A graduation ceremony is an event where the commencement speaker tells thousands of students dressed in identical caps and gowns that 'individuality' is the key to success.
The markets are extremely overbought and the prudent path to take would be to wait for a decent pullback before committing large sums of money to this market. In the meantime, long term investors can use the following two options to open up additional streams of income and consider the following two options.
- Investors can sell covered calls.
- If one is bullish on a stock, one can sell naked puts and open an additional stream of income. For example, if you like CLC but only find it attractive in the 44-46 ranges, you could sell puts with a strike at 45. If the stock trades below this price on the last day, you will have to buy the stock. However, your final price will be much lower as you would subtract the premium you received from the price you paid for the shares. On the other hand, if the stock does not close below this price, then you get to keep the premium.
Atlas Pipeline Partners (NYSE:APL) is our favourite play on the list for the following reasons:
- A decent yield of 6.10%, more than double that of the current official inflation rate.
- It has a strong five-year dividend average of 18%
- It has a strong quarterly revenue growth of 32%
- A very good long-term debt to equity ratio of 0.41
- Sales have jumped from $900 million in 2009 to 1.2 billion in 2011.
- Management forecasted an Adjusted EBITDA of $200-$225 million for 2012. This is based on adjusted average natural gas price of $2.92 per MMbtu, a weighted average NGL price of $1.06 per gallon and an average crude oil price of $102.84 per barrel. Management is forecasting distributable cash flow of $130-$165 million based on the same assumptions.
- If the above stated commodities trade in a similar price range management expects even stronger growth in 2013 as the result of organic expansions that are already in progress. Under this scenario, management anticipates that total 2013 adjusted EBITDA could range from $250-$300 million, which translates into a 66% increase over 2011 Adjusted EBITDA results.
- A 5 year sales growth rate of 18.04%
- A good total debt to equity ratio of 0.41
- Adjusted EBITDA for the 4th quarter came in at $49 million, an increase of 15% Y-O-Y (year over year) increase.
- A very sturdy three-year dividend growth rate of 150%
- A 3 year total return of almost 800%
- Net income has increased from $60 million in 2009 to $289 million in 2011.
- A fine interest coverage ratio of 10.3
- It has a decent free cash flow yield of 7.43%
- The current $600 million organic growth program is running ahead of schedule.
- Distributable cash flow surged to $36.0 million in the 4th quarter; this represents an increase of 62% Y-O-Y.
- Adjusted EBITDA was $181.00 million for the full 2011 year compared to 2010 when the adjusted EBITA came in at $175 million.
- Distributed cash flow for 2011 was 50% higher than distributable cash in 2010.
- Atlas Pipeline Partners increased the distribution from 54 cents to 55 cents per unit, a 49% increase Y-O-Y.
- In the 4th quarter volume of processed gas moved up to 601 MMCFD, an increase of 23% Y-O-Y.
- $100K invested in APL for 10 years would have grown to $245K
As many key ratios are featured in this article, it would be in the investor's best interest to get a handle on the more important ones which are listed below. Getting a handle on these ratios could help you come up with your system for spotting potential winners.
Enterprise value - is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company's value contrary to simply looking at the market cap.
Long-term debt-to-equity ratio - is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.
Cash ratio - this is the ratio of the company's total cash and cash equivalents to its current liabilities; this ratio is used as a measure of a company's liquidity. It allows investors to determine how fast the company would be able to pay its short term debts if push came to shove. Higher numbers are better because it makes it easier for a company to ask for new loans, increase in credit lines, etc.
Operating cash flow - is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills.
The payout ratio - tells us what portion of the profit is being returned to investors. A pay out ratio over 100% indicates that the company is paying out more money to shareholders then they are making; this situation cannot last forever. In general, if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for sometime. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever; if your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest Analyzing 5 Dividend Plays: 1 Excellent, 2 Good And 2 Middling.
Current Ratio - is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing their future earnings. Ideally the company should have a ratio of 1 or higher.
Price to sales ratio - is calculated by dividing the company's share price by its revenue per share. Generally, the smaller the ratio (less than 1.0) the better the investment since the investor is paying less for each unit of sales. However, there are exceptions as a company with a low price to sales ratio could be unprofitable. It is sometimes used to determine the relative valuation of a sector.
