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Good Results In The TMS Plus The Iraq War May Be Just What The Doctor Ordered For Halcon Resources
- In its June 9, 2014 TMS update, HK reported the initial IP rate of the Hoseshoe Hill 11-22H-1 well at 1,548 Boe/d.
- The Iraq War III may cause a 10% to 20% long-term price spike in oil. This would be tremendously positive for HK.
- Recent HK results from the Bakken are much higher with EURs about +40% higher than previous wells.
Multiple Catalysts, Including The Iraq War III, Could Vault SandRidge Energy Into Profitability
- Many believe the Iraq War III will lead to a 10% to 20% spike in oil prices. This should increase SandRidge's profits.
- SD has cut its CapEx from $2.3B to $1.5B over the last two years mostly through increased efficiencies such as pad drilling.
- SD continues to lead the way with the new "stacked wells." These have one vertical with a lateral into two different zone plays (two laterals).
- SD recently divested itself of its Gulf of Mexico assets in order to concentrate on its core assets on whose development it is expert.
Quickly Improving Chesapeake Energy Could Grow Even Faster Due To The Iraq War
- Ukraine and Iraq geopolitical problems are leading to increased oil prices. This could mean another $300 million or so in profits for Chesapeake.
- The raise in production guidance on the May 16, 2014 Analyst Day means more stock price upside.
- The May 20, 2014 Moody's credit ratings increases to Ba1 (the top non-investment grade rating) are a big positive for Chesapeake.
- Before the upgrade Chesapeake's cost of debt had fallen from 5.9% to 5.1% over the last two years. This resulted in a savings of about $250 million per year.
ECB QE And A Weak Global Economy Mean A Good Q2 2014 For Both Annaly And American Capital
- The 12 bps drop in the 10 year US Treasury Note Yield from Q1E until June 12, 2014 should mean no book value losses for AGNC and NLY.
- The relatively small move in yield should mean only a small negative change in net interest rate spreads for AGNC and NLY.
- AGNC should be able to sustain its dividend. NLY may have to lower its dividend slightly.
GE Wants To Put Part Of Its $87B Cash Stash To Work In A Highly Synergistic Alstom Energy Business
- GE is in the enviable position of being in good financial condition at a time when many EU companies are not.
- GE has made an effective $13.5B offer for Alstom's energy business.
- From a business standpoint this offer makes sense for both companies; but there is anti-US sentiment in the French government and France.
- More palatable Siemens may make a counter offer by June 23, 2014. If not, the GE offer will likely be accepted.
- GE expects about $1.2B per year in synergy savings after the acquisition.
Gilead Sciences: Killing The Competition With Sovaldi; But Does This Make Gilead A One-Trick Pony?
- Sovaldi sales were $2.27B in Q1 2014, or about 50% of antiviral sales and 45.5% of total revenues.
- Many think there is considerable upside to Sovaldi's FY2014 sales estimates, which are already about $9B.
- GILD also has a great pipeline that should add a good amount to sales over the next several years.
- Based even on conservative Sovaldi sales estimates, GILD's PE should be 13 or lower at the end of 2014, at the current stock price. This gives the stock upside.
American Realty Capital Partners' Red Lobster Deal May Turn Out To Be A Real Albatross
- ARCP paid $1.5B for the land on which 500 Red Lobster restaurants stand.
- ARCP got leaseback deals with 93.5% 25 year lease and 6.5% an average of 18.7 year leases.
- The above sounds great; but Red Lobster no longer has DRI's credit rating. I would not rate it investment grade.
- Red Lobster reported an 8.8% decline in comparable store sales in Q1 2014. This continues Red Lobster's poor performance in recent years.
- Red Lobster's continued poor performances will likely lead to store closings in future years. This will mean very poor performance for ARCP on the leases for those stores.
Location, Location, Location May Give Phillips 66 A Big Edge
- PSX outperforms peers in every category of its business.
- Some Refining Capacity near the Bakken and Canada should allow PSX to glean great crack spread rates.
- New pipeline capacity that will transport cheaper oil to the Gulf Coast should help PSX's Gulf Coast refineries crack spreads.
- Some refining capacity near the Cushing, Oklahoma hug should benefit from that location.
These Rigs Are Walking Their Way To Big Profits For Oil Service Companies - Part I
- One of the biggest efficiencies of pad drilling is that it allows for rigs to be "walked" to another drill site on a pad without being disassembled and re-assembled.
- "Walking" a rig to a new site on the same pad takes a matter of hours instead of days. This can save up to $1 million per move.
