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Buy, Sell or Hold: When to Buy Shares of Facebook

Jack Barnes — Tue, 07 Feb 2012 10:00:43 +0000

You might have heard....

Facebook Inc. (NYSE: FB) is the most awaited initial public offering (IPO) since Google Inc. (Nasdaq: GOOG).

The recent registration of the company's IPO documents means it won't be long until Facebook shares begin trading freely.

But will Facebook shares make you rich beyond your wildest dreams like mural painter David Choe?

Or would you be better off watching from the sidelines before you buy shares of the social media giant?

The Details behind the Facebook IPO

Here's what I've learned from Facebook's S-1.

Some of the data points buried in the IPO document are eye-opening, to say the least.

Chief among those are Facebook's assertion that 6% to 7% of the entire world population logs in every day. More importantly, they stay logged in for a significant amount of time.

However, what will happen in the future to drive the stock's share price after it's brought to market is buried deeper in the details.

It's these details that make Facebook's IPO a hold if you already own shares, but also a "wait to buy" if you are like most people and want to own them.

In a nutshell, what I've learned is the banks are bringing Facebook to market fully priced.

My opinion is the bankers have gotten greedy and decided to push the valuation numbers above the levels that I believe are sustainable.

The company is being valued at $75 billion - $100 billion dollars at launch. This would make it one of the most valuable companies in the world, yet its actual revenue, let alone profitability, is at a more mundane level.

Currently, Facebook is reporting about $4 billion in revenue and profits of $1 billion.

That means if Facebook prices in at the top of its estimated range ($100 billion), based on current disclosures it would have a 100-to-1 price to earnings (P/E) ratio.

In other words, it's only going to take about 100 years for Facebook to eventually earn what it may price at. Compared to other blockbuster stocks, that's quite rich.

By comparison, Apple Inc. (Nasdaq: AAPL) has $100 billion in cash and a P/E ratio of 11 while Google's P/E is 20.

That's why it's time to "Hold" Facebook (**) or wait to buy it until insiders get a chance to sell their shares and bring the price down to levels common people can realistically afford to purchase.

Key Points on Facebook

Now don't get me wrong. Facebook has a lot of things going for it.

It's grown from a dorm room project seven years ago into a Website with a staggering 6% to 7% of the world's population logging in daily. It's debt-free and its future unleveraged.

This is all good but there are other aspects that need to be discussed when considering Facebook as an investment.

For instance, the growth rates are slowing down.

Facebook had a 44% growth rate in the fourth quarter alone. That sounds good, until you realize that Google at the same time in its development was at a much higher run rate. The company also gets 80% of its revenue from ads.

That being the case, the IPO is fully pricing what Facebook should be worth down the road.

And no matter how you slice and dice the current numbers, I think the current valuation metrics are overheated.

Also of note: The company gets 12% or so of its revenue from gaming sources made available to its users. The relationship with Zynga Inc. (Nasdaq: ZNGA) is a material weakness in the business model in my opinion, as users evaluate their spending patterns over time.

Facebook required game providers to turn over 30% of the revenue generated, starting in 2011. This growth in revenue will slow down significantly as the one year phase-in period expires and growth starts to show consistent results instead of a high-flying ramp to the stars.

Action to Take: "Hold" Facebook. (NYSE: FB) (**).

The impressive growth rate of the Facebook story is going to slow down as the company has to compare itself with other companies on an apples-to-apples basis.

The bankers have priced the estimated valuations at the extreme top of what should be expected. This leaves very little room in the equation for investors to see the type of move up in valuation that investors in Google saw when it came to market in 2004.

The company is being brought to market with a P/E of 75-100, when its real peers are trading in the 11-30 range. The competitors have proven they have a capacity to monetize their business models while Facebook is still in the category of an extremely large user base and very little actual revenue deriving from it.

When Facebook has a P/E ratio below 50, I will most likely change my opinion and consider it a "Buy" on weakness. For now, I consider Facebook to be a wait-and-see investment, with a hold on any shares you have from the IPO.

Social fads are great, until you buy the top in them. Just look at how MySpace, Zynga, and LinkedIn have fared since they came out to play.

It may be years before Facebook is grown-up enough to be considered an investment.

For now it's the biggest social media stock, warts and all. I would wait for Facebook to grow up into an adult investment before I would commit capital to it.

(**) Special Note of Disclosure: Jack Barnes has no interest in Facebook Inc. (NYSE: FB).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning.

In his BSH column last week, Barnes analyzed Carnival Corp. (NASDAQ: CCL).

News and Related Story Links:

Money Morning:
Facebook IPO: Where's the Love, Mark Zuckerberg?
Money Morning:
Before You Get Excited About the Facebook IPO...
JackBarnes.com:
Confessions of a Macro Contrarian

Tags: Facebook Inc. (NYSE: FB), Facebook stock price, FB, Government Accountability Office, government transparency, how much is facebook stock, Nasdaq: FB, NYSE: FB, onds, S&P Index, Stocks, trading

Buy, Sell or Hold: A Look at Carnival Corp (NYSE: CCL) After the Costa Concordia Tragedy

Jack Barnes — Thu, 02 Feb 2012 10:00:46 +0000

Carnival Corp. (NYSE: CCL) is the world's largest provider of vacation cruises operating under the names Carnival Cruise Lines, Holland America Line, Princess Cruises, and Seabourn in North America; and AIDA Cruises, Costa Cruises, Cunard, Ibero Cruises, and P&O Cruises in Europe, Australia, and Asia.

As you know, Carnival has been all over the news lately because of the deadly sinking in Italy, when the Costa Concordia suffered one of the largest cruise ship accidents in decades.

Since then, Carnival Corp. shareholders have taken some steep losses. Shares are down nearly 12%.

For investors, that leaves the question of what will happen to Carnival Corp. in the wake of the tragedy.

However, from strictly a business standpoint what investors need to know is that the ship is fully insured and at this stage it is the reinsurance firms that will have to fund the refloating and fixing costs.

So as tragic as the disaster has been, Carnival Corp. will survive.

According to a Carnival Corp. release, "the impact to 2012 earnings for loss of use is expected to be approximately $85-$95 million or $0.11-$0.12 per share."

The larger concern, as management admits in the very next sentence of the release, is that "the company anticipates other costs to the business that are not possible to determine at this time." (Full release)

So our problem here in deciding whether to buy, sell, or hold CLL are the after-effects of the accident, such as whether or not people will decide to book vacations on any of Carnival's brands.

More importantly, we won't be able to measure year-over-year comparisons for first quarter bookings until quarter end, and we won't be able to tease the bookings data for quarters two, three, and four for almost a year, when full data will be available.

However, while the company is probably going to be looking at a slower-than-expected year, I believe insurance and the diversity of assets make the Costa Concordia disaster a unique one-off event.

As a result, it's time to "Hold" Carnival Corp. (**).

Key Points

Some quick notes about Carnival Corp.:

It's the world's largest cruise provider.
It has $5.3 billion in gross profits.
And the stock yields 3.2%.

Carnival has grown into the largest cruise operator in the world, with an estimated 98 operating ships. The diversity of its assets and mix of ship sizes all point to a well-balanced business model that should allow CCL to weather the tragedy.

The company pays out $1.00 per share in dividends, which in this global economic environment, is hard to find.

The company reported $5.3 billion dollars in gross profits over the trailing twelve months on $15.79 billion in revenue. It showed $3.7 billion in EBITDA (Earnings Before Interest, Taxes, Depreciation & Adjustments) over the same time period.

I believe with the stock down 32% over the last 52 weeks, the worst has been priced in. The actual drop was about 14% at the time of the announcement, and it has already bounced back 8% or so.

Carnival Corp. was founded in 1974 and is headquartered in Miami. The company has a market capitalization of $24.5 billion with an enterprise value of $33.4 billion, once net debt and cash levels are taken into consideration.

Action to Take: "Hold" Carnival Corporation (NYSE: CCL) (**) While the crash and death of passengers is always a worst-case scenario for cruise line operators, the reality is the ship involved was insured and will most likely be returned to service in 2013.

The stock price is down by 32% in the last year, while the Standard & Poor's 500 Index in the same period is up 1.9%. The stock yields 3.2%, or $1.00 per share.

The implications of this event are such that I believe the damage is already built into the stock, and it's time to give the company a chance to stabilize and start to move up from here.

I would not be looking to increase exposure, but at this point I would not be looking to lower exposure, either. A covered call strategy, written quarterly, could help produce an increased cash flow from these shares, helping to erase the last year in Carnival results.

(**) Special Note of Disclosure: Jack Barnes has no interest in Carnival Corporation (NYSE: CCL).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column earlier week, Barnes analyzed Apple Inc. (NYSE: AAPL)

News and Related Story Links:

Money Morning:
Buy, Sell or Hold: 100 Billion Reasons To Buy Apple Stock
Money Morning:
Buy, Sell or Hold: Dump Petroleo Brasileiro S.A.(NYSE ADR: PBR) Before Its Stock Gets Drilled
Bloomberg:
Concordia cruise ship costs may reach 1 billion
JackBarnes.com:
Confessions of a Macro Contrarian

Tags: Carnival Corp. (NYSE: CCL), Carnival Cruise, Carnival cruise line, Carnival Cruise shareholders, Carnival Cruise shares, Carnival price, Carnival stocks, CCL industries, CLL

Buy, Sell or Hold: 100 Billion Reasons To Buy Apple Stock

Jack Barnes — Mon, 30 Jan 2012 10:11:04 +0000

Apple Inc. (NASDAQ: AAPL) is one of the world's largest companies based on market capitalization.

Cupertino, CA-based Apple just released one of the best earnings reports in the history of capitalism.

In short, they crushed it-sending Apple stock to a fresh 52-week high.

Take a look:

In a record setting first quarter, Apple sold an astounding 73 million devices, including:

5.2 million Macs.
15.4 million iPods.
37 million iPhones.
And 15.4 million iPads.

Keep in mind that's just devices. Apple also takes a 30% cut of all the music, apps, movies and books sold in the online iTunes Store, and its retail operation is a gem within itself.

All told, it's a remarkable growth story - and one that's far from over.

But that is only part of why you should buy Apple stock. Its balance sheet boasts 100 billion more reasons showing the company is a solid "Buy."

Ironically, Apple has so much cash its stock could actually be considered cheap.

Apple reported $97.6 billion in cash, but given the rate the company was selling products in the fourth quarter, that figure is surely higher now.

Today, Apple's cash-on-hand has to be around $100 billion. This mounting pile of cash has been the source of much speculation in recent years, and the issue was again raised by analysts last week during the earnings conference call.

Judging from Chief Financial Officer Peter Oppenheimer's response, it was clear the company has plans for it.

According to Oppenheimer:

"We're examining all uses of our cash balance, what we might do in the supply chain, what we can do from an acquisition perspective and otherwise. Since I don't have any perspective to share with you today, specifically on dividends or buybacks, other than again, we are actively discussing the cash balance."

It's my expectation Apple will surprise the market by deploying its cash hoard in a mergers and acquisitions (M&A) spree that helps reform its product development.

At this point, the cash is pouring in too fast to pay out dividends and buy back stock. They need a strategy to buy technology, like ARM Holdings PLC (Nasdaq: ARMH), which Apple helped found in 1990 and now sources chips from.

Apple has a track record of making small strategic acquisitions, such as chip designer P.A. Semiconductor in 2008 (which allowed Apple to design the A4 and A5 chips used in the iPhone and iPad), and music service Lala in 2009, which provided technology for iCloud.

So what Apple decides to do with its cash in the near term will ultimately determine what impact the company will have on our lifestyle in the future.

That's why I believe it's time to buy Apple Inc. (**) - as it works to deploy its cash and continue enhancing the user experience for its customers.

Apple Stock is a "Buy"

When you get down to it, all you need to know is that Apple:

Is debt free;
Has about $100 billion in cash;
Is growing demand at a rate of 100%;
And will be putting its cash to work in the future.

Apple is unique among companies in that it could be rated AAA if it wanted to issue debt. Logically, though, why would it? It's built up the largest cash position in history.

In fact, it's the sheer size of the cash hoard that makes this company so interesting. Apple has enough money to change entire industries just by its business demands.

Today, Apple has grown into the largest consumer of chips in the world. Their lineup of tablets, computers, and cell phones has grown to such a degree that the mobile computing trend that Apple launched and dominates is now the driver of chip designs for the future.

This is where I believe Apple will be putting its cash to work. Apple doesn't need to buy back shares or pay a dividend if it has a better use for that cash.

I expect to see Apple purchase chip designers and invest in its capacity to manage its product-line sourcing. I think its next major product will see its early product cycle kept in-house.

Meanwhile, the growth rates at Apple are simply staggering. iPad revenue increased by 100% year-over-year in the fourth quarter alone, while iPhone revenue increased by 133% year-over-year.

You can expect this to continue as Apple cranks out more unique and compelling products in the years ahead.

Action to Take: Buy Apple Inc. (NASDAQ: AAPL) (**)

Apple has the capacity to change the lifestyle of its consumers. While Steve Jobs is no longer around, his impact will be felt for years to come.

In a world of uncertain economic outcomes, Apple rises above the storm as a safe location to park capital. While it currently does not pay a dividend, that could change soon. Even if it doesn't, the rate at which the company is building up its cash hoard allows an investor a comfortable night's sleep. Apple is about as safe a company as you can invest in.

Let's pick up 50% of our Apple shares in the near future, with the rest entered as good-"til-cancelled around the breakout area of the latest earnings report. This should be retested at some point and will give a patient investor a good location to add to their long-term holdings.

