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A Cyclical Shift in Energy Prices Creates Opportunity for San Juan Basin Royalty Trust (NYSE: SJT)
If you're looking for higher yields than what the U.S. Treasury market, or for that matter your local bank's CD rates, are paying, San Juan Basin Royalty Trust (NYSE: SJT) is an interesting alternative source of cash flow.
Currently the company is yielding about 6.3% on an annualized basis. This yield is generated from the overriding royalties the trust owns on current natural gas production.
Additionally, the company is poised to profit from a seasonal shift in energy prices.
You see, San Juan Trust has the rights to 75% of the revenue generated by an oil-and-gas property owned by Burlington Resources Oil & Gas Company LP, a subsidiary of ConocoPhillips (NYSE: COP). It also has royalty interests in 119,000 net producing acres located in northwestern New Mexico's San Juan Basin.
The cash flow from these properties is returned to investors once the trust's costs and capital budgets are deducted.
This makes the company compelling to me as I review its mix of assets and yield, as well as the seasonality of natural gas at this point in the year. I love to buy yield that can appreciate in price and quantity, with a bull market in the out-of-favor underlying asset.
In simple terms, if natural gas goes up in value, so should the dividend rate paid per share of the trust. So investors will enjoy a double gain if the stock rises: One in share price, another in cash flow. This offers you a great way to play natural gas without using margin or futures.
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Why It's Time to Buy Google Inc. (Nasdaq: GOOG)
By announcing its plans to buy Motorola Mobility Holdings Inc. (NYSE: MMI) yesterday (Monday), Google Inc. (Nasdaq: GOOG) is forcing me to make a statement that I never thought I would make: It's time to buy Google.
The $12.5 billion deal will see Google acquire the phone-making half of the Motorola Inc. spin-off that took effect in January. Google is paying $40 a share in cash – about a 63% premium to Motorola Mobility's closing price on Friday. The deal – which Google says will help it "supercharge" its Android smartphone business – will close late this year or early in 2012.
I used to look at Google as the next Microsoft Corp. (Nasdaq: MSFT). But Google has achieved a status that Microsoft shot for – and missed: It's become an online leader and a factor in the everyday life of consumers. Google also has massive growth potential available, and hasn't quit trying to grow.
And that's a good reason – perhaps the best reason – to own Google today and into the future.
Google's purchase of Motorola Mobility will showcase this potential. It positions Google to pair Motorola smartphones with its Android software and compete against iPhone-maker Apple Inc. (Nasdaq: AAPL).
However, Google's new purchase does a lot more than dangle a bigger slice of smartphone market share – and this reason is why I finally decided Google is a "Buy." (**).
Motorola Mobility: All About the Patents
The game-changing benefit for Google in the Motorola Mobility deal is the intellectual property Google is picking up. We are talking about 17,000 patents in this purchase.
A stronger patent portfolio allows Google to reduce royalty costs by using cross-licensing agreements with handset makers. And it protects the Android smartphone market from getting slammed with patent fees (and lawsuits) as sales continue to climb.
The number of Android-software-powered phones jumped 300% last quarter.
Motorola Mobility's patent portfolio will enable Google to move to hardware design for its Android phones. That will give Google both the phone operating system and the intellectual property to act as a gatekeeper in the mobile space.
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Kraft Foods Inc.'s (NYSE: KFT) Spin-off Strategy Will Unlock Value for Investors
Kraft Foods Inc. (NYSE: KFT) is about to unlock a lot of value for patient investors.
I chose Kraft Foods as my first "Buy, Sell or Hold" pick of 2011 as a hedge against inflation. At the time the world was looking at food inflation caused by fires in Russia, rains in Australia, and droughts in China.
The move paid off. In a market that had dropped by as much as 20% in the last two weeks, Kraft is still up about 8% since my recommendation.
Kraft is the very definition of slow, stable value, and in times of fear and uncertainty, nothing is more defensive than food. That is exactly why I recommended the stock at the beginning of the year, and why I believe it's a "Hold" today.
But that's not all. A recent development has given investors yet another reason to hold on to Kraft.
Kraft Foods – which is currently the second-largest global-food company, behind only Nestle SA – announced on Aug. 4 it was going to split into two.
It's going to separate its global snacks operations from its North American grocery business, creating two independent companies.
One company will include its European and developing markets units and will hold brands like Oreo cookies and Cadbury chocolates; it will have revenue of $32 billion.
Meanwhile, the North American grocery business, with revenue of $16 billion, will include such brands as Oscar Mayer processed meats and Kraft macaroni and cheese.
