S&P 500: On Track to Reach a 20-Year Low [View article]
Given that P/E ratios this past 30 years were substantially boosted by ballooning credit I think it would be much more interesting, and relevant, to see how today's P/E ratio of circa 15 compares against periods when credit was shrinking. Today's P/E is well above that average.
Second, given that we face below par growth for the next several years - in the 'new normal' - one should expect P/E ratios to contract to reflect the below par economic and profit performance that we will get from markets for the next number of years.
Third, during times of economic slowdown stock markets contract 'in anticipation' thus giving below par P/E ratios.
These are three reason why markets today should support P/E ratios far below the long-term average - and not just P/E ratios that are lower than those of the past 30 bubble years.
I believe that the market might be reasonably well supported during the next few weeks as we enjoy a good Q2 earnings season. But once the Q2 earnings season draws to a close, by which time investors start to take money off the table in the face of a slowing economy, there is only one message that investors need to know - look out below!
Halcon Resources: The Eagle Ford Asset Sale Is A Drop In The Ocean Of Its Debt [View article]
A word or two about the Sanchez low-ball figures: Of the 43k acres acquired only 15k is held by production. The remaining 28k acres is scattered in small lots of which leases expire for 18k acres in 2013. Additionally, the seller, Hess, is consolidating their efforts and their Eagle Ford acreage, at only 43k acres, is below their threshold of interest. Essentially Hess was virtually a forced seller of scattered-lot assets with a high % of expiring eases.
To get any realistic valuation of any possible asset sales by HK it is essential to first look properly at recent transactions so as to eliminate any exceptional circumstances such as those that existed for Sanchez & Hess. Otherwise we end up simply comparing apples to oranges and defeating our own arguments.
I concur that the days of achieving huge prices for acreage are gone for now. However, a salesman with a well established reputation who sells good assets will certainly obtain a good price.
Having said this, the Halcon story is about production growth, not about some relatively minor asset sale.
Halcon's production guidance for 2013 has it on track to breach the 100,000 Boed threshold by early 2015. At that level, Halcon will surely be sold for a very attractive price. Continental now has production of about 100,000 Boed, it has - right now in today's more moderated valuation environment - a market cap of $14.5 billion and an EV of $18 billion. By contrast, Halcon today has a market cap of $2.4 billion and an EV of $4.5 billion. Assuming Halcon hits the 100,000 Boed level in two years time, that leaves a very very big valuation gap for Halcon shareholders.
Focus on what is most important - production - not on the small stuff.
Northern Oil & Gas: Play The Massive Production Ramp Up In The Bakken [View article]
One additional factor:
NOG has an inventory of about 800 wells it can drill. During 2012 the company plans to drill 44 net wells, which means that NOG has a drilling inventory of 18 years.
This 18-year inventory is way above the industry average, it gives NOG very long term visibility and ensures the company will not need to issue new shares to buy more acres i.e. no shareholder dilution threat.
Government spending contributed 0.86% to the 1.6% GDP growth recorded in Q2. Without the 0.86% government spending boost, U.S. GDP would have grown by just 0.74%.
Going forward the help from stimulus becomes weaker and weaker. And this at a time when housing has again started weakening......
The Market Will Have a Good Run Over the Next Two Months [View article]
James, just a couple of days ago the S&P 500 was trading on a 12-month trailing p/e ratio of 17, not 12 as you stated. This 17 p/e is above the long-term average of 15. Furthermore, during sustained periods of low growth such as that we now face, p/e ratios normally contract. For sure the market is overvalued given the weak outlook, the only question is "by how much"?
I do not think there will be a crash, but I do believe the S&P index will move lower in the short term, especially into late September & early October when we will have negative pre-announcements because of the slowing economy, more weak jobs reports, and a new round of sovereign debt worries caused by low global growth concerns.
That late Sept / early Oct low point should indeed be a good short-term buying opportunity.
Longer term we are in for an extended period of range trading - largely in line with Ryan Pollack's remarks above but I expect lower lows. Buy and Hold is dead, at least for now.
If interested, here is fuller explanation of the situation together with ways to make money out out of it. seekingalpha.com/artic...
Considering the extended period of low growth we face, the S&P 500 is considerably overvalued; a couple of days ago it sported a trailing 12-month p/e of 17 versus the long-term norm of 15.
A reversion to the norm, as per the opening sentence of this article from TPC, suggests that stocks should now drift lower.
But of course, a reversion to the norm should only occur if we are going through a normal growth period. Unfortunately we face an extended period of sub-par growth ... which suggests that market valuations should now (or will soon) be lower than the norm.
It's not all doom and gloom and people can still make money. Here's how investors/traders can profit in a low growth environment whilst also preserving capital; seekingalpha.com/artic...