(**) Special Note of Disclosure: Jack Barnes has no interest in Apple Inc. (NASDAQ: AAPL).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Petroleo Brasileiro SA (NYSE ADR: PBR).

News and Related Story Links:

SeekingAlpha:
Apple Transcript
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features
JackBarnes.com:
Confessions of a Macro Contrarian

Tags: AAPL, AAPL Stock, Apple Inc., apple inc. value, apple inc.options, apple shares, Apple stock, apple stock price, apple stock prices, apple stock today, Nasdaq: AAPL

Buy, Sell or Hold: Dump Petroleo Brasileiro S.A.(NYSE ADR: PBR) Before Its Stock Gets Drilled

Jack Barnes — Tue, 24 Jan 2012 10:00:27 +0000

At first glance, Petroleo Brasileiro S.A. (NYSE ADR: PBR), or Petrobras, looks like a quality investment...

But looks can be deceiving - and in the case of Petrobras, surface-level success is hiding some serious blemishes.

No doubt, Petrobras is one of the top five major energy companies in the world. And the offshore discoveries made off the coast of Brazil over the past few years have been remarkable.

However, these reserves, while large, present problems of their own. The oil they hold will be costly and difficult to extract, and legal red tape and government interference are further complicating matters.

Additionally, new sources of shale oil are proving more reliable and convenient than such precarious deepwater drilling operations

So it's time to sell Petroleo Brasileiro S.A. (NYSE ADR: PBR) (**), before the only thing getting drilled is its stock.

Into the Deep

Deepwater drilling is hard enough to begin with. Imagine what it takes to force high-pressure/high-heat fluids into chilled production equipment sitting on the ocean floor.

That's no easy task. And in Brazil's case, it's made even more challenging by a thick layer of salt sitting above the oil.

The Carioca field, for instance, is 170 miles offshore, more than 6,000 feet below the surface of the water, and trapped beneath a shelf of salt 500 miles long and 125 miles wide.

The trouble is, it's beyond both Brazil's and Petrobras' capacity to fully fund or provide the level of drilling expertise to carry out these projects. So they must rely on international experts and new, unproven technology to make these deepwater fields productive.

This is a risky strategy - not to mention an expensive one.

The first wells drilled in the exploration cost as much as $100 million each. Petrobras' development plans for 2011-2015 include $224 billion in total investments to fund 688 projects.

Legal Minefield

As if these headaches weren't enough, Petrobras was thrown another curveball in December.

That's when federal prosecutors in Brazil sued Chevron Corp. (NYSE: CVX) and Transocean Ltd. (NYSE: RIG) for $11 billion over a November oil leak that is estimated to have been 3,000 barrels.

The lawsuit also includes a demand for Transocean's drilling operations in the region to stop - permanently. This has real ramifications, since Transocean provides 10 of the 61 drilling rigs in the area. These rigs are some of the largest, deepest drilling on the planet, and they are in high demand worldwide. So they will be very difficult to replace.

Furthermore, situations like these scare away other oil majors with the capital and expertise needed to develop these fields. The fear is that Brazil is going to become another Venezuela. Big Oil hasn't forgotten how their expensive capital investments in Venezuela turned out.

And if you're an energy investor, you don't want to be exposed to challenging offshore fields where you risk losing everything if a prosecutor decides to attack your investment.

Furthermore, Brazil has a payout structure that rewards the state for higher prices. This sliding pay scale puts a cap on the returns of an oil and gas company. The risk-to-reward ratio in Brazil is higher than in most locations around the world.

It is time to reevaluate the risk of being invested in Brazil. Big Oil is watching the legal case, and will take into consideration the cost of doing business going forward.

Action to Take: Sell Petroleo Brasileiro S.A. (NYSE ADR: PBR) (**).

Petrobras is in a touchy situation. It is tasked with developing Brazil's offshore assets while its own government attempts to financially exploit the deep pockets of the investors who are needed to develop the projects.

Before the shale revolution in the United States, Brazil was the most logical place from which to expect a significant increase in production. Today, would you rather invest $100 million per well and risk a hostile national partner who takes a larger percent of the cut as prices increase, or would you prefer to invest $4 million to $6 million per well while owning the production?

It is time to sell Petrobras at market. The shale revolution is going to change the oil and gas markets significantly. Brazil's development plans are the most obvious victim of the coming changes.

The lawsuit by Brazil's Federal Prosecutor is a sign of the real business conditions in Brazil, and of things to come. There is easier oil to develop in the world.

(**) Special Note of Disclosure: Jack Barnes has no interest in Petroleo Brasileiro S.A. (NYSE: PBR).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed CARBO Ceramics Inc. (NYSE: CRR).

News and Related Story Links:

Bloomberg:
Chevron Oil Spill Spurs Lawsuit to freeze 17% of Brazils rigs
Businessweek:
Chevron ‘Permanent’ Ban Sought by Brazil Prosecutor on Spill
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Petrobras, Petroleo Brasileiro S.A. (NYSE ADR: PBR)

Buy, Sell or Hold: CARBO Ceramics, Inc.(NYSE: CRR) Are the Glory Days Over?

Jack Barnes — Tue, 17 Jan 2012 10:00:47 +0000

CARBO Ceramics, Inc. (NYSE: CRR) is one of those companies quietly making a killing in today's economy.

Thanks in large part to the natural gas boom, CRR is up over 328% off of the 2009 lows.

However, how long it can maintain its status as a high-flier is another matter entirely.

In fact, I expect that CARBO's entire business model is about to come under attack, which is why now is a good time to sell.

Here's why.

CARBO is one of the world's biggest suppliers of proppant. It's one of the key ingredients in the shale oil and gas boom that is turning places like Williston, ND, into boomtowns.

The Risks Behind Horizontal Fracking

But there is risk behind these boom towns...

A horde of upset environmentalists claim the fracking process responsible for the boom can affect the shallow water aquifers and harm the water supply.

What's more, the process also has been linked to an outbreak of small-to-moderate earthquakes, since the highly pressurized water provides a lubricant to faults underground.

This focus on fracking has caused some ironic situations.

For instance, in Youngstown, OH, a $650 million steel mill is coming to life thanks to the natural-gas drilling boom.

The mill is going to produce steel for rolling into the pipes used in the fracking and completion of new wells.

However, the irony is that the new mill is just two miles from an injection well for disposing fracking wastewater that was closed after 11 earthquakes shook the Youngstown area last year.

The net result is that while cheap energy is good enough to build a new steel factory in the heart of the Rust Belt, the same location is not good for disposing of the wastewater from a fracked well.

Nonetheless, Aubrey K. McClendon, chief executive officer of Chesapeake Energy Corp. (NYSE: CHK) believes, "This will be the biggest thing to hit the state of Ohio economically since maybe the plow."

A Glut of Natural Gas

As the nation sees its natural gas production increase to glut-like conditions, calls for a moratorium on drilling and hydrofracking will increase.

What's more, the price of natural gas hit $2.65 per MCF recently compared to the days when it used to trade in the double digits.

As I discussed in my natural gas forecast in yesterday's (Monday's) edition, most of the un-hedged natural gas producers are going to be feeling acute production cost issues by this spring and summer.

As a result, the demand for fracking supplies, either via market demand or via a government-issued moratorium, will impact the oil service providers.

That puts CARBO Ceramics directly in the crosshairs, since a growing audience is nervous about the possible side effects to the environment caused by the fracking process.

It's time to "SELL" CARBO Ceramics, Inc. (**).

Key Points on CARBO

You see, the key points to understand about CARBO Ceramics, Inc. are:

It's the largest private-sector fracking company.
A moratorium on fracking in the U.S. will impact it directly.
And there is competition in the growth cycle

CARBO Ceramics has been the poster child for success in the fracking industry. But while CRR has grown quickly over the last few years, driven by the unlocking of multistage fracking of horizontal laterals, there are risks.

It's the combining of these two technologies that's driven the shale revolution, and CARBO will certainly be one of the most affected companies if a movement to stop fracking wells takes hold.

In fact, the U.S. news cycle is full of articles portending a fracking moratorium. In the last week both an organization of doctors and elected government officials have called for an end to fracking.

"We need to understand fully all of the chemicals that are shot into the ground that could impact the water that children drink," said Rep. Ed Markey, D-MA.

There is also a growing demand by special interest groups to introduce moratoriums on hydrofracking.

The reasons may vary, but the implications to CARBO are definitely negative.

Additionally, oil and gas companies like EOG Resources Inc. (NYSE: EOG ) have started to mine their own fracking material in today's competitive world. The era of proprietary materials provided by third-party vendors is going to change.

So while the fracking itself may survive, the companies developing the wells are starting to look at ways to save on expenses like CARBO's fracking materials.

History & Background

CARBO was founded in 1987 and is headquartered in Houston, TX. The company has just over 800 employees and a market capitalization of $2.85 billion.

The company has an enterprise value of $2.85 billion, when net debt and cash is taken into consideration. In this case, the company has no net debt, and a small cash balance as of the last reported results through Sept. 30, 2011.

Action to Take : "Sell" CARBO Ceramics, Inc. (NYSE: CRR) (**). The glory days of providing fracking solutions to the oil & gas sector are ending, as the largest O&G companies bring this specialized process in-house to keep their margins fatter.

Let's look to book any gains we have in CARBO Ceramics and redeploy that capital elsewhere. The stock is ripe for a market pullback in my opinion. When you add in its attempts to extract information about anyone who is interested in researching public information about the company, you have to wonder how long it will be before something negative comes to light.

Let's use limit orders at or near the current market prices to exit this stock and look for more friendly locations to seek risk.

(**) Special Note of Disclosure : Jack Barnes has no interest in CARBO Ceramics, Inc. (NYSE: CRR).

News and Related Story Links:

Bloomberg:
Gas Boom Has Youngstown Making Steel Again
SF GATE:
Fracking Moratorium Urged as Doctors Call for Health Study
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: carbo ceramics, CARBO Ceramics Inc. (NYSE: CRR), carbo ceramics nyse

2012 Natural Gas Price Forecast: Why to Avoid the "Widow Maker"

Jack Barnes — Mon, 16 Jan 2012 10:00:30 +0000

I've been watching natural gas for years now and find myself shaking my head lately.

The cost to buy the "clean energy" is collapsing as crude oil, a product that needs refining, stays above $100 per barrel.

In fact, this chart for natural gas is what I call a Widow Maker.

Take a look:

As you can see, it shows the price of the March 2012 NG contract over the past two years - and it's not pretty.

Why Natural Gas Prices Will Continue to Drop

The last time I wrote about natural gas for Buy, Sell or Hold was November 2010.

At the time, natural gas was about to start its most seasonally bullish period of the year. I recommended a multi-month trade with an exit by the end of the March 2011 contract.

However, this year is completely different. Natural gas has collapsed in price instead of climbing during the peak winter cold months.

While it's been a warmer than normal winter across the United States, especially in the Snow Belt, this price drop has more to do with U.S. production rising on a year-over-year basis than it does the weather.

Ordinarily, the ratio of gas to oil on a BTU basis is 6:1. Today, with natural gas selling for $2.65 or so and crude over $100, though, the same ratio is currently 37:1 - not even close to the historical benchmark.

The next chart explains why natural gas pricing is going down and will stay down longer than most people expect.

Currently, the number of natural gas rigs is still climbing in the Eagle Ford area, while remaining level in the Bakken and Marcellus shale formations.

Why this matters is simple: These rig counts will have an impact on U.S. natural gas prices far into the future.

Here's why.

Eagle Ford shale wells, while called "gas," have a "wet sweet" production profile. In other words, they also produce natural gas liquids.

These liquids are super sweet (that is, they are very low in sulfur) and make a great blending stock with heavy sour oil, allowing producers to take two products derived at sub-spot crude oil prices and blend them into a West Texas Intermediate (WTI) equivalent.

Again, these wells are being drilled for their crude oil-like liquids rather than their gas, at close to $100 a barrel for crude versus about $2.65 for natural gas.

The kicker? They typically have to produce the gas anyway to lift the liquids out.

As a result, the natural gas market stays saturated with new incremental supplies, which works to keep natural gas prices low.

I expect this trend to continue into 2012, making higher natural gas prices unlikely.

Oversupply: A Glut of Natural Gas

A bit of history shows us why...

Before the buildout of natural gas combined-cycle power plants in the 1990s, the United States had a yearly glut in gas. Producers actually shut down their production wells for months at a time.

What's more, there was no takeoff capacity to produce more gas, since the pipelines were full and the storage facilities were maxed out.

Today, we have returned to a similar environment.

In fact, the United States has a large selection of individual natural gas basins and prices are rarely the same in each, due to pipeline takeoff capacity and other similar factors.

As a result, we could see individual basins with a short-term price of $0.00 per Mcf (1,000 cubic feet) this summer. That's no typo. The cost of natural gas in certain places could go to zero.

Further, I expect to see un-hedged natural gas producers go bankrupt this fall, since the cost to carry production on leased lands exceeds the value of the cash flows from the fields.

You see, natural gas will be worthless to its producers for a period of days or weeks at a time.

This will impact the top and bottom lines of companies that have to produce, let alone sell, into that environment.

There may even be localized negative rates created when a company has to produce from lease properties or return the ownership to the mineral rights holders.

It is a case where companies put millions into drilling wells on a ranch and then can't sell their product because there is no market for it.

The Long Term Outlook for Natural Gas

I don't expect to see a clear trend change in natural gas prices until 2013 or later depending upon the buildout of U.S. liquid natural gas export capacity.