The news was a surprise since Chief Executive Officer Irene Rosenfeld – who favors big companies – said just 18 months ago that "scale is a source of great competitive advantage."
Be a Gold Digger with Compania de Minas Buenaventura SA (NYSE ADR: BVN)
Compania de Minas Buenaventura SA (NYSE ADR: BVN) is the largest publicly traded precious metals company in Peru.
As such, it stands to profit handsomely from the record high gold prices we're now seeing on a daily basis.
Gold prices hit another intraday record yesterday (Wednesday) topping $1,801 on the Comex division of the New York Mercantile Exchange (NYMEX). Gold prices rose to new record highs on both Monday and Tuesday as well.
Indeed, gold has been on a bull-run since 2007, but Standard & Poor's U.S. credit rating downgrade and the escalating sovereign debt crisis in Europe have the yellow metal continually testing new highs.
For instance, the European Central Bank (ECB) on Tuesday was forced to intervene and buy Italian and Spanish bonds as yields ticked higher. The cost for Italy to continue to issue new public debt, or even to roll its current pile, had reached the same levels that caused Greece, Ireland and Portugal to seek government support.
It's important to note that fear stemming from European and U.S. debt isn't just pushing individual investors into precious metals. It's also driving central banks around the world to flee fiat currencies for hard physical assets – especially gold.
Indeed, global gold sales are climbing as more countries stock up on the yellow metal.
South Korea spent more than $1 billion over the past two months on its first gold purchases in more than a decade, doubling its national holdings. The Bank of Korea said even though prices have already hit historic highs, it was the right time to diversify its foreign reserves.
"South Korea's central bank seems a little late to the party, but gold investors should continue to expect price support as central bankers around the world are underinvested in the yellow stuff," Sean McGillivray, head of asset allocation at Great Pacific Wealth Management, told Reuters.
You know it's bad out there when central banks are buying gold at record highs, with expectations that other central banks will be adding to their own hoards as the risk of continued devaluation of the U.S. dollar continues.
Buy, Sell or Hold: Now's Not the Time to Connect to LinkedIn Corp. (NYSE: LNKD)
Linkedin Corp. (NYSE: LNKD) made a lot of headlines this summer with one of the most successful initial public offerings (IPOs) since the dotcom bubble.
However, that IPO has left the company slightly overvalued. At current levels LinkedIn has a market cap of almost $10 billion and is trading at more than 30-times 2010 sales. And while the company has guided third-quarter and full-year revenue higher, it also has warned that it won't be profitable in 2011.
That's not to say LinkedIn doesn't have some real advantages – it does. The company has performed very well in some areas and operates in an attractive niche. But it's also facing some serious headwinds that include market saturation, pressure from short-sellers, and low revenue expectations.
For those reasons, LinkedIn is a "Hold" – at least until its share price more closely aligns with its fundamentals.
A Closer Look at LinkedIn
Let's look at the positives first.
LinkedIn has $106 million in cash and no debt. The company's second-quarter revenue more than doubled from last year to $121 million. Revenue from marketing solutions surged 111% to $38.6 million, and sales of premium subscriptions increased by 60% to $23.9 million.
These results are no fluke. As a social network focused on professionals, LinkedIn is a valuable resource for unemployed workers – and there are a lot of people looking for jobs right now.
OGX Petroleo e Gas Participacoes SA (PINK: OGXPY) Could Be the Next Exxon Mobile
OGX Petróleo e Gás Participações SA (OTC PINK: OGXPY) is probably the biggest oil and gas company you've never heard of.
That's understandable, considering it has not yet produced a single barrel of commercial oil. But this Brazilian company could soon be on par with the likes of Exxon Mobil Corp. (NYSE: XOM), CNOOC Ltd. (NYSE ADR: CEO) and state-owned local rival Petroleo de Brasileiro SA (NYSE ADR: PBR).
Since its initial public offering (IPO) in 2008, OGX's resource base has more than doubled from 4.8 billion barrels of oil equivalent (boe) to 10.8 billion boe. It has drilled 52 wells in the last 20 months, with a success rate of over 90%, as it prepares for its first commercial production this fall.
OGX's first long-term well test is expected to produce about 20,000 barrels of oil a day starting this fall. And the company already has ordered the long lead items needed to ramp up production to 150,000 boe per day by 2014. From there, OGX is expected to ramp up its production to 1.4 million boe per day in 2019.
In simple terms, this oil and gas company is conducting the largest private sector exploratory campaign in the history of Brazil.
So it's time to buy Petróleo e Gás Participações S.A. (**).