Good article if a little surprised at the suggestion that markets will continue south from current levels without first breaking to the upside.
I would have thought, after the recent sell-off, that markets are nicely positioned for a run into Q2 earnings season. Earnings for Q2 will be assuredly good, albeit that a selection of companies will issue soft guidance. In this scenario the major indices will advance by about 4-5% during the next couple of weeks. But once that advance is in place we should see investors start to take money off the table as a precautionary move.
And as we progress further through Q2 earnings season this sell-off will gain momentum. Watch for the emergence of this trend, it is key. Attention - the sell-off would then typically accelerate very quickly.
Looking into August, when we will no longer be buoyed by positive newsflow from Q2 earnings, the major indices will be substantially lower.
Ok, you say the 15yr average PE was 19.58 and currently we're 17.6% below that, implying that the current market PE ratio might be perfectly fine.
A big however; that 15yr average is skewed pretty badly by the numbers from the dot com era. Instead of using a rather dodgy 15yr average why not use a longer term average, like a 100 year average. A 100yr average would include the dot com era as well as the depression era, thus offsetting each others effects at least to a reasonable degree, and leaving us with a fairly reliable long term average number.
3 Low-Priced Stocks in Leading Sectors [View article]
The NEP results for Q3 and Q4 2010 were badly affected by the 2010 Chinese floods and related landslides. The company confirmed on the March 16 conference call that the current business run-rate has already normalized at levels a good deal higher than the Q3/Q4 2010 interrupted levels. Largely, the analysts estimates on Yahoo Finance for 2011 look about right i.e. EPS for 2011 of over $1.00. On top of this NEP has $60 million net cash.
Investors may be interested in knowing that NEP is due to close an acquisition around the end of Q1 2011 for an oilfield with total reserves of 573 million barrels of which the company expects to recover about 143 million barrels, all for a cost of $10m in cash plus ~6m shares. If this acquisition concludes, and I believe it will, it will lead to multiple years of very strong growth in Sales, Earnings and EPS.
These Poorly Hedged Bakken And Eagle Ford Oil E&P Companies Could Get Hurt In A Downturn [View article]
I also feel that WTI prices are heading deep into the $60-$80 zone, most probably this summer in tandem with a lull in financial markets. I wouldn’t be surprised to see the $70 barrier temporarily breached.
As well as the reasons you cite, the record levels of US strategic reserves and the overall build-up in oil inventories that's been occurring in recent quarters - this build-up cannot continue indefinitely due to physical limits thus leading to a possibly huge excess of oil awash at the doors of the refiners. Such a backdrop would cause oil prices to spike sharply lower this summer, even if only for a brief period. This risk is very high.
During the summer 2012 some of the worst affected companies were those that had the heaviest borrowings. It became almost a case of shareholders not caring so much about the hedges in place because, they said; "hedges are temporary but low oil prices might be permanent and I need to bail in case this heavily borrowed company ultimately goes belly up". Let’s remember - when oil prices plunge it is typical that some well-respected forecasters jump on the band-wagon and issue even lower oil price forecasts that scare a lot of small investors.
In summer 2013 I think there is alarming down-side risk to a number of shale drillers, yes those who are least hedged but even more so to those with heavy borrowings.
Finally, whilst there is big risk to the downside for the oil producers, and specifically for a lot of shale companies, I’d also say that when we get sharply lower oil prices this summer this will be a very good buying opportunity.
Not devil's advocate at all, I agree with the sentiments you express. 2012 was another year of worries in markets and we didn't need much to encourage us to not invest in one or other stock. Additionally, during 2012 a growing number of people have come to the realization that oil isn't realistically going higher for any meaningful period, so yes some value has come out of the sector in general.
Against this backdrop various oil plays saw some softness in their stock prices even though the company in question registered big increases in oil output and sales. We all know the names; KOG, NOG, OAS, WLL and so on.
Halcon, rather than concentrate on growing production in 2012, spent most of their energies cutting big deals that have transformed the size and value proposition of the company on many levels. In so doing, and considering the market backdrop, it is no wonder that shareholders have become tired and the stock took a beating.
HK management have announced quite clearly that they have now changed their focus from deal-making to drilling. This change is crucial. Investors need to see at least some proof before they can pile into the shares. I believe that we will get proof of execution during the next few months and this should be very supportive to the stock price. Most probably we will see HC stock catch-up some of the lost ground during the past year, certainly on valuation grounds it has the potential to do so.
On the other hand, if the company continues to execute large acquisition deals for sure that would put a cap on stock price appreciation.
However, aside from a few modest strap-on deals, I believe the main focus during 2013 will indeed be on the drill bit. There are many reasons to bet on this outcome, not least the widespread insider buying.