The U.S. government has received a growing list of requests from LNG import facilities, to allow them to be converted into LNG export facilities. These conversion projects will start to come online in 2015. So far there have been plans submitted to export the equivalent of 17% of the United States' daily natural gas production, but for now that production has to sell within the United States - or not.

If all of these facilities are built, the United States could be the world's largest liquid natural gas exporter by 2020. Just a few years ago the United States was projected to be the largest consumer of liquid natural gas by 2020.

Needless to say, the swing from one extreme to the other has been staggering.

In the meantime, smart investors will stay out of the way of the Widow Maker. Expect natural gas prices to stay low for 2012 and beyond.

It is also time to start considering the impacts that a natural gas glut will have on the companies providing drilling supplies to the exploration and production (E&P) companies.

Some high-flying stocks in the O&G service sector will be negatively impacted when the rush to drill and frack a shale well is over. The golden days of the shale rush are just about over and with that, a return to gravity for some of these high-flying stocks.

In my next Buy, Sell or Hold piece, I will be looking at one of those high-flying stocks, which is facing a moratorium on its business model.

The implications are bigger than the market realizes.

News and Related Story Links:

Money Morning:
Prepare for Iran's Energy Market Chaos with the United States Oil Fund LP (NYSE: USO)
Money Morning:
Small Shale Oil Companies Make Prime Take Over Targets
Money Morning:
Foreign Funding Ushers In a New Era of Profit Opportunities for U.S. Gas Companies

Tags: 2012 natural gas price forecast, long term natural gas price forecast, natural gas price forecast, natural gas prices

All I Need to Know About Johnson & Johnson (NYSE: JNJ) I Learned 30 Years Ago

Jack Barnes — Mon, 09 Jan 2012 10:00:15 +0000

All I need to know about Johnson & Johnson (NYSE: JNJ), I learned at my first job at a broker dealer.

To this day, the firm I worked at is one of the largest assets under management (AUM) shops in the world. And while there I had a mentor, who I will call "Joe" to protect his anonymity

Joe was something of a stereotype. He was freaky with math, loved chess, never married, and wore a really bad toupee.

He was also the happiest person in the building.

You see, Joe was worth more than pretty much everyone else who worked on our floor - all upper-management included. He never feared the stock market and would whistle while others cried over their 401k performances.

Joe's secret to success was that he owned a position in Johnson & Johnson. He had worked for the company in the past, and he'd built up a nice-sized block of stock while he was there. Better still, he added to this single position with every dividend.

In a business that preaches diversification, Joe did the exact opposite in his personal life - and it worked for him. I would never suggest an investor fixate on a single investment the way Joe did, but in his context it was amazingly rewarding.

Joe called Johnson & Johnson a once-in-a-lifetime investment - and in a way it still is.

Johnson & Johnson has split at least three times in the last twenty years, and has grown its dividend during that time. It is currently yielding about 3.5%, which is head-and-shoulders above what U.S. Treasuries and bank accounts are paying.

And while the stock has not gone up much in the last decade, the dividends have been pouring in, buying new shares, and in the process compounding the real rate of return on invested capital.

So it's time to buy Johnson & Johnson (NYSE: JNJ) (**).

We may never be like my friend Joe, with a zero average cost basis on a growing pile of shares, but we can still enjoy some of the slow and steadily growing dividend from this AAA-rated company.

Here's how.

125 Years of Excellence

Johnson & Johnson's positive attributes include its status as the world's most comprehensive and broadly based manufacturer of healthcare products.

When you think of products like Tylenol, Sudafed, Motrin, or Listerine, you are thinking of Johnson & Johnson. The company is currently celebrating its 125th year of business, having risen to prominence with more than 114,000 employees in 60 different countries.

Equally impressive is Johnson & Johnson's performance over the last four decades. It's been simply amazing. The company has reported 27 consecutive years of earnings increases, and 49 consecutive years of dividend increases.

Indeed, Johnson & Johnson has built up the capacity to profit even in the lean years and it's proven to be one of the best long-term investment vehicles available.

That's why it is one of the last AAA-rated credit risks left. It's also why you should want a slice of the company for your portfolio.

As of 2010, total sales for Johnson & Johnson were $61.6 billion. Furthermore, the company generated more than $14 billion in free cash flow.

I love free cash flow. It gives you an idea of where a company is going. And J&J has certainly shown signs of accelerating.

The company announced sales of $16 billion for the third quarter of 2011 - a 6.8% increase from the third quarter of 2010.

Domestic sales declined 3.7%, but international sales increased 16.4%, reflecting the company's strong global positioning. J&J operates more than 250 companies in 60 countries with approximately 50% of sales outside of the United States.

The company is scheduled to report its fourth-quarter and full-year 2011 earnings on Jan. 24.

Research is one of the key drivers of Johnson & Johnson's success, with products introduced in the last five years accounting for 25% of global sales. This is a huge number, and it explains why the stock and its investors have had market-beating results over the last decade or so.

So there's really no question here. My friend Joe had it right. And with so much volatility and uncertainty in the markets today, there's never been a better time to buy.

Johnson & Johnson stock closed Friday at $64.83 a share. That's at the higher end of its 52-week range, but the stock still sports a 3.5% dividend yield, which makes it a bargain.

Action to Take: Buy Johnson & Johnson (NYSE: JNJ) (**).
You only have to look at the yield on U.S. Treasuries to know that the world is experiencing a flight to safety. And Johnson & Johnson is rated higher than the U.S. Treasuries and sports a higher yield.
So let's pick up our position now. It's time to focus on safety of capital.
In addition to the dividend, you can pick up some extra cash flow each quarter by writing covered calls on your shares. The slow trading range of the last decade allows us to comfortably write covered calls on this stock. We can always buy back in, if necessary.

(**) Special Note of Disclosure: Jack Barnes has no interest in Johnson & Johnson. (NYSE: JNJ).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzedthe United States Oil Fund LP (NYSE: USO).

News and Related Story Links:

Johnson & Johnson:
2010 Investor Fact Sheet
Johnson & Johnson:
Investor Download Library
Money Morning:
Buy, Sell or Hold: Exxon Mobil Corp. (NYSE: XOM) Again Proves to Be a Profit Gusher
Money Morning:
Buy, Sell or Hold: With $44 Billion in Cash and a Focus on Shareholder Value, It's Time to Buy Microsoft Corp. (Nasdaq: MSFT)
Money Morning:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Johnson & Johnson (NYSE: JNJ)

Prepare for Iran's Energy Market Chaos with the United States Oil Fund LP (NYSE: USO)

Jack Barnes — Wed, 04 Jan 2012 10:00:58 +0000

Iran kicked off the New Year with aggressive messages for the Western world, setting the stage for heightened political tensions and a huge oil price push in 2012.

Oil futures finished at their highest level in eight months yesterday (Tuesday), with West Texas Intermediate crude jumping 4.2% to settle at $102.96 a barrel on the on the New York Mercantile Exchange (NYMEX).

The surge came after Iran warned a U.S. aircraft carrier to stay out of the Persian Gulf. The message fueled speculation that Iran will make good on its threat to close the Strait of Hormuz to oil tankers.

An average of 14 supertankers carrying one-sixth of the world's oil shipments every day pass through the Strait, a narrow channel which the U.S. Department of Energy calls "the world's most important oil chokepoint."

With global oil demand expected to rise to a record 89.5 million barrels per day in 2012, a major disruption to oil exports from Iran would drastically affect pricing.

Even though Iran has made such threats repeatedly over the past 20 years, tighter sanctions imposed by the United States and Europe may have pushed the country to its breaking point. Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.

Now Iran is expected to trigger oil market performance similar to spring 2011, when Libya's civil war caused oil prices to spike close to $115 a barrel.

In fact, if the Iranian government made good on shutting down the Strait, oil prices would probably shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.

While we can't control Iran's actions, we can control how we prepare for whatever political and economic turmoil it inflicts. That's why it's time to buy the United States Oil Fund LP (NYSE: USO).

Global Political Tensions Will Bolster US Oil Fund

Iran is trying to scare the world out of imposing more sanctions against it, which drastically limit the country's ability to conduct business.

The latest sanctions, signed into law by U.S. President Barack Obama last Saturday, will make it far more difficult for refiners to buy crude oil from Iran, the world's fourth-largest oil exporter.

Tehran has slowly been isolated from the global economy after decades of increasingly strict regulations. One of its only steady relationships was an energy trade with Europe. Iran sold crude oil to the European Union (EU) in exchange for gasoline imports, which provided 50% of Iran's gasoline needs.

But now increasing political strife has deteriorated that arrangement.

The EU next month will consider an embargo of Iranian oil, which also means the end of refined gasoline exports from Europe to Iran.

Iran-EU relations started to fall apart in November when Britain cut business transactions with all banks in Iran, including the central bank, in response to news that Iran was building nuclear weapons. Then Iranians on Nov. 29 stormed two British Embassy compounds in Tehran to protest the sanctions, screaming "Death to Britain" and destroying British flags.

This attack not only brought back images of the American embassy staff that was held hostage for 444 days in 1980, but also greatly increased the chances of a military attack this year involving Iran and the Western world.

Now the British have closed down their embassy in Tehran, and have ordered the Iranians to close their London-based embassy. Norway also decided to close its embassy in Tehran, and Germany and France have recalled their respective ambassadors for consultations.

All this, in my opinion, could be the prelude to bombing attacks.

While the world has waited for Israel to start a unilateral bombing campaign to hit Iranian nuclear facilities, I now think that it could be done by North Atlantic Treaty Organization (NATO) countries.

A bombing campaign to disrupt the Iranian nuclear facilities would also be a catalyst for higher oil prices. Such a military move will include attacks on Iran's oil production and refining capacity. This will drive up oil prices significantly for a short-term spike.

While Saudi Arabia can increase its oil output in the near term, that won't last. We want to be exposed to the United States Oil Fund LP before anything drastic happens, because the market will react suddenly.

The Fund has climbed about 28% since October. It rose 4.15% yesterday to close at $39.69.

Action to Take: Buy United States Oil Fund LP (NYSE: USO) (**).

We need to prepare for rising oil prices through investments that track the commodity.

I would suggest putting one-third of your position in USO shares at the current market price to start.

Let's use good-"til-canceled limit orders for the rest of the position. The second one-third portion should be purchased around 5% lower than the current price, and the third should be 10% lower.

(**) Special Note of Disclosure: Jack Barnes has no interest in United States Oil Fund LP. (NYSE: USO).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Fiat S.p.A. (PINK: FIATY).

News and Related Story Links:

ComputerWorld:
Hackers may have spent years crafting Daqu
The Australian:
A second Iranian Nuclear Facility has exploded
The New York Times:
Israeli Test on Worm
Wikipedia:
SCADA
Reuters:
Britain pledges support for Iran oil embargo
The Wall Street Journal:
EU Split on Iran Oil embargo
Voice of America:
Iranian Protestors Storm British Diplomatic Compounds
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Gas Prices, gasoline prices, heating oil price history, heating oil prices, historical oil prices, history of oil prices, Iran, natural gas prices, oil and gas prices today, oil price history, oil price per barrel history, Oil Prices, oil prices per barrel history, United States Oil Fund LP (NYSE: USO)

How the European Debt Crisis Could Smother Fiat S.p.A. (PINK: FIATY)

Jack Barnes — Thu, 22 Dec 2011 10:00:01 +0000

Around this time last year I warned you that the Eurozone debt crisis would trample the Italian economy and take carmaker Fiat S.p.A. (PINK: FIATY) down with it.

To profit from this debacle, I told you to short Fiat. Since then, the stock has tumbled 76%, from $19 a share to yesterday's (Wednesday's) closing price of $4.66.

Fiat is a perfect example of how an unstable home market - like Italy - will kill a struggling company's stock. Fiat is Italy's largest private sector employer, and the past year's market performance mirrors the weakness unleashed by the European debt crisis.

Sadly, Fiat won't be the only company whose shares will plunge.

TheEuropean debt crisis has grown from a problem on the edge of Europe to a problem inside the region's core. You only have to look at the series of bank stress tests that Europe has rolled out to see that things are getting worse, not better.

In fact, the European Central Bank (ECB) announced yesterday that it would provide $638 billion (489 billion euros) in three-year loans to more than 500 banks in the Eurozone. More than a dozen Italian banks borrowed $143.52 billion (116 billion euros).

But the solution is only short term, and the region's grim long-term outlook hasn't changed. We're heading toward a point of maximum pessimism - one I think we'll reach sooner rather than later.

So, it's time to thank the Eurozone, Italy, and Fiat S.p.A. for a great short trade and close it out.While the stock could go all the way to $0, the meat of the move is over, and we want to take profits before a major short-covering event gives the share price a temporary boost.

Fiat S.p.A.: Stung by the European Debt Crisis

The European Central Bank forecasts Eurozone growth will slow to a near standstill next year, with gross domestic product (GDP) only expanding 0.3%. The ECB said area-wide inflation will reach 2.7% in 2011.

This slow-growth, higher-priced environment won't bode well for the region's automakers, which are already feeling the effects.

Automobile registrations in Europe in November dropped 3% to 1.07 million vehicles from 1.10 million a year earlier. That's the biggest decline since June, according to the Brussels-based European Automobile Manufacturers Association. The Italian auto sales market led the region's declines, slipping 9.2%. France was close behind at 7.7%.

Fiat's U.S. arm, Chrysler Group LLC, has performed better than its Italian counterpart, but not enough to carry the company. Chrysler's U.S. sales jumped 45% in November.

Fiat has talked about a Chrysler initial public offering (IPO), but has none planned. Meanwhile, the European debt crisis weighs on the potential strength the company could leverage from the U.S. market.