- The "Walking" rigs usually have any number of other innovations that allow them to drill faster, more efficiently, and to use less labor.
- Baker Hughes, Schlumberger, Halliburton, and Weatherford are four of the most advanced suppliers of oilfield services. They should reap high profits.
- There is an uptrend in oil drilling. Fundamentals indicate that an uptrend in natural gas drilling is about to start. This means growth for oilfield services companies.
What Agency Mortgage REIT Portfolio Characteristics Produced Good Economic Returns In Q1 2014?
- CYS Investments produced a total economic return of 8.2%.
- American Capital Agency Corp produced a 5.1% total economic return.
- ARMOUR Residential REIT produced a 1.68% total economic return.
- Western Asset Mortgage Capital produced a -2.69% total economic return.
Linn Energy's Partial 1031 Exchange Of Its Midland Assets Is Good News For Its 10% Distribution
- LINE gets approximately 500,000 net acres in the Hugoton Field from Exxon Mobil with current production of 85 MMcfe/d and total reserves of 700 Bcfe.
- LINE gives up only about 2,000 Boe/d of production, 25,000 net acres of Midland Basin leaseholdings, and 1,000 net acres in Lea County, New Mexico.
- LINE retains 15,000 Boe/d of production from its Midland Basin assets. It retains 30,000 net acres of Midland Basin leaseholdings.
- LINE estimates the deal will be accretive to cash available for distribution by $30 million to $40 million annually.
- The 1031 exchange format should allow LINE to avoid taxes on the exchange.
Permian Basin Small E&Ps That Bucked The Russell 2000 Decline Trend
- The Permian Basin was a prolific vertical well play. Now it is becoming a prolific horizontal well play.
- Small E&P companies often offer the potential for large profits, especially when they are operating in prolific fields.
- Three companies: FANG, CWEI, and CPE, are among the small companies that could bring investors good profits.
- All three of the above companies remained above their 50-day SMAs during a recent Russell 2000 downturn of about 9%. This shows strength.
Major Changes At Encana Make It A Legitimate Oil Growth Play Now
- Encana revenues and earnings benefited from higher natural gas prices in Q1 2014.
- Encana management has made several positive fiscal moves.
- Encana announced the acquisition of 45,500 net acres of Eagle Ford Shale. These will be immediately accretive to earnings.
- Recent EOG results with both higher levels of fracking proppant and slick water fracking will likely increase IPs and EURs by huge amounts.
- Encana should be able to copy EOG’s technology for its Eagle Ford acreage. This should increase current estimates significantly, including reserves.
How Do Halcon Resources' Recent Bakken Wells Compare To EOG's And Continental's?
- EOG's recent Eagle Ford wells are, on average, better than HK's Bakken wells.
- HK's El Halcon (east Eagle Ford) recent wells IPs do not begin to compare with EOG's recent Eagle Ford wells IPs.
- HK's recent Bakken wells are roughly comparable to CLR's recent Bakken wells IPs.
- From a value standpoint, both EOG and CLR beat HK.
14%+ Dividend Payers Armour Residential And New York Mortgage Show Vastly Different Results
- Both ARR and NYMT pay 14%+ dividends.
- ARR lost book value in Q1 2014 ($4.75 per common share December 31, 2013 to $4.67 per common share March 31, 2014).
- NYMT gained book value in Q1 2014 ($6.33 per common share December 31, 2013 to $6.48 per common share March 31, 2014).
- NYMT far outperformed ARR in total economic return (+5.56% for Q1 for NYMT versus +1.66% for Q1 for ARR).
- Both companies' performances for Q2 2014 look very promising.
EOG Will Continue Its Fast Growth With The Addition Of 4 New Horizontal Development Plays
- EOG turned in a great Q1 2014. It beat EPS estimates by $0.20 per share. It raised oil and condensate production growth estimates to 29% from 27%.
- EOG added 400 MMBoe of potential oil and gas reserves in Q1 2014 by moving four fields from evaluation status to drilling development status.
- These 400 MMBoe will like increase EOG's "proved reserves" significantly by year end 2014.
- EOG has over 6 million net acres of oil and gas leaseholdings worldwide. However, only 2.66 million are in development stage. EOG has lots of room to grow.
- In the US, EOG has 1,452,786 net acres in development stage and 2,706,054 net acres in undeveloped status as of December 31, 2014.
10%+ Dividend Payer Annaly Capital Is Still A Safe Place To Put Your Money
- Book value increased from $12.13 at the end of Q4 2013 to $12.30 at the end of Q1 2014.