Price to free cash flow - is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa; lower ratios are generally more attractive. If a company generated 400 million in cash flow and then spent 100 million on capital expenditure, then its free flow is $300 million. If the share price is 100 and the free cash flow per share are $5, then company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry; this gives you an idea of how the company you are interested in holds up to the other companies within the industry.
Interest coverage - is usually calculated by dividing the earnings before interest and taxes for a period of 1 year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.
Inventory turnover - is calculated by dividing sales by inventory. If a company generated $30 million in sales and had an average inventory of $6 million; the inventory turn over would be equal to 5. This value indicates that there are 5 inventory turnovers per year. This means that it takes roughly 2.4 months to sell the inventory. A low inventory turnover is a sign of inefficiency and vice versa.
Price to tangible book is - obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article A Review Of 5 Outstanding Dividend Increasing Stocks.
Company: Atlas Pipeline Partneres (APL)
Levered Free Cash Flow = -118.20M
Basic Key ratios
- Percentage Held by Insiders = 0.37
- Market Cap ($mil) = 1984
- Net Income ($mil) 12/2011 = 289
- Net Income ($mil) 12/2010 = 276
- Net Income ($mil) 12/2009 = 60
- EBITDA ($mil) 12/2011 = 409
- EBITDA ($mil) 12/2010 = 128
- EBITDA ($mil) 12/2009 = 171
- Cash Flow ($/share) 12/2011 = 3.01
- Cash Flow ($/share) 12/2010 = 0.87
- Cash Flow ($/share) 12/2009 = 1.79
- Sales ($mil) 12/2011 = 1303
- Sales ($mil) 12/2010 = 936
- Sales ($mil) 12/2009 = 904
- Anl EPS before NRI 12/2007 = 1.76
- Anl EPS before NRI 12/2008 = 2.41
- Anl EPS before NRI 12/2009 = -0.13
- Anl EPS before NRI 12/2010 = -0.65
- Anl EPS before NRI 12/2011 = 1.3
- Div Yield = 5.5%
- Div Yield 5 Yr Average 0909/2011 = 9.48%
- 5 year dividend growth rate= 7.26%
- Annual Dividend 12/2011 = 1.78
- Annual Dividend 12/2010 = 0.35
- Forward Yield = 5.95
- Payout Ratio 09/2011 = 0.77
- Payout Ratio 5 Yr Average 09 09/2011 = 1.79
- Change in Payout Ratio = -1.02
- Percentage Change Price 52 Wks Relative to S&P 500 = 23.43
- Standard Dev Target Price Estimate = 2.12
- Average EPS Surprise Last 4 Qtr = 168.66
- EPS % Change F2/F1 = 83.05
- EPS Growth Q (1)/Q(-3) = 10-100.00
- 5 Yr Historical EPS Growth 09/2011 = 5.98
- ROE 5 Yr Average 0909/2011 = 6.98
- Return on Investment 09/2011 = 9.37
- Return on Investment 06/2011 = 8.31
- Debt/Tot Cap 5 Yr Average 09/2011 = 49.19
- Current Ratio 09/2011 = 0.77
- Current Ratio 5 Yr Average = 0.73
- Quick Ratio = 0.77
- Interest Coverage =10.3
- Book Value Qtr ($/share) 09/2011 = 23.06
- Book Value Qtr ($/share) 06/2011 = 23.71
- Price/ Book = 1.61
- Price/ Cash Flow = 12.28
- Price/ Sales = 1.52
- Enterprise value/EBITDA 12 Mo = 6.13
- Q1 Std Dev/ Consensus = 0.26
- R-squared EPS Growth 09/2011 = 0.01
Company: Eagle Rock Energy (NASDAQ:EROC)
Levered Free Cash Flow = 48.30M
Basic Key ratios
- Percentage Held by Insiders = 25.1
- Market Cap ($mil) = 1367
- Net Income ($mil) 12/2011 = 73
- Net Income ($mil) 12/2010 = -5
- Net Income ($mil) 12/2009 = -171
- 12months Net Income this Quarterly/ 12months Net Income 4Q's ago = 1467.21