I would not be surprised if Fiat ends up filing bankruptcy in the medium term.

It could save itself and decide to cut Italian production and seek more profitable manufacturing locations around the world. In fact, Fiat and Chrysler said yesterday that they would focus more on international growth with the opening of parts distribution centers in Shanghai and Dubai.

Fiat Chief Executive Officer Sergio Marchionne said Dec. 14 the European debt crisis is too big to plan for, but the company was looking for help outside of Italy. He said the 2012 earnings forecast will be revised in light of the crisis, but has not yet released those updates.

With so many local investors cutting their losses and looking elsewhere for profits, Fiat may have no choice but to join them in the mass exodus.

In fact, here's a real-life example I'll leave you with.

Occasionally I field calls from an old friend in Berlin looking to talk money. Recently he got in touch with me to discuss how to preserve capital. He is fed up with an investing world where his local currency, the euro, is becoming increasingly worthless.

This friend has a Ph.D in finance, and has spent his career auditing major European banks. He has spent years voicing his hatred for the U.S. dollar and all related investments.

But now, he's throwing in the towel. He's ready to invest in U.S. companies and wants to swap out his euros for U.S. exposure.

When a dyed-in-the-wool dollar bear is going against his own thesis, swapping his economic exposure due to fear, I think a bottom is arriving.

Action to Take: Sell Fiat S.p.A. (PINK: FIATY).

Fiat has slumped 76% since my recommendation to short the stock. It could go to $0, but it's better to take the profit now, before short-covering causes a short share-price rally.

When I told you to short Fiat last year, I paired it with a long holding in Ford Motor Co. (NYSE: F). If you still have Ford in your portfolio, keep it. Normally, I unwind both legs of a trade, but I think Ford will profit in the New Year.

I like how Ford has been paying down its debt, saving the company real costs down the road. Production costs will also get cheaper as U.S. steel manufacturing picks up next year.

(**) Special Note of Disclosure: Jack Barnes has no interest in Fiat S.p.A. (PINK: FIATY).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed AeroVironment Inc. (Nasdaq: AVAV).

News and Related Story Links:

Bloomberg:
Peugeot, Fiat Lead European Car-Sales Drop as Economy Stalls
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: cause of european debt crisis, causes of european debt crisis, European Debt Crisis, european debt crisis causes, european debt crisis explained, european debt crisis summary, european debt crisis timeline, european debt crisis wiki, eurozone debt crisis, Fiat S.p.A. (PINK: FIATY)

AeroVironment Inc. (Nasdaq: AVAV) Is the Future of the Defense Industry

Jack Barnes — Mon, 19 Dec 2011 10:00:33 +0000

If you don't know about AeroVironment Inc. (NASDAQ: AVAV), it's a name you need to follow.

My fascination with the founder of AeroVironment, which designs, develops, produces, and supports aircraft and energy systems, started when I was 12 years old. History was made that year when a man-powered aircraft flew across the English Channel for the first time.

I remember the flight clearly. The 70-lb aircraft made the 26-mile journey in 2 hours and 49 minutes.

The idea that a man could pedal a bicycle fast enough to fly across the channel seemed crazy to me at the time. But it was made possible because of groundbreaking designs by Dr. Paul MacCready.

MacCready made the first human-powered aircraft in 1977, the Gossamer Condor. Two years later came the Gossamer Albatross, the first fully human-powered aircraft to cross the English Channel. MacCready won the prestigious Kremer prize, which honors pioneers in human-powered flight, for each design.

His innovative creations led TIME magazine to call him one of the "greatest minds of the 20th century."

MacCready started AeroVironment in 1971. His imagination and persistence helped the company become a leader in creating UAVs (Unmanned Aerial Vehicles). Now AeroVironment has grown into the largest provider of UAVs to the U.S. military.

UAVs will play an incredibly important role in our country's future. The art of war is evolving, and these devices have become the next key tool in the U.S. arsenal.

With its great niche in the defense industry, AeroVironment Inc. is a "Buy." (**)

Providing for the Future of Defense

When I think of UAVs, I think of the hunter-killer models the United States uses in its "War on Terror."

However, those are typically large, expensive, unmanned planes with missiles attached to them, which can fly three to five days without refueling. But in fact the U.S. military has purchased thousands upon thousands of small handheld UAVs, with the smallest designs weighing less than five pounds each.

These drones are revolutionizing the real-time gathering of battlefield information. The smaller breed of UAVs use a localized Wi-Fi type communications package instead of broadcasting their information to military satellites. This gives field troops direct access to intelligence, without it having to be relayed back from the United States.

The new UAVs also allow American soldiers to scout enemy territory without having to risk their lives.

AeroVironment provides 85% of the UAVs used in Iraq and Afghanistan, according to the U.S. Department of Defense.

The company is behind the popular Raven B drone, the most commonly used in the U.S. military, according to Bloomberg News. It weighs just a couple of pounds and looks like a small airplane. It's tossed in the air and allows a ground control unit to see infrared video from where it travels.

AeroVironment's next highly-anticipated product is a UAV called Switchblade, developed with help from the U.S. Air Force. It is carried conveniently in a tube, and can be transformed during its flight into a weapon if an enemy is spotted. The U.S. Army recently put in a $6 million order for Switchblade.

The U.S. government will wind down defense spending over the next few years, but UAVs are one of the few growth areas in the Pentagon's military budget. AeroVironment will benefit from this spending, especially because it has an established relationship as the major UAV supplier for the military.

AeroVironment also will boost profits by branching out beyond the military. As technology gets cheaper, private sector demand for UAVs is growing. Police organizations, for example, have put these tools to use by employing them to look for escaped prisoners or lost civilians.

AeroVironment's second-quarter earnings for fiscal 2012 blew away the results of the same quarter last year. Profit soared to $6.6 million, or 30 cents a share, from $262,000, or one cent a share. Revenue was up 26% to $80.4 million.

Analysts surveyed by Thompson Reuters predict income of 45 cents a share on revenue of $89 million for the third quarter.

AeroVironment currently has a market cap of about $670 million, with an enterprise value of $500 million once net debt and cash are taken into consideration.

The company has no debt, and $177 million in net cash. This gives the stock a cash value of $8.15 per share. The stock is up 17% this year.

I love to find a company that has 30% of its market cap in cash, with a large niche market and a history of performing well.

Action to Take: Buy AeroVironment Inc. (Nasdaq: AVAV) (**).

When we go to pick up this stock, you are going to want to be methodical and use small limit orders to build your position. Normally I suggest that you buy at market or you should enter limit orders at specific discounts to the current market price.

This time, I think you should use patience.

A patient investor should put in good-til-cancelled limit orders for share-price dips of about 2% and expect to get a fill over time.

(**) Special Note of Disclosure: Jack Barnes has no interest in AeroVironment Inc. (Nasdaq: AVAV).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Automatic Data Processing Inc. (Nasdaq: ADP).

News and Related Story Links:

AV:
The flight Of The Gossamer Albatross
Bloomberg TV:
Toy Sized AeroVironment drones expose enemy
The Wall Street Journal:
AeroVironment 2Q Profit Surges On Contract Sales
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: aerovironment hummingbird, aerovironment inc., AeroVironment Inc. (NASDAQ: AVAV), aerovironment location, aerovironment nissan, aerovironment stock, aerovironment switchblade, aerovironment wind turbine, raven uav aerovironment

No Debt and High Yield Make Automatic Data Processing Inc. (Nasdaq: ADP) a "Buy"

Jack Barnes — Mon, 12 Dec 2011 10:00:55 +0000

Most people aren't incredibly familiar with Automatic Data Processing Inc. (Nasdaq: ADP), but it's a company every investor should know.

You see, ADP, which provides payroll and human resources services to businesses, has two important traits that investors need in their portfolios right now.

First, it has virtually no debt. Its unleveraged balance sheet has made it one of the few U.S. companies with a AAA credit rating from Standard & Poor's. It also has a perfect credit rating from Moody's Corp. (NYSE: MCO).

Companies with such a high rating from S&P are rare, and the number of countries with that rating is dwindling. Even the United States is no longer in the AAA group. But this isn't the only special category in which ADP belongs.

It's also a "Dividend Aristocrat." This is the title Standard & Poor's gives companies that boast a AAA rating and have a history of raising their dividends for at least 25 years. There are currently only three U.S. stocks that are both "Dividend Aristocrats" and have a AAA rating from S&P - two things investors should look for in this volatile environment.

That's why it's time to buy Automatic Data Processing, a debt-free, steady dividend payer with a solid future. (**)

Automatic Data Processing Inc.: Safe and Profitable

The once-deep list of U.S.-listed AAA companies has dwindled to a small group of four. I've recommended a couple of them before -Microsoft Corp. (Nasdaq: MSFT) and Exxon Mobil Corp. (NYSE: XOM). Johnson & Johnson (NYSE: JNJ) is the fourth.

These stocks are among the safest you can find. Safety isn't easy to come by with the economy looking as it does, but these companies have positioned themselves for long-term survival. You can be pretty sure that years from now Microsoft and Exxon will still be around, generating profits.

ADP likely will, too. It's a profitable and growing company. ADP is in an industry that isn't likely to disappear. It also has a high client-retention rate, and the high cost incurred by companies that switch to another back-office service provider is a huge deterrent to leaving.

It also has a long history of regularly paying its dividend.

Today, ADP pays out 3%, and is expected to increase that rate over time. It announced Nov. 8 it would increase the next dividend payout by 10%. ADP is one of the few companies with the capacity to increase its yield significantly since it has no outstanding debt. It pays about 56% of its earnings as dividends.

ADP recently got a new chief executive officer, long-time employee Carlos Rodriguez, who was being groomed for the position for years. Rodriguez replaces former leader Gary C. Butler, who retired suddenly last month. The transition has been handled incredibly well, even with many questions surrounding Butler's exit.

ADP on Oct. 26 reported revenue of $9.9 billion and earnings per share (EPS) of $2.52 for fiscal 2011.Gross profit hit more than $4 billion. It expects revenue growth of 7% to 9% in 2012 and EPS growth of 8% to 10%.

The company has a market cap of $23.8 billion with an enterprise value of $22.8 billion once net cash and debt levels are taken into consideration. That's a serious surplus of cash.

Its stock is up 13% so far this year. Market researcher Trefis gives it a price target of $57.67, about a 10% premium to where it's trading now.

Action to Take: Buy Automatic Data Processing Inc. (Nasdaq: ADP) (**).

Automatic Data Processing Inc. has enough liquidity that we should pick up our position at market prices. The stock is stable despite the current market downdrafts (fitting for a AAA-rated company).
Let's go ahead and take a full position on the stock, instead of buying some shares now and some later.
We can use the options market to generate additional cash flow from this position if we want. Covered calls are used by some investors with a company that isn't expecting a major breakout. When you compound the results of the original dividend with a covered call strategy, you can generate a significantly higher rate of return than the return generated by the share price.

(**) Special Note of Disclosure: Jack Barnes has no interest in Automatic Data Processing Inc. (Nasdaq: ADP).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his previous BSH column, Barnes analyzed Anadarko Petroleum Corp. (NYSE: APC).

News and Related Story Links:

Morningstar:
ADP chief’s exit followed South Carolina arrest...
Smart Money:
AAA Rated Companies with 3% dividend
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Automatic Data Processing Inc. (Nasdaq: ADP)

Anadarko Petroleum Corp.(NYSE: APC) is a "King" in the U.S. Oil and Gas Industry

Jack Barnes — Mon, 05 Dec 2011 10:00:43 +0000

Anadarko Petroleum Corp. (NYSE: APC) has been a big player in U.S. onshore oil and gas production, and it's about to get significantly bigger, unlocking incredible profits for investors.

Anadarko has stakes in some of the most prolific U.S. oil fields in Texas, Colorado, Wyoming, Utah, and Pennsylvania. It's also an international leader in unconventional production, employing methods like horizontal drilling to increase productivity rates from deep wells.

But a recent major development will propel Anadarko to the top of the U.S. oil and gas industry.

You see, the company reevaluated one of its Colorado oil fields and now believes it holds between 500 million and 1.5 billion barrels of oil and natural gas. This is huge. A billion-barrel field is a rare find; only a handful have been discovered in the United States.

This new discovery could increase Anadarko's annual production rate in the region by 20% in 2012. It also prompted Tudor, Pickering, Holt & Co. analysts to name the company "King of the Rockies" and raise its net-asset-value estimate for Anadarko by 5% per share.

Anadarko was already solid, but the new discovery has made it a must-have investment in the oil and gas industry. It's time to buy Anadarko Petroleum Corp. (**)

Anadarko Petroleum Corp.: An Oil Industry "King"

Anadarko's big oil find came from the Wattenberg shale in northeast Colorado. The formation was first discovered in 1970 and is listed in the top 20 U.S. oil and gas fields.

Anadarko has been using horizontal drilling, the technology it uses in the Eagle Ford shale oil field in Texas, to unlock the liquid-rich Wattenberg. Based on 11 test wells, Anadarko is confident it can drill between 1,200 and 2,700 wells over time, and will ramp up Wattenberg's development by drilling 160 wells in 2012.

The Wattenberg wells also have a quick payback rate.

A great example of this is its Dolph 27-1 well in the middle of the Wattenberg field. Anadarko has a 100% working and net revenue interest in the well, so it funds all operations as well as collects all the revenue. The well has 600,000 barrels of estimated ultimate recovery (the amount of oil and gas potentially recoverable from the well).