- NLY paid a $0.30 dividend per common share for Q1 2014.
- Combining both the above, NLY produced a 3.87% total economic return for Q1 2014 alone (about 15.5% annualized).
- Interest rates, far from skyrocketing in 2014 as many forecast, are down in both Q1 and Q2 from the end of 2013.
- Economic events in 2014 so far indicate a slowing world economy. This should be a positive for Agency mortgage REIT book values.
The Beat And Raise By Chesapeake Indicates Good Management And Improving Natural Gas Fundamentals
- Chesapeake Energy beat adjusted earnings estimates by a whopping +$0.11 per share ($0.59 versus and expected $0.48 and a year ago $0.30).
- Chesapeake raised FY2014 adjusted production growth from 8%-10% to 9%-12% (or by 1.5% using the range midpoints).
- Chesapeake raised its FY2014 operating cash flow outlook from $5.1B - $5.3B to $5.8B - $6.0B (or by $0.7B using the range midpoints -- 13.5% higher).
- Chesapeake accomplished the above while shrinking its CapEx by approximately 50% year over year to $850 million for Q1 2014.
- Chesapeake has an average analysts’ next 5 years’ EPS growth per annum of 35.03%. This far outstrips most E&P companies of its size and stability.
10% Dividend Payer Linn Energy's Plan For A Big 1031 Exchange Could Lift The Stock Considerably
- LINE/LNCO's acquisition of Berry Petroleum has improved its financials significantly.
- LINE has approximately 55,000 net development acres in the Midland Basin that it plans to spend $275 million in CapEx on in 2014.
- LINE management is indicating that it would like to do a 1031 like kind exchange for more mature assets.
- If LINE manages a like kind exchange, that should have a highly positive impact on its cash available for distribution.
- LINE's apparent net loss in Q1 2014 appears to be a mirage created non-realized derivatives losses that seem likely to be regained over time.
American Capital And CYS Both Posted Great Q1 2014 Results - CYS Seems To Have Led The Way
- CYS had a Q1 2014 economic return of 8.2%. This was comprised of a $0.32 per share dividend and a $0.44 increase in book value.
- AGNC had a Q1 2014 economic return of 5.1%. This was comprised of a $0.65 per share dividend and a $0.56 increase in book value.
- CYS ended Q1 2014 with leverage of 6.32x. It had a net interest rate spread of 1.89% and a CPR of 5.6% for Q1.
- AGNC ended Q1 2014 with leverage of 7.6x. It had a net interest rate spread of 1.43% and a CPR of 7.0% for Q1.
- CYS beat AGNC in performance in Q1 2014, but AGNC may be significantly safer.
Chesapeake Energy Is Finally Joining EOG Resources In Its Oil Success Story
- CHK and EOG both started as primarily natural gas companies.
- EOG became a successful natural gas to liquids convert quickly. It now gets 88% of its revenues from liquids.
- CHK was much slower to convert due to its huge debt problems. However, it has turned the corner on those; and it now gets 62% of its revenues from liquids.
- Both stocks are good investments. But for the longer term investors have to like CHK's next 5 years' EPS growth per annum of 35.03% versus EOG's 6.63%.
- CHK also has 10 -15 million net acres of great oil and gas development fields. EOG has only about 2 million net acres.
8% To 10% Dividend Payers BreitBurn And Vanguard Will Benefit From Increasing NatGas Prices
- Natural gas in US storage is roughly -50% below its norm after a colder than normal winter of 2013-2014.
- LNG exports are expected to start in late 2015. This should put upward pressure on natural gas prices, even before LNG exports start.
- Both BBEP and VNR will benefit greatly from higher natural gas prices in the long term.
- VNR has a proved reserves distribution of 66% natural gas and 34% liquids. BBEP has a proved reserves distribution of 40% natural gas and 60% liquids.
- Both VNR and BBEP have made significant acquisitions recently which should be nicely accretive to their distributions in the future.
With A 10.5% Dividend, Annaly Capital May Be One Of The Safer Investments In 2014
- Annaly Capital should see a book value gain from $12.13 to $12.40+ per share in Q1 2014 from its Agency RMBS portfolio.
- Annaly Capital should see a book value gain (or possibly a flat quarter) from its commercial real estate holdings.
- Annaly Capital should see a slight waning of its net interest rate spread in Q1 2014.
- Annaly has already announced a $0.30/common share dividend for Q1 2014. The ex-date was March 28, 2014.