- Quarterly Net Income this Quarterly/ same Quarter year ago = 51.02
- EBITDA ($mil) 12/2011 = 234
- EBITDA ($mil) 12/2010 = 98
- EBITDA ($mil) 12/2009 = -49
- Net Income Reported Quarterly ($mil) = -26
- Annual Net Income this Yr/ Net Income last Yr = 1469.48
- Cash Flow ($/share) 12/2011 = 1.65
- Cash Flow ($/share) 12/2010 = 0.8
- Cash Flow ($/share) 12/2009 = 0.99
- Sales ($mil) 12/2011 = 1060
- Sales ($mil) 12/2010 = 758
- Sales ($mil) 12/2009 = 610
- Annual EPS before NRI 12/2007 = 0.31
- Annual EPS before NRI 12/2008 = 1.13
- Annual EPS before NRI 12/2009 = -0.72
- Annual EPS before NRI 12/2010 = -0.48
- Annual EPS before NRI 12/2011 = 0.65
- Dividend Yield = 8
- Dividend Yield 5 Year Average = 10.5%
- Annual Dividend 12/2011 = 0.69
- Annual Dividend 12/2010 = 0.1
- Forward Yield = 8
- Dividend 3 year Growth = 87%
- Payout Ratio 06/2011 = 0.47
- Percentage Change Price 52 Weeks Relative to S&P 500 = -1.39
- EPS Growth Quarterly (1)/Q(-3) = 1-131.58
- ROE 5 Year Average 06/2011 = 3
- Return on Investment 06/2011 = 13.77
- Debt/Total Cap 5 Year Average 06/2011 = 50.11
- Current Ratio 06/2011 = 0.74
- Current Ratio 5 Year Average = 0.97
- Quick Ratio = 0.74
- Cash Ratio = 0.16
- Interest Coverage Quarterly = 6.7
- Book Value Quarterly = 7.84
- Price/ Book = 1.34
- Price/ Cash Flow = 6.38
- Price/ Sales = 1.28
- Enterprise value /EBITDA 12 Mo = 9.17
It would fall under the "mediocre" category.
Enerplus Corp (NYSE: ERF)
Industry : Production & Extraction
Levered Free Cash Flow: -317.68M
- Net income for the past three years
- Net Income 2009 = $78 million
- Net Income 2010 = $123 million
- Net Income 2011 = $111 million
- EBITDA 12/2011 = $630 million
- EBITDA 12/2010 = $712 million
- EBITDA 12/2009 = $618 million
- Net income Reported Quarterly = $288 million
- Total cash flow from operating activities
- 2008 = $1.04 billion
- 2009 = $740.01 million
- 2010 = $707.65 million
- Cash Flow 12/2011 = 1.36 $/share
- Cash Flow 12/2010 = 4.28 $/share
- Cash Flow 12/2009 = 3.68 $/share
- Annual EPS before NRI 12/2011 = -1.07
- Annual EPS before NRI 12/2010 = 0.72
- Annual EPS before NRI 12/2008 = 5.22
- Annual EPS before NRI 12/2007 = 2.49
- ROE = 2.76%
- Return on Assets = 1.7%
- Quarterly Revenue Growth = 7.4%
- Key Ratios
- Price to Sales = 3.84
- Price to Book = 1.29
- Price to Tangible Book = 1.51
- Price to Cash Flow = 17.4
- Price to Free Cash Flow = -227.6
- Current Ratio 09/2011 = 0.27
- Current Ratio 5 Year Average = 0.58
- Quick Ratio = 0.27
- Cash Ratio = 0.04
- Interest Coverage = 3.30
- Payout Ratio 09/2011 = 4.08
- Payout Ratio 06/2011 = 1.01
- Payout Ratio 5 Year Average 09/2011 = 2
- Change in Payout Ratio = 2.07
- Dividend yield 5 year average = 9.9%
- Dividend growth rate 3 year average = -19.6%
- Dividend growth rate 5 year average = -9.21%
- Paying dividends since = 2000
Cash flow per share and net income has declining. It also sports weak quick and current ratios and has a negative 5 year dividend growth rate of -9.21%. This would fall under the average category.
ConocoPhillips (NYSE: COP)
Industry : Refining & Marketing
Levered Free Cash Flow: 8.93B
- Net income for the past three years
- Net Income ($mil) 2009 = $4414
- Net Income ($mil) 2010 = $11358
- Net Income ($mil) 2011 = $12436
- Total cash flow from operating activities
- 2009 = $12.48 billion
- 2010 = $17.05 billion
- 2011 = $19.65 billion
- P/E Ratio = 8.6
- P/E High - Last 5 Yrs = N.A.