That gives the well about $15 million in net present value before taxes. (These numbers are based on New York Mercantile Exchange oil prices of $90 per barrel, and an operating cost of $4.50 per thousand cubic feet.) Each well costs about $4 million to $5 million initially in operating costs.

The company put the Dolph 27-1 well into production and it took just over 120 days to get its payout back. That means a four-month payback on a well that has produced up to 600 barrels per day.

The higher oil prices climb, the faster the payback. And that's on top of the profits pouring out the Eagle Ford, which has had shocking levels of production lately.

What a way to start the company's next chapter now that it has finally put the Gulf oil spill behind it. Anadarko owned a 25% stake in the Macondo well that exploded April 20, 2010 and leaked oil for almost three months.

The disaster could have bankrupted Anadarko, but its management - led by Chief Executive Officer James T. Hackett - successfully steered the company through the settlement process. Anadarko in October ended a long battle with BP PLC (NYSE ADR: BP) when it agreed to pay $4 billion in well-related claims in exchange for waivers of additional liability. This lifts uncertainty surrounding Anadarko's future spill-related costs.

The company currently has a market cap of $40 billion, with an enterprise value of $50 billion once you take net debt and net cash into consideration. The stock has gained 16% in the last year. Analysts give it a one-year price target of $100.40, which represents a 25% premium to Friday's $80.49 closing price.

Action to Take: Buy Anadarko Petroleum Corp. (NYSE: APC) (**).

Anadarko is a solid long-term investment. It has turned around its risk profile and is now sitting pretty on the most prolific U.S. oil fields.

Let's pick up our position in Anadarko now using limit orders near the current market price. There's also a liquid options market, which will generate some cash flow if you want to add it to your covered call portfolio.

(**) Special Note of Disclosure: Jack Barnes has no interest in Anadarko Petroleum Corp. (NYSE: APC).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Barnes & Noble Inc. (NYSE: BKS).

News and Related Story Links:

The Wall Street Journal:
Anadarko Raises Colorado Oil Tally
MarketWatch:
Anadarko strikes it big in the rocky mountians
Money Morning News Archive:
Previous "Buy , Sell or Hold " Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Anadarko Petroleum Corp. (NYSE: APC)

Struggling Barnes & Noble Inc. (NYSE: BKS) Will See Its Stock Plunge – For Good

Jack Barnes — Mon, 28 Nov 2011 10:00:00 +0000

Don't believe the recent rally in Barnes & Noble Inc. (NYSE: BKS) stock - it's not going to stick.

In fact, this stock is ready to plunge.

The share price has been on a roller coaster ride all year. It climbed in February to over $18, fell to almost $8 in April, rose to around $21 in June, and then slipped to $10 in October.

Now it's on a tear again. It's moved up by 5% to 10% per day lately, soaring 65% in the past month.

But this move isn't based on strong fundamentals and good earnings. In fact, Barnes & Noble's business faces serious obstacles.

The book-retailing sector has been struggling with the growing popularity of eBooks. While Barnes & Noble has benefited from deep-pocket investors who have built a major stake in the company, the fundamentals aren't there to support this investment. It is extremely overleveraged, and the company has reached the stage where it's borrowing money to pay high dividends.

That is never a long-lasting business model.

The market agrees with this sentiment, building one of the largest short positions in a public stock.

You see, I believe the majority of Barnes & Noble's share price climb is due to shorts covering their positions. As of Oct. 14, 46.7% of the float was short.

Once this short cover period is over, I expect the stock to fall again, dipping even lower than before.

So it's time to sell Barnes & Noble Inc., before the stock rally collapses and all you're left with is a weak company in a struggling sector. (**)

Barnes & Noble Inc.: A Dying Breed

Barnes & Noble Inc. is one of the last major bookstore chains left in America. The Internet and new competitors like Amazon.com Inc. (Nasdaq: AMZN), along with the proliferation of eBooks, have ravaged the sector.

Amazon.com completely changed how people shopped for reading material. Once eReaders hit the struggling book sector, the ability of bookstores to pay rent, power, lights, and salaries at physical locations went the way of the dodo bird: extinct.

In the end, there is only Barnes & Noble. As of Oct. 20 they still operate 704 bookstores in 50 states, as well as 635 college bookstores serving 4.6 million students and faculty. It also operates Barnes & Noble eBookstore and provides Barnes & Noble eReader software.

Its most famous bricks & mortar competitor, Borders Group Inc. (PINK: BGPIQ), was dissolved in bankruptcy court this year. This helped boost Barnes & Noble's sales by 2% last quarter.

But the company still lost $57 million, or 99 cents a share. Even with sales getting a $150 million to $200 million lift from the Borders closing, B&N is predicting a full-year loss of 10 cents to 50 cents a share. It will report third-quarter earnings Thursday, Dec. 1.

Even its Nook Tablet won't boost the company into positive territory. While it has helped sales, it faces tough competition from fresh models of the Amazon Kindle and the tablet winner, the Apple Inc. (Nasdaq: AAPL) iPad 2.

The market currently gives Barnes & Noble a market cap of $850 million; however, once you take net cash and debt levels (otherwise known as enterprise value) into consideration, the company is valued at $1.4 billion.

The company has a reported forward dividend of rate of 8%. However, this was due to a large $1.00 dividend paid in December 2010, and will not be maintained with falling profits.

Action to Take: Sell Barnes & Noble Inc. (NYSE: BKS) (**).

The stock is hitting new 52-week highs due to a short squeeze in the market itself, but the fundamentals of the company haven't changed.

Let's use this burst of short covering to sell your shares at market. There are significantly safer investments out there that pay a real dividend. Let's instead focus on buying fundamentally sound companies that we can hold for the long term.

(**) Special Note of Disclosure: Jack Barnes has no interest in Barnes & Noble Inc. (NYSE: BKS).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his previous BSH column, Barnes analyzed PepsiCo Inc. (NYSE: PEP).

News and Related Story Links:

Laptop Magazine:
Face-Off: Amazon Kindle Fire vs. Barnes & Noble Nook Tablet

Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.

JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Barnes & Noble Inc. (NYSE: BKS)

PepsiCo Inc. (NYSE: PEP) Is the Perfect Buy-and-Hold Investment

Jack Barnes — Mon, 21 Nov 2011 10:00:36 +0000

If they aren't already, long-term investors should be digging up some solid defensive plays, like PepsiCo Inc. (NYSE: PEP).

Everyone is familiar with PepsiCo, one of the leading manufacturers and marketers of food and beverage products. And with a strong business model, steady bottom-line growth, and a healthy dividend, PepsiCo is one of those rare buy-and-hold investments.

Although its name is typically associated with soda, PepsiCo has developed a diversified product line that supports a steady revenue stream from more than just fizzy drinks. PepsiCo, through its Frito-Lay and Quaker Oats subsidiaries, is the name behind consumer-favorite brands like Doritos, Tropicana, Gatorade, SoBe Lifewater, Cracker Jack, Rice-A-Roni, and Grandma's Cookies.

Many investors already know that, though.

What you might not know is that PepsiCo's future earnings are based on much more than delicious snacks for U.S. consumers.

This global powerhouse is investing in two areas that will drive food company profits going forward: emerging markets growth and "good for you" products.

It has struck deals to develop both initiatives this year, and the efforts are paying off.

Increased emerging markets sales boosted PepsiCo's revenue from those countries 33% last quarter. Sales of healthy products are on pace this year to hit almost $15 billion, and the company hopes to double that by 2020.

When you combine its new business focuses with its existing profitable product lines, PepsiCo is strong enough to weather a global economic storm - exactly what our portfolios need to include right now.

So it's time to buy PepsiCo Inc. (**).

PepsiCo Inc. Knows Where to Find Profits

Purchase, NY-based PepsiCo, founded in 1898, has had a strong presence in the U.S. food and beverage market for decades. Now it's working on replicating that brand loyalty in developing economies.

Pepsi announced last year that it was going to invest $2.5 billion in China - one if its highest growth markets - to expand its local capacity. It has massive plans for new manufacturing facilities, research and development centers, and brand-building programs.

The increased investment has already helped sales. In the third quarter, PepsiCo reported snacks volume grew in eight of its top 10 international markets, with snacks volume in Asia, the Middle East and Africa up 16% from the year before. China's snacks volume was up 31%, India up 26%, and Turkey 22%.

PepsiCo, recognizing the growing global focus on nutrition, also is starting a healthy-foods initiative.

It's expanding its product range to include more juice, dairy, and grain products, and expects healthier selections to make up about 30% of its portfolio in 10 years. Right now about 22% of PepsiCo products are considered "good for you."

It's already making strides in health with some global dealmaking. PepsiCo in September became the No. 1 juice and dairy company in Russia when it completed its $3.8 billion purchase of Wimm-Bill-Dann. And it has many more healthy products in the pipeline.

PepsiCo is reportedly working with a German company on a new yogurt product for the United States, will introduce iron-fortified snacks in India, is developing a new fruit beverage for Latin American markets, and is trying to identify nutrient-dense staple crops in sub-Saharan Africa to locally produce snacks.

PepsiCo's profits also will get a bump from continued food inflation. Global food prices are expected to increase 4% next year, and could climb even higher on supply squeezes. Costlier food prompted the company to raise product prices, which helped boost last quarter revenue by 13%.

Indra Nooyi, PepsiCo chief executive officer, said the pricing adjustments ,as well as increased consumer demand, led to well-balanced top-line and bottom-line growth last quarter.

The company reported revenue of $64.5 billion in the last trailing 12 months and gross profits of $31.2 billion. PepsiCo has been steadily increasing earnings for five straight quarters, with an average 1.7% increase in net income and 26.2% revenue growth. Revenue in the third quarter ended Sept. 30 rose 13.3% to $17.6 billion.

Pepsi has a market capitalization of about $100 billion, and an enterprise value of more than $121 billion once net debt and cash levels are considered. The company's 3.2% dividend yield makes it one of the higher yielding defensive megacaps.

Analysts give it an average price target of $70.17, a 9.9% premium to Friday's $63.85 closing price.

Action to Take: Buy PepsiCo Inc. (NYSE: PEP) (**).

PepsiCo Inc. is a strong defensive play with steady and stable growth and dividend yield. It provides investors with a place to park low-risk capital.

The stock has had a tight trading range in the last year. It is extremely liquid and has a liquid options market.

Let's buy our exposure while the market is weak overall, but use the market to help average into this one. If you want to invest 3% of your low-risk portfolio, let's buy 2% at market now.

For the last third, let's put in a limit order at 5% below your first fill.

Pepsi also makes a great covered-call vehicle. The stock is not going to run away from us if we cap our near-term upside, and if it did, we can always repurchase it on weakness.

(**) Special Note of Disclosure: Jack Barnes has no interest in PepsiCo Inc. (NYSE: PEP).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his BSH column last week, Barnes analyzed EOG Resources Inc. (NYSE: EOG).

News and Related Story Links:

PepsiCo Inc.:
3rd Quarter Earnings Press Release
CNBC :
I Can't Believe It's Pepsi
Forbes:
Pepsi Bubblin' Up To $71 With Tasty Push From Frito-Lay
Reuters:
PepsiCo lineup to look healthier in 10 years: CEO
Money Morning News Archive:
Previous "Buy , Sell or Hold " Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: coke and pepsi, pepsi beverage company, pepsi corporation, pepsi distributor, pepsi merchandiser, pepsico inc., PepsiCo Inc. (NYSE: PEP)

EOG Resources Inc.(NYSE: EOG) Is Looking to Lead U.S. Oil Production

Jack Barnes — Mon, 14 Nov 2011 10:00:19 +0000

EOG Resources Inc. (NYSE: EOG) has undergone a massive change in its business model - and it's paying off astoundingly.

EOG Resources used to be known as a leader in natural gas exploration and production.
But low natural gas prices led to declining profits. In fact, the company lost $70.9 million in 2010's third quarter.

So it embraced a major production and technology change. EOG perfected horizontal drilling techniques to access shale rock formations trapping large reserves of oil - instead of reserves of gas, as many competitors were doing.

Now EOG has transformed from a leading gas drilling company to a major oil producer, increasing its liquid production last year by 49%.

With this new production model, EOG's profits are driven by high oil prices instead of depressed natural gas prices. The company just reported its third-quarter earnings and the results are astonishing - it turned a loss from the same quarter last year into a blowout earnings surprise this year. Net income hit $541 million.

The bottom-line growth helped the company's share price rally 20% since earnings were released Nov. 2.

By changing its focus to profitable oil production, EOG Resources is now a low-risk, high-reward energy stock, making it a "Buy" for investors looking to cash in on rising oil prices. (**)

EOG Resources Inc.: Unlocking Profits from Shale Oil

EOG Resources is one of the largest independent (non-integrated) U.S. oil and natural gas companies, with proven reserves in the United States, Canada, Trinidad, the United Kingdom, and China.

It's the largest oil producer in North Dakota's Bakken Shale, and the largest producer in the Eagle Ford Shale in South Texas. These two shale oil fields have played a key role in ramping up U.S. oil production over the past few years, with each having an estimated 4 billion barrels of recoverable reserves.

EOG's extensive operations in these fields have pushed its total liquid production to 130,000 barrels per day, and Chief Executive Officer Mark G. Papa said he expects to reach 200,000 barrels per day in 2012. That could make the company the second or third largest oil producer in the United States.

EOG has 500,000 acres of Eagle Ford property, which is on pace to be its most prolific oilfield by 2013, according to Wunderlich Securities oil analyst Irene Hass. EOG has started to bring online well after well in the Eagle Ford with production in the region averaging 1,000 barrels of oil equivalent per day (boepd). Some wells are starting to crack as much as 3,000 barrels of light sweet oil per day.