Amp Up Your Income with Comphania Energetica de Minas Gerais (NYSE ADR: CIG)
You may never have heard of Comphania Energetica de Minas Gerais (NYSE ADR: CIG).
But this Brazil-based electric utilities company could be your key to unlocking profits – and income – at a time when much of the developed world is mired in stagflation.
So let's buy Comphania Energetica de Minas Gerais (**).
It's not a difficult decision when you look at the global market and see that there aren't many trustworthy investments in the United States and Europe.
The non-stop news flow out of Europe has wrecked investor confidence. The market now is pricing in haircuts on European sovereign debt. And this process has driven down yields in Western developed nations, as investors fear government default.
You only have to look at what bond yields are in the United States and Germany, compared to other nations like Ireland or Greece, to see the real fear that exists in the world today. Two-year Greek debt is trading with a 35% yield — not that long ago it was below 10%.
Still, that doesn't exactly make the dollar a safe-haven.
With so much acrimony over the debt ceiling, the U.S. is threatening a temporary default on its debt payments. The U.S. Federal Reserve meanwhile is keeping interest rates at artificially low levels in an effort to stimulate economic growth. That means the U.S. central bank is essentially punishing people who are retired and need to live off the cash flow from their savings and retirement funds.
Indeed, millions of retired people who rely on such fixed-income investments have been hurt by the actions taken by central banks – not just in the United States, but Japan and Europe, as well.
Of course, that's not to say all investors have been punished.
There are global investors – with an eye toward maintaining their cash flow from investments – that have figured out how to meet their cash flow needs and escape from the real negative rates offered in the developed markets.
The Outlook for Gold and the Dollar Make Newmont Mining Corp. (NYSE: NEM) a "Buy"
Newmont Mining Corp. (NYSE: NEM) is one of the largest mining companies in the world. And like Goldcorp Inc. (NYSE: GG), which I discussed last week, it stands to profit handsomely from any additional monetary stimulus enacted over the next few months.
So let's buy Newmont Mining Corp. (**), and hold on for as long as Federal Reserve Chairman Ben S. Bernanke is allowed to debase the U.S. dollar to help his friends in the banking industry.
Gold is hitting record-high levels in almost every fiat currency.
This bull market move up in gold hasn't gone unnoticed, either. There is a major buyer of gold future calls in the options market. The buyer of these calls is an extremely deep-pocketed buyer.
The size of this trade and the potential profits would be staggering if the price of gold breaks above $1,600 an ounce. I have seen estimates of $100 billion profit potential.
I honestly believe that only a central bank or one of the largest hedge funds has the capital and mandate to take this kind of risk.
If this trade starts to come into the money, and it is nearly there now, I expect that the senior gold producers will find a real market bid.
So let's talk about Newmont.
Goldcorp Inc. (NYSE: GG) is a Gold Bug's Best Friend
If gold is the can't-miss investment of the decade – and it is – then Goldcorp Inc. (NYSE: GG) is a can't-miss opportunity for investors.
We're talking about a company with huge, profitable gold reserves and no net debt, which means it's time to buy Goldcorp Inc. (**).
It was only a few short years ago that central bankers were the bane of gold and gold equity investors. This was the era when central banks loved to dump physical gold on the market at cheap prices. In fact, they loved it so much that they had to invent a selling quota system just to give everyone a fair chance to unload their precious metals.
But now things have changed. Non-stop money printing by central banks around the world and fears of sovereign debt contagion continue to drive the price of gold higher.
Indeed, gold has become the go-to investment of the past decade, turning gold producers into profitable growth centers.
And Goldcorp is in the perfect position to profit.
Its Recent Pullback Makes Pan American Silver Corp. (Nasdaq: PAAS) a Bargain
Pan American Silver Corp. (Nasdaq: PAAS) is a silver mining company that has experienced a significant pullback in price since hitting its high in March. That means patient investors have a nice chance to enter at lower prices while the market calms down.
The parabolic move up in silver prices this spring helped provide a real stimulus to the share prices in some of the mining stocks. When silver prices pulled back after the Chicago Mercantile Exchange (Nasdaq: CME) raised margin rates over and over, the share prices of silver producers were negatively impacted.
The hot money has fled the sector and won't be back for a while, with equity prices now trading in the middle of their 52-week range. This gives patient investors, who are not chasing the current money, a chance to add or increase their exposure to silver miners without paying a pretty penny.
Why Pan American Silver is a "Buy"
When I look at a mining company, there are a few things I have learned to look for: Is the company already leveraged to the gills? How leveraged is it to the upside of its sector? Is it operating at a profit? Does it have a track history of operating at a profit?
In the case of Pan American Silver Corp., the company passes the test.
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