Does Carrizo Oil & Gas Confuse Investors Too Much? [View article]
Good article, asks the right questions.
As a shareholder, it's hard to understand why they continue to try and sell the North Sea asset for just $100 million net of some local borrowings, that being, what, less than 2 times EBITDA? Btw, I believe CRZO's share of estimated production from this field has been raised to about 5,000Bpd.
Seems they would use the proceeds of the North Sea asset sale to buy more acreage in the Utica. It would take some years to get that new acreage producing sales and positive cash flow because they're starting from a zero base with minimal infrastructure and asset information. So, again, you have to ask the question why would they sell this North Sea asset at such a low price when the replacement assets won't fill the profits and cash-flow holes for years?
Notice how the analysts' earnings estimates for future periods keep falling as the company keeps doing more deals?
I don't want them to stop making deals. I'd like them to make better deals, consistent deals, and deals that demonstrate that they are on a clear path to growing profits instead of diminishing potential profits.
S&P 500: On Track to Reach a 20-Year Low [View article]
Second, given that we face below par growth for the next several years - in the 'new normal' - one should expect P/E ratios to contract to reflect the below par economic and profit performance that we will get from markets for the next number of years.
Third, during times of economic slowdown stock markets contract 'in anticipation' thus giving below par P/E ratios.
These are three reason why markets today should support P/E ratios far below the long-term average - and not just P/E ratios that are lower than those of the past 30 bubble years.
I believe that the market might be reasonably well supported during the next few weeks as we enjoy a good Q2 earnings season. But once the Q2 earnings season draws to a close, by which time investors start to take money off the table in the face of a slowing economy, there is only one message that investors need to know - look out below!
Halcon Resources: The Eagle Ford Asset Sale Is A Drop In The Ocean Of Its Debt [View article]
To get any realistic valuation of any possible asset sales by HK it is essential to first look properly at recent transactions so as to eliminate any exceptional circumstances such as those that existed for Sanchez & Hess. Otherwise we end up simply comparing apples to oranges and defeating our own arguments.
I concur that the days of achieving huge prices for acreage are gone for now. However, a salesman with a well established reputation who sells good assets will certainly obtain a good price.
Having said this, the Halcon story is about production growth, not about some relatively minor asset sale.
Halcon's production guidance for 2013 has it on track to breach the 100,000 Boed threshold by early 2015. At that level, Halcon will surely be sold for a very attractive price. Continental now has production of about 100,000 Boed, it has - right now in today's more moderated valuation environment - a market cap of $14.5 billion and an EV of $18 billion. By contrast, Halcon today has a market cap of $2.4 billion and an EV of $4.5 billion. Assuming Halcon hits the 100,000 Boed level in two years time, that leaves a very very big valuation gap for Halcon shareholders.
Focus on what is most important - production - not on the small stuff.
Northern Oil & Gas: Play The Massive Production Ramp Up In The Bakken [View article]
NOG has an inventory of about 800 wells it can drill. During 2012 the company plans to drill 44 net wells, which means that NOG has a drilling inventory of 18 years.
This 18-year inventory is way above the industry average, it gives NOG very long term visibility and ensures the company will not need to issue new shares to buy more acres i.e. no shareholder dilution threat.
Is Another Recession Ahead? [View article]
Going forward the help from stimulus becomes weaker and weaker. And this at a time when housing has again started weakening......
The Market Will Have a Good Run Over the Next Two Months [View article]
I do not think there will be a crash, but I do believe the S&P index will move lower in the short term, especially into late September & early October when we will have negative pre-announcements because of the slowing economy, more weak jobs reports, and a new round of sovereign debt worries caused by low global growth concerns.
That late Sept / early Oct low point should indeed be a good short-term buying opportunity.
Longer term we are in for an extended period of range trading - largely in line with Ryan Pollack's remarks above but I expect lower lows. Buy and Hold is dead, at least for now.
If interested, here is fuller explanation of the situation together with ways to make money out out of it.
seekingalpha.com/artic...
Foreclosure Friday: The Top 1 Percent Stick It to the Banks [View article]
seekingalpha.com/artic...
Keep up the good work Phil, and Phil's team.
The Never-Ending Recession [View article]
A reversion to the norm, as per the opening sentence of this article from TPC, suggests that stocks should now drift lower.
But of course, a reversion to the norm should only occur if we are going through a normal growth period. Unfortunately we face an extended period of sub-par growth ... which suggests that market valuations should now (or will soon) be lower than the norm.
It's not all doom and gloom and people can still make money. Here's how investors/traders can profit in a low growth environment whilst also preserving capital;
seekingalpha.com/artic...