The high volume Eagle Ford wells will allow the company to fund growing exploration programs in new regions without taking on debt. EOG is now officially focused on growing its production organically and using its shale drilling technology in undeveloped basins.

EOG keeps a shrewd focus on savings. It raised $1.5 billion last year to fund new drilling instead of borrowing the money. Since the cost of accessing existing pipeline is so high, EOG moves oil by rail, saving an estimated $5 to $10 a barrel. Its balance sheet boasts about $1.4 billion in cash and cash equivalents.

Analysts from Goldman Sachs Group Inc. (NYSE: GS) last week raised their EOG share price target to $118, and RBC Capital Markets (NYSE: RY) analysts set theirs at $119. Those prices are a 13.5% to 14.5% premium from Friday's closing price of $104.01, which pushed EOG's year-to-date gain to 13.78%.

Action to Take: Buy EOG Resources Inc. (NYSE: EOG) (**)

Looking at how the share price soared after the company's earnings announcement Nov. 2, this stock is ready to break out again.

This makes it a little harder for us to build our position. The stock is liquid, but when you start reporting new oil wells producing over 2,000 or 3,000 barrels of oil each, and you know that the company is a prolific driller, you start to realize just how quickly they could ramp up production.

So buy 50% of your expected exposure now, with an eye toward buying 25% on a pullback in the near term. You might also want to consider buying some long-term
equity options on the stock for the January 2014 time window with a strike of $115. They currently are bid around $13 per contract. That price includes some near-term price appreciation from the blowout upside day Nov. 2. If you decide to look at the options, let's give the stock a few days or weeks to calm down before buying this exposure.

(**) Special Note of Disclosure: Jack Barnes has no interest in EOG Resources Inc. (NYSE: EOG).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his BSH column last week, Barnes analyzed Marathon Petroleum Corp. (NYSE: MPC).

News and Related Story Links:

Seeking Alpha:
EOG Resources Earnings Call Transcript
EIA:
Monthly US Field Production of Crude oil & Petroleum Products
EOG:
3 rd Quarter Earnings
EOG:
Factsheet
CNNMoney:
EOG's big gamble on shale oil
Money Morning News Archive:
Previous "Buy , Sell or Hold " Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: EOG Resources Inc. (NYSE: EOG)

Marathon Petroleum Corp (NYSE: MPC) May Soon Be the World’s Richest Refiner

Jack Barnes — Thu, 10 Nov 2011 10:00:14 +0000

There's an oil price trend that's giving some oil refining companies a huge competitive edge.

Specifically I'm referring to Marathon Petroleum Corp. (NYSE: MPC).

You see, production from North Dakota's Bakken oil shale formation - the largest known reserve of light sweet crude in North America - is soaring. It went from a mere 3,000 barrels a day in 2005 to 225,000 in 2010, and could hit 350,000 barrels a day by 2035, according to the Energy Information Administration.

Currently, there aren't many ways to ship oil out of the basin, and supply in the region is outpacing refining capacity. That's helped keep the price of West Texas Intermediate (WTI) crude lower than the price of Brent crude in London, with the spread now around $17.

Since U.S. East Coast refineries usually source Brent-priced crude oil, their input costs have skyrocketed. This is one of the reasons major integrated oil companies have shed their refining capacities.

But Midwest refineries have been able to save money by running WTI-priced oil, getting crude at significantly cheaper prices than globally sourced locations.

With the Bakken formation ramping up production in coming years to meet growing demand, the region's refineries will continue to enjoy low input costs. It also means refineries that have access to Bakken oil will have a steady supply that's cheaper than their competitors.

This is why Marathon Petroleum Corp., the largest Midwest refiner, is a "Buy." (**)

Marathon Petroleum Corp.

Ohio-based Marathon Petroleum Corp. was formed July 1, 2011 when Marathon Oil Corp. (NYSE: MRO) spun off its highly profitable refinery and gas station business. It's the fifth largest petroleum refiner in the United States, with its six refineries offering a combined capacity of 1,142,000 barrels of oil per day.

Gary R. Heminger, Marathon's new chief executive officer, said his company has built a strong enough refining position in the Midwest to ward off competition. He doesn't expect new pipelines and rail yard capacity bringing oil from the Bakken to the Gulf Coast to soften his competitive edge. The oil still needs a high-volume consumer and his refineries are the most obvious choice.

"If you look at Midwest refineries, we already have plenty of pipeline capacity into our plants," Heminger said at the Reuters Global Energy and Climate Summit. "It really comes back to (West Texas Intermediate) and lighter-type crudes that are in and around Cushing [Oklahoma, where WTI is priced]. They're looking for a home."

Marathon also will profit from its operations beyond the Midwest.

It's negotiating with pipeline companies to use its Texas refinery to process more crude from the new Eagle Ford Shale. The new Eagle Ford is unconventional shale oil that's extremely light, and can be mixed with another cheap blend - a heavy, sour crude - to make a more expensive finished product.

Marathon's Detroit refinery is undergoing a $2.2 billion overhaul that'll let it process heavy Canadian crude, which currently is priced even cheaper than WTI.

Marathon also has a profitable retail footprint. It operates 5,100 Marathon-branded gas stations in 18 states and 1,350 Speedway-branded convenience stores in seven states. It has more than 9,600 miles of pipelines into and out of its facilities.

The new refining company has a market cap of $13.3 billion with an enterprise value of $14.6 billion once net cash and debt is taken into consideration. The company reported $66.8 billion in revenue over the last trailing 12 months.

Third quarter earnings released Nov. 1 showed a 309% increase in net income from 2010's third quarter to $1.13 billion. Earnings per diluted share rose to $3.16 from $0.77 last year. Marathon also announced Oct. 26 a 25% dividend increase, for a yield of 2.6%.

The company has historical price/earnings (P/E) ratio of 7.2 over the last 12 months with an estimated forward P/E ratio of 5.6.

Its stock has soared more than 17% in the past month, closing yesterday (Wednesday) at $37.02.

Action to Take: Buy Marathon Petroleum Corp. (NYSE: MPC) (**).

It's time to buy Marathon Petroleum Corp. as it positions itself to profit from low input costs and high refining capacity.

I would buy half of our position now at market price, with an eye toward selling naked puts contracts for the other half of the position. This would give you a chance to be exposed to the upside move while increasing the overall cash yield on your first-half position.

(**) Special Note of Disclosure: Jack Barnes has no interest in Marathon Petroleum Corporation. (NYSE: MPC).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzedNiska Gas Storage Partners LLC (NYSE: NKA).

News and Related Story Links:

Marathon Petroleum Corporation:
Refining Marketing and Transportation
Reuters:
New Pipelines wont end Midwest oil gut
Bloomberg:
US Gulf Crude Premiums weaken as WTI – Brent spreads narrows
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features

Tags: Marathon Petroleum Corp (NYSE: MPC)

Niska Gas Storage Partners LLC (NYSE: NKA) Can No Longer Afford Its High Payout

Jack Barnes — Mon, 07 Nov 2011 12:43:17 +0000

Niska Gas Storage Partners LLC (NYSE: NKA) at one time was a great way for investors to play the natural gas market.

The company is designed to pay back a high percentage of its cash flow, as its stock pays a $1.40 dividend that equates to a whopping 12% yield.

Unfortunately that won't be the case much longer. Niska's cash flow has stalled, and the company doesn't expect to generate enough cash in this fiscal year to maintain its dividend.

The problem simply is that the price for natural gas currently is cheap and it won't be headed higher anytime soon.

You see, to cover its basic costs, Niska needs the price difference, or spread, between current natural gas prices and January future prices to be about $1.00. Those spreads right now are around 47 cents - quite a fall from the January 2010 spreads of $1.50.

"[W]e anticipate weaker financial results of the full fiscal year ending March 3, 2012 due to continued deterioration in market conditions," Interim Chief Executive Officer Simon Dupéré told investors Nov. 3. "[W]e expect low seasonal storage spreads, combined with reduced volatility, to have a more pronounced negative impact on our financial results through the third and fourth quarters."

The stock is down 45% so far this year. It could rise again, when natural gas prices increase and improve the cost of storage - but that doesn't look like it's going to happen in the near-term.

Still, with the share price so low, it's not an ideal time for investors who are long on the stock to sell it.

That's why investors should hold Niska Gas Storage Partners LLC (**) - until U.S. natural gas prices rise again, making storage business models more attractive.

Natural Gas Storage a Tough Business - For Now

The United States has the largest natural gas storage facilities in the world. This allows it to easily capture cheap natural gas produced in the summer and store it for the peak winter months, when increased demand exceeds production and prices climb.

Niska Gas Partners provides over 204 billion cubic feet (bcf) of storage facilities, with an estimated additional 12 bcf of future storage being brought online in the near term.

But natural gas storage investments aren't very profitable - right now.

New natural gas production from unconventional shale sources has kept supply meeting demand. This production increase has dampened prices as well as price volatility.

While U.S. natural gas prices have collapsed, liquefied natural gas (LNG) is still trading internationally at prices closer to crude oil.

The United States has been changing its natural gas market to profit from LNG. It's been building LNG import facilities so global natural gas producers can ship their surplus to the U.S. terminals.

The difference between U.S. natural gas prices and internationally-sourced LNG will start to tighten in 2015 when the United States starts importing LNG, ending the period of extremely cheap U.S. natural gas.

That's when Niska could again be a profitable investment. But for now, the company is struggling.

Niska Gas Storage Partners is a "Hold"

Niska revised downward its estimates of adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for its fiscal year 2012 to $120 million to $130 million and net income to $3 million to $13 million. The company in August had estimated adjusted EBITDA of $145 million and net income of $27 million.

Niska does not have the proper capitalization to maintain its current business model more than another year or two before it has to make some hard decisions about its long-term rate of distributions. It cannot maintain its current model going forward without a change in the fundamentals or help from its majority owners.

The company currently estimates it will only generate 70% of its needed cash flow this fiscal year to maintain its dividend rate, and will likely chop its payout rate significantly.

Niska's bad fortune in September got it removed from the Alerian MLP Index, a group of the 50 most prominent energy MLPs, adding to near-term stock weakness.

Its stock closed Friday down 3.87% at $10.93.

Action to Take: Hold Niska Gas Storage Partners LLC. (NYSE: NKA) (**)

Niska's management does not expect to generate the necessary cash flow to maintain its dividend yield. With U.S. natural gas prices likely to stay low, the company does not have a profitable near-term outlook.

If you are long on this investment, I would suggest holding at this point until a seasonal boost - even if it's small - in natural gas could let you sell these shares at a higher price.

The extremely high dividend yield can't continue, but while it does, you can use it to pay down the cost basis on your investment.

(**) Special Note of Disclosure: Jack Barnes has no interest in Niska Gas Storage Partners LLC (NYSE: NKA).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed The Mosaic Co. (NYSE: MOS).

News and Related Story Links:

Niska Gas Storage:
Corporate Presentation
Niska Gas Storage:
Company Earnings PR
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Niska Gas Storage Partners LLC (NYSE: NKA)

Rising Food Prices Will Boost Debt-Free Mosaic Co. (NYSE: MOS) to New Highs

Jack Barnes — Mon, 31 Oct 2011 10:00:18 +0000

With so many companies - and countries - choking on the combination of slow growth and massive debt, investors are finding that there's a definite formula for success.

You need to look for companies that have healthy cash reserves, a global presence in a high-growth sector, and whose shares are available at a bargain price.

I've already found one to help get you started.

I'm talking about The Mosaic Co. (NYSE: MOS), an agricultural leader that's positioned to benefit from the worldwide run-up in food prices.

Mosaic is the world's leading producer of concentrated phosphate and potash, two of the primary nutrients required to grow food crops.

One of the main reasons I really like Mosaic is that it has enough cash - $3 billion - to fund its own growth. It doesn't need to borrow from banks to continue generating profits from crop-nutrient sales.

That's a profitable niche, since global food prices are expected to increase 4% next year, and could climb higher on supply squeezes. Increasing food demand and poor harvests have caused sharp climbs in the price of corn and other crops. And those price increases have translated into higher prices for pork, beef and poultry. The profitable agricultural industry outlook is enticing farmers to grow more, and will create a steady profit stream for Mosaic.

Mosaic's shares recently hit a 52-week low; but don't let that price dip fool you: While the market is currently pricing Mosaic for a significant slowdown in earnings, the reality is far brighter. It's time to buy The Mosaic Co. (**).

The Mosaic Co.

The Mosaic Co. is a young company with old roots, formed in 2004 from a merger of two giants in the crop nutrition businesses. This combination united profitable phosphate miner IMC Global Inc. with Cargill Inc., one of the world's top producers of phosphate and nitrogen fertilizer.

The resulting Mosaic Co. has grown into the largest producer of concentrated phosphates, and one of the leading providers of potash crop nutrients.

Mosaic's global reach - it has operations in 10 countries and serves markets in more than 30 nations - has allowed it to accurately estimate and provide for global product demand. It's this excellent business execution that helped Mosaic become debt-free, and then to amass a cash hoard of more than $3 billion.

This helped the company post an excellent first quarter for fiscal 2012, the second-highest-grossing first quarter in its history. The company's net earnings for the quarter ended Aug. 31 were 77% higher than the same quarter last year. Earnings per diluted share were $1.17, a 75% gain from 67 cents per diluted share in the first quarter 2011.

Mosaic's revenue now totals more than $10.3 billion in the trailing twelve months.

Fitch Ratings Inc. recently estimated Mosaic will earn $3.7 billion in EBITDA (earnings before interest, taxes, depreciation, and amortization) in fiscal 2012, a 19% gain from the $3.1 billion earned last year.