- The above make Annaly a safe, high yielding investment for 2014.
Magnum Hunter: Bakken/Marcellus/Utica Junior Is Betting On Natural Gas And NGLs
- MHR has had so-so results in the Bakken/Three Forks (mostly oil).
- MHR has had generally good results in the Marcellus (mostly natural gas and NGLs).
- MHR is currently seeing some potentially great results in the Utica (mostly natural gas and NGLs).
- MHR is putting most of its capital budget for 2014 into the Utica and the Marcellus.
- Natural gas prices and NGLs prices have risen in the last year. Many indicators point to further gains. This could help MHR considerably.
Bakken Junior Emerald Oil Is Worth A Strong Look
- Emerald Oil is a Bakken junior with 85,000 net acres.
- Its recent wells in McKenzie county are outperforming the average 30-day IPs of peers.
- Emerald's enterprise value per acre is among the lowest among juniors (good). It's about one sixth of KOG's.
- Growth has been fantastic; and that is expected to continue in the next few years.
Why And How To Buy Corporate Bonds In A Likely Increasing Interest Rate Environment
- The 5-year bull market is likely ending soon. The average bear market drops 38% within two years.
- Intermediate-term corporate bonds are likely a better investment to be in than equities, if the equities market drops.
- The ITR ETF is a good intermediate-term corporate bond fund.
- The JNK ETF is a good high-yield bond fund with a four-star Morningstar rating.
- Bonds of improving companies, such as CHK, WY, and MHR often have lower ratings than they deserve, and so, higher yields.
When Momentum Favorites Netflix, Tesla, Amazon, Et Al Sell Off, It May Signal A Market Turn
- Large sell offs in momentum leaders (NFLX, TSLA, AMZN, etc.) are one sign of a possible overall market reversal.
- Link to the article, "Evidence Is Piling Up That The Market Is In For A Downturn." This article contains more specific indicators.
- The economic news from China has been terrible lately. FY2014 GDP growth may be far less than 7.5%.
- China has significant bad loan problems which could lead to a financial crisis as bad or worse than the EU and the US crises.
- Russia's annexation of the Crimea may cause a trade war between Russia and the EU and US with dire economic consequences.
Bakken Producers Like Continental And Whiting Are Finding Profits By Going 'Green'
- Bakken producers have been flaring natural gas for many years. Many are now moving to be "greener".
- Whiting and Continental both say they are committed to zero flaring.
- Both Continental and Whiting are seeing increased profits from the now captured natural gas; and this trend should continue.
Tyson Foods Should See Increased Profits On Soaring Pork And Beef Prices
- US Pork prices are up nearly 45% in the last three months due to Porcine Epidemic Diarrhea Virus (not harmful to humans).
- US Live Cattle prices are up 11% in the last three months.
- The higher pork and beef commodity prices should spur profit growth in US meat food producers in 2014.
- The uptrends in both commodities seem likely to continue near term.
- There is a secular growth story in meat foods worldwide. This should provide good growth for food manufacturers over the long term.
The Emerging Markets' Mediated Flight To Quality Bodes Well For Mortgage REITs Near Term
- Serial bad economic news from China is causing a flight to quality; and China trouble is likely to continue.
- The trouble in the Ukraine has caused a flight to quality. It is ongoing.
- Flat or decreasing interest rates make fixed rate agency assets of NLY and AGNC likely to gain book value in Q1 2014.
- Discounts to Q4 2013E book values make NLY and AGNC attractive when most stocks are overvalued.
- +32 bps of 10 year U.S. Treasury note yield decreases in hand so far in Q1 2014 make the discounts to book value even greater.
Evidence Is Piling Up That The Market Is In For A Downturn
- The 25.16 CAPE for the S&P 500 is far above the average of 16.53.
- The margin debt peak has marked recent downturns; and we are likely seeing one.
- The Fed is tapering (tightening).
- The Chinese manufacturing PMI for February 2014 was 48.5; and the trade deficit for February was -$23B versus an expectation of +$6.8B.
- There is a huge amount of Chinese debt that will have to be written off; that the Chaori effective default was allowed may signal write-offs are coming.
Industrial Metals' Dramatic Drops Show Miners Probably Have A Tough Road Ahead In 2014
- Negative China economic events have caused dramatic down moves in iron ore prices.
- The biggest iron ore producers are "risky" investments under the current circumstances.
- A general worlwide economic softening should contribute to this problem.
- Cliffs Natural Resources is especially at risk. Some analysts are worried about a bankruptcy in its future.