The Bear Is Back [View article]
I would have thought, after the recent sell-off, that markets are nicely positioned for a run into Q2 earnings season. Earnings for Q2 will be assuredly good, albeit that a selection of companies will issue soft guidance. In this scenario the major indices will advance by about 4-5% during the next couple of weeks. But once that advance is in place we should see investors start to take money off the table as a precautionary move.
And as we progress further through Q2 earnings season this sell-off will gain momentum. Watch for the emergence of this trend, it is key. Attention - the sell-off would then typically accelerate very quickly.
Looking into August, when we will no longer be buoyed by positive newsflow from Q2 earnings, the major indices will be substantially lower.
Weighing the Week Ahead: It's All About Negativity [View article]
Jim Kingsdale's Legacy [View article]
Thank you for writing his obituary.
S&P 500 P/E Ratio [View article]
A big however; that 15yr average is skewed pretty badly by the numbers from the dot com era. Instead of using a rather dodgy 15yr average why not use a longer term average, like a 100 year average. A 100yr average would include the dot com era as well as the depression era, thus offsetting each others effects at least to a reasonable degree, and leaving us with a fairly reliable long term average number.
3 Low-Priced Stocks in Leading Sectors [View article]
Investors may be interested in knowing that NEP is due to close an acquisition around the end of Q1 2011 for an oilfield with total reserves of 573 million barrels of which the company expects to recover about 143 million barrels, all for a cost of $10m in cash plus ~6m shares. If this acquisition concludes, and I believe it will, it will lead to multiple years of very strong growth in Sales, Earnings and EPS.
These Poorly Hedged Bakken And Eagle Ford Oil E&P Companies Could Get Hurt In A Downturn [View article]
As well as the reasons you cite, the record levels of US strategic reserves and the overall build-up in oil inventories that's been occurring in recent quarters - this build-up cannot continue indefinitely due to physical limits thus leading to a possibly huge excess of oil awash at the doors of the refiners. Such a backdrop would cause oil prices to spike sharply lower this summer, even if only for a brief period. This risk is very high.
During the summer 2012 some of the worst affected companies were those that had the heaviest borrowings. It became almost a case of shareholders not caring so much about the hedges in place because, they said; "hedges are temporary but low oil prices might be permanent and I need to bail in case this heavily borrowed company ultimately goes belly up". Let’s remember - when oil prices plunge it is typical that some well-respected forecasters jump on the band-wagon and issue even lower oil price forecasts that scare a lot of small investors.
In summer 2013 I think there is alarming down-side risk to a number of shale drillers, yes those who are least hedged but even more so to those with heavy borrowings.
Finally, whilst there is big risk to the downside for the oil producers, and specifically for a lot of shale companies, I’d also say that when we get sharply lower oil prices this summer this will be a very good buying opportunity.
Understanding Halcón Resources [View article]
Against this backdrop various oil plays saw some softness in their stock prices even though the company in question registered big increases in oil output and sales. We all know the names; KOG, NOG, OAS, WLL and so on.
Halcon, rather than concentrate on growing production in 2012, spent most of their energies cutting big deals that have transformed the size and value proposition of the company on many levels. In so doing, and considering the market backdrop, it is no wonder that shareholders have become tired and the stock took a beating.
HK management have announced quite clearly that they have now changed their focus from deal-making to drilling. This change is crucial. Investors need to see at least some proof before they can pile into the shares. I believe that we will get proof of execution during the next few months and this should be very supportive to the stock price. Most probably we will see HC stock catch-up some of the lost ground during the past year, certainly on valuation grounds it has the potential to do so.
On the other hand, if the company continues to execute large acquisition deals for sure that would put a cap on stock price appreciation.
However, aside from a few modest strap-on deals, I believe the main focus during 2013 will indeed be on the drill bit. There are many reasons to bet on this outcome, not least the widespread insider buying.
Does Carrizo Oil & Gas Confuse Investors Too Much? [View article]
As a shareholder, it's hard to understand why they continue to try and sell the North Sea asset for just $100 million net of some local borrowings, that being, what, less than 2 times EBITDA? Btw, I believe CRZO's share of estimated production from this field has been raised to about 5,000Bpd.
Seems they would use the proceeds of the North Sea asset sale to buy more acreage in the Utica. It would take some years to get that new acreage producing sales and positive cash flow because they're starting from a zero base with minimal infrastructure and asset information. So, again, you have to ask the question why would they sell this North Sea asset at such a low price when the replacement assets won't fill the profits and cash-flow holes for years?
Notice how the analysts' earnings estimates for future periods keep falling as the company keeps doing more deals?
I don't want them to stop making deals. I'd like them to make better deals, consistent deals, and deals that demonstrate that they are on a clear path to growing profits instead of diminishing potential profits.