The stock is down 18% so far this year, but this has more to do with Cargill unloading its core investment in the company - essentially dumping a big block of shares on the market.

Mosaic's stock has rebounded from a 52-week low of $44.86 earlier this month to close at $61.96 Friday.

At this price it's still a bargain, giving us a chance to buy at extremely favorable prices.

The company has a market capitalization of $20 billion. The stock is trading at a Price/Earnings (P/E) ratio of less than 8, making it cheap in comparison to the overall market's P/E ratio of about 13 to 15.

Action to Take: Buy The Mosaic Company. (NYSE: MOS) (**).

Let's start a position in Mosaic. We'll then use some limit orders to pick up additional shares if the selling returns.

Let's pick up one-third of our proposed position at the market. Look to buy your second tranche 7% below that, and your third leg at 15% below current market prices.

The stock also has a liquid and active options market that we can use to pick up additional exposure through the sale of naked puts if the stock stabilizes around here.

(**) Special Note of Disclosure: Jack Barnes has no interest in The Mosaic Co. (NYSE: MOS).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning several times a week. In his previous BSH column, Barnes analyzed Vale SA (NYSE ADR: VALE).

News and Related Story Links:

The Mosaic Co.:
First Quarter Results
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: The Mosaic Co. (NYSE: MOS)

Vale SA (NYSE: VALE): This Emerging Market Mega-Miner Is Taking Production to Another Level

Jack Barnes — Mon, 24 Oct 2011 10:00:02 +0000

You might think you know everything you need to know about Vale SA (NYSE: VALE), but you don't.

This is a company that, while big, is rife with hidden profit potential.

Vale is what I like to call a "mega-miner." It's best known as the world's largest iron ore producer, but few realize that it also controls railroads, ports and shipping fleets.

Indeed, Vale is a vertically integrated company with a diverse mix of assets that includes more than 6,000 miles (10,179 kilometers) of railroad infrastructure, eight seaport terminals, five general cargo ports, and two iron ore export terminals. Beyond that, it generates its own energy through hydroelectric power plants.

And better still, Vale has the internal capital to self-fund further development.

These characteristics imbue the company with major profit potential.

So Vale SA is an unequivocal "Buy" (**).

Taking Charge of the Iron Ore Market

Vale is the world's second-largest mining company, behind only BHP Billiton Ltd. (NYSE ADR: BHP).

It's the world's largest producer of iron ore, and the world's second-largest producer of nickel. And that gives the company significant leverage in the fast-growing economies of Asia, especially China.

Historically, Vale had to battle the added costs of longer-term production contracts and short-term shipping rates. But that's no longer the case.

Last year, iron ore pricing moved to short-term contracts based on the spot market -- to the benefit of producers. And to combat shipping costs, Vale recently bought its very own fleet of large ore-carrying vessels. Now it controls its own shipping rates.

These new developments mean that Vale will no longer be held hostage to long-term production contracts or to short-term shipping rate demands.

Now that Vale has full control over its iron ore business, it can look forward to newer ventures. And it has a big-time market in its sights.

Profit Potential in Rare Earth Metals

Vale currently has vast land holdings in South America, some of which are rich in rare earth metals.

This is a vitally important market.

Rare earth metals are essential to the production of high-tech devices like computers, display screens, smart bombs, and hybrid-car batteries. However, they are difficult to produce and many rare earth production companies have moved their operations to China to capitalize on cheaper extraction costs and the nation's commitment to growing its alternative energy sector.

As a result, China now controls a staggering 97% of the world's rare earth production. And China isn't exactly playing ball. The country has repeatedly increased restrictions on its rare earth exports to keep more at home for its own industries.

That's created a huge opportunity for Vale, which recently discovered a large deposit of rare earth metals at its Salobo copper mine. Additionally, the company discovered rare earth metals in the Amazon after Brazilian PresidentDilma Rousseff invited the company to expand its exploration.

Indeed, Vale is moving forward with rare earths projects with the full support of the Brazilian government.

Realistically, it will still take Vale a few years before its rare earths production is fully online. In some cases, the minerals are already present at the mining sites, but are not being captured in the concentration process. That means Vale will need to develop the necessary capture circuits to harvest the rare earths already inherent to its production process.

Also, there may be rare earth concentrations on Vale's property that will be developed as stand-alone projects. The projects have not yet been fully delineated in company comments.

Still, this is a good thing because it means Vale - already the world's largest iron ore producer - could very quietly become one of the world's largest producers of rare earth metals, as well.

Vale stock on Friday rose 60 cents, or 2.70%, to close at $22.81. That gives it a price/earnings (P/E) ratio of 4.78, which is extremely cheap for a large, vertically integrated company like Vale.

Action to Take: Buy Vale (NYSE: VALE) (**).

Turmoil in the global markets has reduced Vale to bargain levels.

Vale can give investors exposure to rare earths without having to worry about project development issues or undercapitalized startups. It's a great company to have in your long-term portfolio.

I'd put in a buy order for one-third of my position at current market prices, and fill out the remainder on pullbacks.

(**) Special Note of Disclosure: Jack Barnes has no interest in Vale SA (NYSE: VALE).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Deutsche Bank AG (NYSE: DB).

News and Related Story Links:

Vale:
CEO Interview
Vale in the news:
Valemax ships
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.
Money Morning:
Mining Companies Stock Up On Iron Ore Assets
Money Morning:
China Turning the Screws on Rio Tinto in Iron Ore Negotiations
Money Morning:
Iron Ore Proves to be the Most Coveted Commodity in the Pacific
Money Morning:
Iron Ore Negotiations Reach an All-Too-Familiar Impasse
Money Morning:
Japanese Economy Threatened by China Rare Earth Metals Ban

Tags: NYSE: VALE, Vale SA

Kinder Morgan Energy Partners (NYSE: KMP) Buys Out El Paso Corp. (NYSE: EP)

Jack Barnes — Tue, 18 Oct 2011 10:00:03 +0000

On June 6, I identified El Paso Corp. (NYSE: EP) as a "Buy." The stock at the time was trading at $20.40 share.

Well, on Sunday (Oct. 16), Kinder Morgan Energy Partners LP (NYSE: KMP) said it would buy El Paso for $26.87 a share. That's a 32% premium to the price the stock was trading at at the time of my recommendation. EP stock yesterday (Monday) rose more than 24% to close at $24.45.

The Standard & Poor's 500 Index has slumped nearly 8% since June 6, so readers who followed my advice would have enjoyed a nice rate of return over the last four months, compared to the overall market.

The case that I made for El Paso back in June was a simple one: The company's assets were valued at less than the equivalent assets held by its peers. El Paso at the time was in the process of breaking itself into two parts, so it could unlock some of the trapped value.

Kinder Morgan recognized that, as well, and acted.

It's not always easy to spot real value in the market, but when a company like EP is selling for less than its intrinsic value, and then announces it is going to voluntarily break itself up, it's going to get some serious attention.

Kinder Morgan realized that EP was not only selling at a real market discount, but that it also had the core elements to build a world-class company.

The combined company will own about 80,000 miles of pipeline in the United States, making the new Kinder Morgan the largest independent transporter of petroleum products in the country.

After the merger is completed, Kinder Morgan investors will own 68% of the company while El Paso investors will own 32%.

"This once in a lifetime transaction is a win-win opportunity for both companies," said Kinder Morgan Chief Executive Officer Richard Kinder. "The transaction is expected to produce immediate shareholder value (upon closing) through strong cash flow accretion and offers significant future growth opportunities."

News and Related Story Links:

Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.

JackBarnes.com:
Confessions of a Macro Contrarian.

Fox Business:
Forming Pipeline Giant, Kinder Morgan to Buy El Paso for $21B

Tags: El Paso Corp. (NYSE: EP), Kinder Morgan Energy Partners LP (NYSE: KMP)

Green Mountain Coffee Roasters (NASDAQ: GMCR) May Be Red Hot but It's Not a 'Buy'

Jack Barnes — Mon, 17 Oct 2011 13:41:58 +0000

Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) is one of the hotter stocks in the market right now. In fact, the stock is up 178% since the start of the year.

But if you know what's good for you, you'll steer clear. Green Mountain has shot up so high, so quickly that it has become a victim of its own success.

Let me explain.

Green Mountain started with a single café that roasted beans and sold coffee over the counter to customers in a small town in Vermont. Today, that same company is generating $2.3 billion of revenue.

To put that in perspective, Green Mountain has delivered double-digit net sales growth for the last 27 consecutive quarters. And, since the acquisition of Keurig, it has seen net sales growth of more than 39% for 12 consecutive quarters.

But while compounded growth is the key to long-term success, it also can become a drag on near-term profits.

Often a company feels it must continue to grow simply for growth's sake. And if that's the route Green Mountain takes, then it will find itself in the exact same place Starbucks Corp. (Nasdaq: SBUX) did a couple of years ago.

Indeed, Green Mountain has put so much emphasis on growth that high expectations could negatively impact the company's execution.

And in the economic reality of today, a company that has fixated on hitting lofty growth objectives could be setting itself up for a serious market disappointment.

So Green Mountain Coffee Roasters is "hold" - at least until global growth starts to rebound (**).

Mountainous Expectations

As I said, Green Mountain Coffee Roasters has enjoyed such spectacular growth that the market built in expectations that are no longer congruent with economic reality.

Currently, the stock carries a price/earnings (P/E) ratio of 89.28, so it's more than a little overvalued.

Look at it this way: Green Mountain stock on Friday closed at $92.09. Yet the company earned just 60 cents per share in its 2010 fiscal year. That means it would take about 86 years of stock ownership just to pay the off the cost of a single share.

The consensus forecast is for Green Mountain to make $1.66 for its 2011 fiscal year. Even then, it would still take 55 years of stock ownership to pay the cost of a single share. By fiscal 2012 the measure will still only be down to 35 years.

The Standard & Poor's 500 Index, with a forward estimated earnings ratio of 15-to-1 on the high end, is significantly cheaper than GMCR.

Also consider this: The S&P 500 has dropped in each of the last five months. So it is clearly pricing in a slowdown or a double-dip recession for the U.S. economy. But Green Mountain stock just set a new 52-week high of $115.98 on Sept. 20.

Essentially, this stock is barreling upwards, even as the outlook for the economy dampens. But when the going gets tough, how many people will continue buying premium roast coffee one small plastic cup at a time?

So even though I love the technology and the market niche, it is my expectation that this company will lose momentum as nonessential purchases get jettisoned amid economic turmoil.

Action to Take: "Hold" Green Mountain Coffee Roasters. (NASDAQ: GMCR) (**).

Green Mountain Coffee Roasters is a good company and a great growth story, but now isn't the time to buy. The global economy is being threatened by the European sovereign debt crisis, and the U.S. economy is stumbling.

So hold Green Mountain shares.

You might also want to look at buying some puts to hedge your position's downside risk.

I would look at the January 2012 puts, as there appears to be an increasingly liquid market in "Way Out Of The Money" (WOOTM) puts on GMCR. The round strike prices at 70 and 60 have enough outstanding interest to hedge into.

(**) Special Note of Disclosure: Jack Barnes has no interest in Green Mountain Coffee Roasters (NASDAQ: GMCR).

News and Related Story Links:

Standard & Poor:
S&P 500 Index Earnings Estimates
Green Mountain Coffee Roasters:
About
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR)

Deutsche Bank AG (NYSE: DB) Will Be Crushed Under the Weight of Europe's Debt

Jack Barnes — Mon, 10 Oct 2011 10:00:37 +0000

Frankfurt-based Deutsche Bank AG (NYSE: DB) is about to be critically wounded by the European banking crisis.

Don't get me wrong - it will survive the spiraling financial mess. Germany will defend it because it's the bellwether of big banking in Europe. It's their version of "too big to fail."

But as the continent's largest bank, it won't be able to escape unscathed from the capital crunch about to take over the European banking system.

So it's time to sell Deutsche Bank AG (**), before the region's financial system falls apart.

Europe's Coming Capital Crunch

Many European banks don't have enough money to survive a Greek default. They hold huge amounts of their home sovereign's debt, as well as debt of their troubled Eurozone neighbors. Any write-down of those holdings will slam their balance sheets.

These banks were already overleveraged when the financial crisis started in 2007, and they have relied on outside sources like the United States to maintain core capital ratios.

In the 2008 crash, the European banks turned to the U.S. Federal Reserve for trillions of dollars of liquidity injections. They also used sources like U.S. money market funds for short-term loans - commercial paper that matures in less than 270 days - to cover capital loaned out at longer maturities. In May 2011, U.S. money market funds had an average 40% of holdings in European commercial bank paper.

But then U.S. banks, afraid of the unfolding European sovereign debt drama, let these short-term loans mature. This brought the capital back home and took an estimated $350 billion in liquidity out of the European banking system.

Now Europe's real levels of available capital are by far the weakest link in the world's interwoven financial system, and banks are struggling to find new funding sources.

This capital crunch prompted a former Chinese central bank official to say the debt crisis will spread across Europe like the "Black Death of the fourteenth century."

The banks most exposed to sovereign debt will crumble, and will share some damage with the region's biggest institutions - especially Deutsche Bank.

Why Deutsche Bank AG is a "Sell"

Deutsche Bank's position as Germany's financial powerhouse makes it highly vulnerable to this crisis for three reasons.

First, Deutsche Bank will be highly exposed to its smaller, troubled counterparts when they start the recapitalization process. It will have to absorb some of Germany's undercapitalized banks if they don't raise enough money to protect themselves from a Greek default.

And at the rate they're going, they won't.