- P/E Low - Last 5 Yrs = N.A.
- Price to Sales = 0.39
- Price to Book = 1.56
- Price to Tangible Book = 1.61
- Price to Cash Flow = 4.98
- Price to Free Cash Flow = 35.9
- Quick Ratio = 0.91
- Current Ratio = 1.10
- LT Debt to Equity = 0.33
- Total Debt to Equity = 0.33
- Interest Coverage = 24.6
- Inventory Turnover = 29.59
- Asset Turnover = 1.64
- ROE = 17.8%
- Return on Assets = 7.75%
- Quarterly Earnings Growth = 66.1%
- Total return last 3 years = 137.3%
- Total return last 5 years = 30.27%
Dividend history and dividend sustainability
- Dividend yield 5 year average = 3.3%
- Payout ratio = 29%
- Dividend growth rate 3 year average = 12.18%
- Dividend growth rate 5 year average = N11.66%
- Consecutive dividend increases = 11 years
- Paying dividends since = 1934
ConocoPhillips falls under the category of "great".
ConocoPhillips has an incredibly strong levered free cash flow of $8.39 billion, net income exploded from $4.4 billion in 2009 to $12.4 billion in 2011, it has a good LT debt to equity ratio of 0.33, a great quarterly earnings growth rate of 66%, a splendid interest coverage ratio of 29.5, a good 3 year dividend growth rate of 12%, and very low payout ratio of 29%. Cash flow from operating activities has also surged; in 2009 it stood at $12.48 billion and in 2011 it surged to $19.6 billion. 100K invested for 10 years would have grown to almost 293K.
Company : Sociedad Quimica y Minera S.A. (NYSE:SQM)
Levered Free Cash Flow = 24.74M
Basic Key ratios
Market Cap ($mil) = 15510
- Net Income ($mil) 12/2011 = 545
- Net Income ($mil) 12/2010 = 382
- Net Income ($mil) 12/2009 = 338
- EBITDA ($mil) 12/2010 = 643
- EBITDA ($mil) 12/2009 = 557
- Cash Flow ($/share) 12/2011 = N/A
- Cash Flow ($/share) 12/2010 = 2.02
- Cash Flow ($/share) 12/2009 = 1.78
- Sales ($mil) 12/2011 = N/A
- Sales ($mil) 12/2010 = 1830
- Sales ($mil) 12/2009 = 1437
- Annual EPS before NRI 12/2009 = 1.24
- Annual EPS before NRI 12/2010 = 1.45
- Div Yield = 1.80
- Div Yield 5 Yr Average 09/2011 = 1.59
- Annual Dividend 12/2011 = 0.76
- Annual Dividend 12/2010 = 0.51
- Forward Yield = 1.28
- R-squared Div Growth 09/2011 = 0.41
- Payout Ratio 06/2011 = 0.29
- Payout Ratio 5 Yr Average 09/2011 = 0.42
- Payout Ratio 5 Yr Average 06/2011 = 0.42
- Change in Payout Ratio = -0.13
- Percentage change Price 52 Wks Relative to S&P 500 = 1.25
- Average EPS Surprise Last 4 Qtr = 6.83
- EPS percentage Change F2/F1 = 24.42
- Next 3-5 Yr Estimate EPS Growth rate = 16.86
- EPS Growth Q(1)/Q(-3) = -135
- 5 Yr Historical EPS Growth 09/2011 = N/A
- ROE 5 Yr Average 09/2011 = 23.97
- Return on Investment 06/2011 = 27.11
- Debt/Tot Cap 5 Yr Average 09/2011 = 15.08
- Current Ratio 06/2011 = 3.02
- Current Ratio 5 Yr Average = 3.64
- Quick Ratio = 2.29
- Cash Ratio = 1.42
- Interest Coverage 12/2011 = 17.60
- Book Value Qtr ($/share) 06/2011 = 7.53
- Price/ Book = 7.83
- Price/ Cash Flow = 29.15
This play would fall under the category of "great". It sports a great interest coverage ratio, good current and quick ratios, a low payout ratio, and net income has been surging upwards for the past 3 years.
EPS, EPS surprise, broker recommendations, and price and consensus charts sourced from zacks.com. Earnings estimates and growth rate charts sourced from dailyfinance.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.