunities where perception and reality part ways.

    The next is Ben Bernanke’s speech the other day. Some people’s reaction to Bernanke is similar to their reaction to Goldman Sachs. There’s plenty of room to criticize the Fed, but I like hearing Bernanke’s speeches. I’m always amazed at the difference between what Bernanke says and what people say he says. He’s very clear about views and what his goals are.

    Bernanke is up front that the economy isn’t doing well and he explains why, but he also says that the economy should pick up in the second half of the year. We’ll see. He also goes into a detailed explanation of what’s driving commodity prices higher. The speech is long but it will give you a good idea of what Bernanke thinks.

    At the end of Bernanke’s speech, JPMorgan’s CEO Jamie Dimon asks a question (well, more like makes a statement):

    We’re glad to see Jamie come out of his shell.

  • Remember That GM IPO?
    , June 8th, 2011 at 11:18 am

    From the Washington Post of November 27, 2010:

    GM reclaimed its old stock ticker with fanfare last Thursday after weeks of anticipation on Wall Street. The company could barely keep up with demand for the newly issued stock as investors clamored for a piece of the American icon. In response, during the week of the IPO, GM said it was expanding its offering by 31 percent.

    Unlike LinkedIn’s puny IPO, GM’s ($GM) was the biggest in history.

    As a general rule, IPOs are a bad deal for investors.

  • Q1 Earnings Summary
    , June 8th, 2011 at 10:14 am

    The first quarter is now in the far distant past (in Wall Street time), but it was a very good earnings season. Dirk van Dijk looks at the details:

    The first quarter earnings season is almost done. We now have 496 (99.0%) of the S&P 500 reports in. Net income growth is 17.12%. While that is down from the extremely strong 30.9% that 495 of those firms posted in the fourth quarter, it is still a very strong growth rate. Almost all of the growth slowdown is from a failure of the Financial sector to repeat the massive growth they posted in the fourth quarter.

    It’s not that the Financials are having a bad quarter, but they do face much tougher comps this time around. The 8.7% year-over-year growth they are reporting is not exactly awful (although it is below the rest of the S&P 500), it is that it pales in comparison to the 161.8% growth posted in the fourth quarter. That is despite a very strong sequential growth of 22.0%.

    If we back out the Financials, total net income is up 19.2%, down just slightly from the 19.8% those firms reported in the fourth quarter. Looking ahead to the second quarter, growth is expected to continue to slow, falling 10.1%. Back out the Financials and growth is expected to be 12.6%.

    Before the first quarter earnings season started, it was expected that growth would be just 6.7% for the S&P 500 as a whole, and 10.2% excluding Financials. Given the upward estimate momentum (more below) it seems highly likely to me that the actual growth in the second quarter will be significantly higher than the 10.1%/ 12.6% now expected.

    Once again, the big story has been margin expansion but that trend is quickly coming to an end. Wall Street currently expects the S&P 500 to earn $95.49 for 2011 and $109.41 for 2012.

  • It’s Even Worse Than I Thought
    , June 8th, 2011 at 9:19 am

    From Bloomberg:

    About 33 percent of investors surveyed said they didn’t know how they pay for the investment advice they receive, and 31 percent said they thought their adviser or broker provided investment advice for free. Those who were unsure of how they pay for advice were most likely to be unhappy with their financial adviser, with 47 percent reporting dissatisfaction, the study said. About 27 percent of those who said they pay commissions reported being dissatisfied.

    Thirty-one percent think their investment advice comes for free? Oh dear lord.

  • Stocks and War
    , June 8th, 2011 at 8:05 am

    An academic paper looks at the war puzzle:

    We study a number of large international military conflicts since World War II where we establish a news analysis as a proxy for the estimated likelihood that the conflict will result in a war. We find that in cases when there is a pre-war phase, an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them. In cases when a war starts as a surprise, the outbreak of a war decreases stock prices. We show that this paradox cannot be explained by uncertainty about investment decisions, nor by the expectation about a quick end of the war or ambiguity aversion. A connection of this puzzling phenomenon to mean-variance preferences of investors is suggested.

    It doesn’t seem like much of a paradox to me. Investors get skittish during the run-up to war and then optimistic once the bombing starts. Why should we expect nationalist feelings to stop at the market’s edge?

    War may be hell as Sherman said but it’s also what Heraclitus said — the father of us all. Ultimately, war focuses a society and by extension, the state. That resolution is a major boost to optimism and that spills over into stocks.

    A perfect example of the sell-off during the run-up and buying spree once the war starts happened during the Iraq war more than eight years ago. Here’s how the S&P 500 performed in 2003 and 2004:

    The market made a low in July of 2002, then tested it in October and in fact made a new low. Then it went back to retest it again in March of 2003. This time, the old low held and the market turned north and didn’t stop for four years.

    We’ve also established a recent March pattern. The 2003 closing low came on March 11. In 2000, the closing high for the Nasdaq Composite came on March 10. Then in 2009, the S&P 500’s closing low came on March 9.

    I’ve often noticed that investors always feel that they want to “wait and see what happens.” The thing is, they always feel this way — as if a resolved answer will be known to all in a matter of days. It doesn’t work that way.

    I think that’s what causes the jitters during a run-up to war. Investors think that they ought to remain neutral and “see how this plays out.” When the war starts, it creates a buying storm as the market works to make up for lost ground.

    (HT: CXO Advisory)

  • Morning News: June 8, 2011
    , June 8th, 2011 at 7:19 am

    Merkel Called to Explain Greek Aid as ECB Clash Looms

    Greek Jobless Rate Breached 16 Percent for First Time on Record in March

    IMF Signals Support For Japan Sales Tax Hike

    Emerging Nations Warm to Lagarde for I.M.F. Role

    Saudi Oil Min Met Separately With 4 Mins Who Resist OPEC Boost

    World Food Prices Linger Near Record as Meat and Dairy Costs Gain, UN Says

    No News Is New News For Sterling

    Bernanke Says ‘Uneven’ Recovery Still Needs Stimulus

    Shrinking Valuations Drive Bank Payroll Cuts

    Buyout Firms Beaten in Takeover Auctions

    California’s Blue Shield Caps Income and Pays Rebates

    India’s ONGC, GAIL Keen To Buy Exxon Mobil Stake In Kazakhstan Oil Field

    Hon Hai Says IPad Production Advances to Start Paying Off in Second Half

    James Altucher: Some People Were Upset At Me

    Phil Pearlman: The Financials Always Mattered

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