Second, due to its integral role in the region's banking system Deutsche Bank will be affected by firms refusing to do business with each other. Funds will almost certainly freeze up as fear regarding overnight funding risks increases.

Third, since Deutsche Bank represents Europe's biggest economy, it could be pressured to take political actions that might not be in its best economic interest. And Deutsche Bank needs the ruling body's support because even though it has raised some capital, it'll likely need to access the German government's emergency capital fund for more help.

The company's $32 billion market capitalization is down 31% from a year ago, compared to a 3.2% rise in the Standard & Poor's 500 Index. The stock hit a 52-week high of $66.00 per share on May 2, 2011. It fell to hit a new 52-week low of $28.57on Sept. 12.

The stock tumbled 5.00% on Friday to close at $35.15.

Action to Take: Sell Deutsche Bank AG (NYSE: DB) (**).

Deutsche Bank has had a short bounce up from the 52-week low it set a few weeks ago. Let's use this near-term strength to unload any exposure you might have to the bank.

The stock has a liquid market in the United States, and you can use market orders to get out without having to place a lot of limit orders.

If an investor is currently flat, it's a good time to buy at-the-money long puts for January 2012 to play the downside that's likely to resurface this fall, as the capital crunch hits Europe's big banks.

(**) Special Note of Disclosure: Jack Barnes has no interest in Deutsche Bank AG (NYSE: DB).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his previous BSH column, Barnes analyzed Yamana Gold Inc. (NYSE: AUY).

News and Related Story Links:

Fox Business:
China paper warns of Euro Crisis
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Deutsche Bank AG (NYSE: DB)

Yamana Gold Inc. (NYSE: AUY) Shines On as Gold Prices Continue to Climb

Jack Barnes — Thu, 06 Oct 2011 10:00:11 +0000

You'd be hard-pressed to find a better investment than one that is fully funded through organic growth the way Yamana Gold Inc. (NYSE: AUY) is.

Yamana has no net debt, which means it has grown to the point it is self-funding its future development. This is a testament to the quality of the company's assets and management.

It's also extremely rare in the gold mining sector.

You see, gold mines take large capital investments and years of development to reach a positive growth point. But Yamana is already past that point, and its profits and share price will soar as it continues to expand.

Just look at the last time I told you Yamana Gold was a "Buy." It was one year ago and Yamana was trading at $11.26 a share. Since then it's climbed 15% while other stocks have tumbled. And that's just the beginning. Yamana will keep climbing as the share price gradually starts to account for the company's growth outlook.

So if you didn't buy Yamana Gold Inc. following my last recommendation, you should do so now as the company rakes in profits without worrying about debt (**).

Yamana Gold Inc.

Yamana has spent the last decade building a diverse portfolio of low-cost mining locations. The company currently operates six mines, with 50% of its production coming from Chile, 30% from Brazil, and 20% from Argentina.

This global operations mix has big benefits for Yamana. First, it reduces the geopolitical risk threatening some of the company's competitors. And secondly, the low expenses grant Yamana a negative production cost of $80 per ounce, once byproducts are sold and taken into consideration.

This means that with an average sell price of $1,509 an ounce, Yamana enjoys an average cash margin of $1,589 an ounce in what is normally an extremely expensive sector to produce.

I absolutely love this cash margin, which will get even fatter with Yamana's projected production increases.

Yamana expects to grow annual production more than 60% between 2010 and 2014, from 1 million gold equivalent ounces (GEO) to 1.7 million ounces. New mine operations will contribute about 440,000 to 470,000 GEO per year by 2014 and the rest from expanding capacity at current mines.

It would not shock me if the company's production is pushing 2 million GEO by 2017.

Yamana also has the chance to profit from rising silver prices as silver accounts for 20% of total GEO production.

Since my original "Buy" recommendation last September, the company has focused on strengthening financial performance, and it's succeeded.

Second-quarter revenue rose 63% to $573.3 million in 2010's second quarter. Adjusted earnings (non GAAP) went up 122% year-over-year in the second quarter to $186.2 million. Cash flow increased 70% to $331 million. Better still, over the past year, Yamana's cash on hand has surged 99% to $521 million.

The stock rose 7.27% yesterday (Wednesday) to close at $13.73.

Action to Take: Buy Yamana Gold, Inc. (NYSE: AUY) (**).

Yamana Gold was a "Buy" a year ago, and given the company's strong growth prospects, I'm just as bullish now as I was then - maybe even more so. I expect we'll see the same levels of growth going forward as we have in the past year.

Let's look to pick up more shares of Yamana Gold as it continues to profit in these hard economic times.

(**) Special Note of Disclosure: Jack Barnes has no interest in Yamana Gold Inc. (NYSE: AUY).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his previous BSH column, Barnes analyzed Southern Copper Corp. (NYSE: SCCO).

News and Related Story Links:

Money Morning:
The Gold Price Conspiracy Uncle Sam Doesn't Want You to Know About
Yamana:
August Investor Presentation
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Yamana Gold Inc. (NYSE: AUY).

Southern Copper Corp. (NYSE: SCCO) Gives You High Yield, High Profit Potential

Jack Barnes — Mon, 03 Oct 2011 12:15:12 +0000

Here's a company to get genuinely excited about: Southern Copper Corp. (NYSE: SCCO).

Why?

Because Southern Copper has world-class assets and high profit potential, but its share price has taken a dive amid all of the recent market turmoil.

I love to find a sound business whose stock price has been pummeled in the uncertain markets. It screams bargain and is a major buying opportunity.

And in this case, the fact that Southern Copper's stock price has dropped means its already-juicy dividend has increased. Currently the company's $2.48 dividend equates to a 9.5% yield.

Plus, it's consistent: Over the last five years, Southern Copper has averaged a payout of 83% of its after-tax profits.

Given all that, it's time to buy this high-yielding, high-quality mining company (**).

Southern Copper Corp. Outshines the Competition

Southern Copper Corp., founded in 1952, engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. It has the largest copper reserves of any publicly traded company, and last year mined more than 1 billion tons of copper. That means it is perfectly positioned to profit from increasing global demand for copper.

The company operates the Toquepala and Cuajone mines in the Andes Mountains located southeast of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates underground mines that produce zinc, gold, and lead, as well as a coal mine that produces coal and coke.

Southern Copper's mines are estimated to have a productive life of about 80 years. That means 80 years of revenue from copper, gold and silver deposits.

Southern Copper has built a fully integrated operations model that allows it to mine the raw material, refine it, and export the final product. As a result, the company controls each of the value-added steps in copper production. It's also made Southern Copper the sixth-largest copper producer in the world, the seventh-largest copper smelter and the ninth-largest copper refiner.

The company's cash operating cost is $1.61 per pound to produce copper, but that cost is lowered to 31 cents per pound by subtracting profits from the mines' byproducts of gold, silver, lead, zinc and coal.

That's a lot of secondary profits hitting the bottom line.

Southern Copper Corp. is a subsidiary of Americas Mining Corp. Its stock is 80% controlled by the parent company Grupo Mexico S.A. de C.V. (PINK: GMBXF), with the public markets owning the other 20%. This relationship is beneficial because Southern Copper is protected by one of the largest companies in the world.

However, this structure has a potential downside: Investors in Southern Copper Corp. could be bought out at some point. The parent division has made an offer to relist the merged divisions, which would include replacing the current shares with newly-listed shares and a slightly different share count.

Normally, I shy away from companies with open corporate actions in front of the board of directors. In this case, however, I am willing to look past the possible changes because of the quality assets and profit potential Southern Copper has to offer.

The company reported second-quarter net income of $658 million, 110% higher than 2010's second quarter. Sales were up 54% to $1.8 million.

The company has a market capitalization of $26 billion with an enterprise value of $28 billion once net debt and cash is accounted for. Its price/earnings (P/E) ratio is 10.73.

Southern Copper Corp. is trading right around its 52-week low of $25.06 and closed Friday at $24.98.

Action to Take: Buy Southern Copper Corp. (NYSE: SCCO) (**).

Southern Copper Corp. gives us a chance to own the longest-life copper mines and largest total copper reserves in the world. Plus, the company has a long history of paying out a large, regular dividend to its investors.

Let's use the current weakness in price, with the stock trading near its 52-week low, to start building our position in this company.

If you are considering exposing a full 3% of your portfolio to this position, let's consider buying one-third of the position (or 1% of your total portfolio) now at market. This gets us into the stock at low levels.

Since the stock has already broken down in a very weak market, let's exercise some patience and put in some GTC (good-"til-canceled) limit orders at 5% and 15% below where we pick up our first leg in.

This will give us real exposure to the company with our entry, while allowing us a chance to build our position at a lower cost per share.

(**) Special Note of Disclosure: Jack Barnes has no interest in Southern Copper Corp. (NYSE: SCCO).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his previous BSH column, Barnes analyzedBP Prudhoe Bay Royalty Trust (NYSE: BPT).

News and Related Story Links:

Southern Copper
Company August 2011 Investor Presentation
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
JackBarnes.com:
Confessions of a Macro Contrarian.

Tags: Southern Copper Corp. (NYSE: SCCO)

BP Prudhoe Bay Royalty Trust (NYSE: BPT) Offers Consistent 9.9% Yield as Oil Prices Climb

Jack Barnes — Thu, 29 Sep 2011 10:00:06 +0000

With oil prices far from record highs, but expected to rise in coming months, it's time to examine oil-related investments - especially those with high yields.

The West Texas Intermediate (WTI) benchmark was approaching $90 a barrel two weeks ago, but has since slipped more than 7% due to concerns over the European debt crisis.

Recent oil price fluctuations also stem from crude oil supply issues. Libya's revolution trimmed production of light sweet crude normally destined for the European refining complexes. This has helped keep a floor under oil prices, while the global economies start to price in a slowdown in growth.

But prices won't stay down for long.

Paired with supply constrictions, growing global demand will again push prices over $100 a barrel next year. The International Energy Agency reports that worldwide oil demand will rise by 1.2% (to 89.3 million barrels a day) this year and 1.6% (to 90.7 million barrels a day) in 2012.

That's why I like this energy investment that pays a juicy dividend.

It's the largest conventional U.S. oil and gas trust, has assets in the largest North American oil field, and, best of all, it yields 9.9%.

That's pretty amazing when you consider that the U.S. government will pay you less than 2% per year to hold one of its 10-year bonds.

And as oil prices climb, that dividend will only get sweeter.

I'm talking about BP Prudhoe Bay Royalty Trust (NYSE: BPT), a high-yielding energy stock that's a "Buy" in this uncertain market environment.

BP Prudhoe Bay Royalty Trust Delivers Consistent Payout

BP Prudhoe Bay Royalty Trust, founded in 1989, operates as a grantor trust in the United States. It was established by subsidiaries of BP PLC (NYSE ADR: BP) and The Bank of New York Mellon Corp. (NYSE: BK).

The company holds overriding royalty interests in minerals in the Prudhoe Bay oil field - the largest U.S. oil field - located on the North Slope in Alaska. The trust receives a percentage of revenue from the average actual daily net production of crude oil per quarter from the Prudhoe Bay oil field. The field contains approximately 150,000 gross productive acres, and had an average production rate of 243 barrels per day in 2009.

The BP Prudhoe Bay trust has estimated net remaining reserves of 78.2 million barrels, with 67 million of these already considered proven developed reserves. That means there's 90% confidence these barrels can be developed with minimal additional investment.

The trust pays out 100% of its profits to investors. It's averaged more than a 10% yield over the last five years, giving long-term investors some cash flow stability while yield from other products has fallen. The company has delivered a yield of 9.9% for the last trailing twelve months, with expectations it will remain consistent in the near term.

The trust will eventually wind down its dividend payments as the volume of oil slowly decreases in the Prudhoe Bay area - but not for a while. I believe BP Prudhoe Bay makes a great cash-flow investment now, with a window of about five years in which it should outperform in the sector before long-term payout issues arise.

The stock price has a beta of 0.8, meaning it moves slower than the Standard & Poor's 500 Index. This is good; it's not going to be an investment that will move suddenly up or down, but should instead provide a nice, steady dividend stream over the long term.

The company has a market cap of $2.3 billion, and a price/earnings (P/E) ratio of 11.9. BP Prudhoe Bay Royalty Trust closed at $105.92 yesterday (Wednesday).

Action to Take: Buy BP Prudhoe Bay Royalty Trust (NYSE: BPT) (**).

In today's world of extremely low dividends and highly volatile markets, it's always nice to find an investment that has a long-term history of paying out a yield of about 10%.

Together with San Juan Basin Royalty Trust (NYSE: SJT), which I recommended as a "Buy" on Aug. 22, BP Prudhoe Bay should give investors a nice increase in their average yield per investment.

Let's look to pick up some BPT shares at market. While we normally use limit orders below the current price to try and buy additional shares at a lower basis, this is one of those investments where it is both liquid enough and paying out a high enough yield that we can comfortably buy our position now, and let our dividend or covered call strategy pay down the cost basis on the position.

(**) Special Note of Disclosure: Jack Barnes has no interest in BP Prudhoe Bay Royalty Trust (NYSE: BPT).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department - just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning twice a week. In his previous BSH column last week, Barnes analyzed Coeur d'Alene Mines Corp. (NYSE: CDE).

News and Related Story Links:

Money Morning:
Investment Safety Strategies: Eight Ways to Survive a Stock Market Crash
Money Morning News Archive:
Previous "Buy, Sell or Hold" Features
JackHBarnes.com:
Confessions of a Macro Contrarian

Tags: BP Prudhoe Bay Royalty Trust (NYSE: BPT)