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  • 7 Growing Energy Stocks with Great Dividends
    The demand for oil has been increasing steadily at an average rate of 2% per year. The fields we are discovering are getting smaller, and in more remote locations. Since demand outweighs the supply, energy prices trend upward. In 2007, crude oil prices had reached their highest value at $148. The recent global economic downturn has affected the market. On December 23, 2008, WTI crude oil spot price fell to $30.28 a barrel, the lowest since the financial crisis began.
     
    However, we are observing a strong recovery on energy prices. World’s oil and gas supplies are limited, yet the energy demand in emerging markets is growing at a remarkably fast pace. Moreover, a significant proportion of world’s oil supplies is located in the volatile Middle East countries. Recently, the Brent price hit above $110 a barrel for the first time since October 2008, on concerns about the political unrest in OPEC countries.
     
    While a hike in energy prices will reduce your real income, it will increase profitability of energy companies. Average consumers can hedge their real income against increasing prices by investing in this sector. It is even possible to invest in foreign oil companies through ADRs such as TOTAL SA (TOT), and British Petroleum (BP). However, they are subject to different rules, regulations and taxes. Therefore, we analyzed the top 7 cash rich, fast growing, US-based energy companies that have considerable dividend payouts.
     
    Alliance Resource Partners, L.P. (ARLP): ARLP is a producer and marketer of coal in the continental USA. 91.8% of its coal production is marketed to the utility companies that generate electricity. Increases in oil prices naturally increase the demand for coal. ARLP is an extremely profitable company. Profits, operating income and dividends increased by two-fold in the last 5 years. Current yield of 5% is above the average return in the coal industry.
     
    Pioneer Southwest Energy Partners LP (PSE): Pioneer Trust engages in onshore drilling in America's southwest. Following the rise in oil prices, last year’s return was almost 40%. Pioneer is operating with a profit margin of almost 60%. Given the current P/E ratio of 11.5 and the dividend yield of 6.5%, PSE is a exceptionally smart buy.
     
    Chevron Corporation (CVX): Chevron is an integrated energy company that manages its international investments in subsidiaries and affiliates. Company profits and revenues have already reached their 2007 levels. Since 2005, quarterly dividends increased from $0.52 to $0.72. The current P/E value of 10 is lower than its global competitors such as Exxon Mobile (XOM), which has a P/E of 13.6.
     
    ConocoPhillips (COP): Conoco is an integrated energy company that produces and markets crude oil and natural gas on a global scale. The company was hit by the crises. However, its’ profits are on the rise in the last 5 quarters. EPS already surpassed their previous peak value. (7.22 in 2007 vs 7.62 in 2010). Over the same period, dividends per share increased by 30%.
     
    Occidental Petroleum Corporation (OXY): Occidental is involved not only in oil and gas business but also operates in chemical materials segment. OXY is a highly profitable business that performs well in the market. In last 5 years, share prices raised from $40 to $100. Occidental’s dividends also more than doubled from $0.18 to $0.38.
     
    Suburban Propane Partners, L.P. (SPH): SPH is a national marketer and distributor of propane, fuel oil and refined fuels. The company is involved in marketing of natural gas and electricity. SPH is highly profitable. Thanks to its increasing revenues and profits, stock prices more than doubled in the last decade. Dividends also increased from $0.55 to $0.84. The current yield of 6% is above the industry average.
     
    SeaDrill Limited (SDRL): SeaDrill is an offshore drilling company that provides mobile units, tender rigs and well services around the world. By 2010 SeaDrill’s operating margin reached 40% and net profit margin reached 33%. Considering, the current yield of 7.6%, and P/E ratio of 12, SDRL shows more profitability than its competitors. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 07 5:05 AM | Link | 1 Comment
  • Fundamental Analysis of Ford Company

    Incorporated in 1919, Ford (F) Motor Company engages in automotive production and financial services. Automotive unit operates on a global scale in Americas, Europe and Asia. Financial segment offers purchase credit in the form of retail and wholesale financing. Ford’s competitors that currently trade in stock markets include General Motors (GM), Toyota (TM), Honda (HMC), Tesla (TSLA), Nissan (NSANY), Daimler AG (DDAIF), and Volkswagen AG (VLKAY).

    Income Statement (in Millions)

     

    SALES

    NET INCOME

    EPS

    DIVIDEND

    2001

    $160.504

    -$5.347

    -$2,95

    $1,20

    2002

    $162.258

    $355

    $0,19

    $0,40

    2003

    $166.095

    $646

    $0,35

    $0,40

    2004

    $172.316

    $3.184

    $1,59

    $0,40

    2005

    $176.835

    $1.629

    $0,86

    $0,40

    2006

    $160.065

    -$12.629

    -$6,72

    $0,05

    2007

    $168.884

    -$2.836

    -$1,43

    $0,00

    2008

    $143.584

    -$14.775

    -$6,50

    $0,00

    2009

    $116.283

    $2.712

    $0,86

    $0,00

    2010

    $128.954

    $6.561

    $1,66

    $0,00

    Sales and Net IncomeFord’s golden year was 2005 where company made $176.8 billion in revenues. Since then, sales reduced to $130 billion. Ford was deeply affected from the financial crises in 2008. However, we see improvement in 2010 where Ford earned $1.66 per share.


    Dividend History: Ford Company did not pay dividends in the last 4 years. Over the years, annual dividends reduced from $1.2 to 0. Last year’s dividend yield was 0%. In fact, Ford has not paid any dividends since 2006. 

    BALANCE SHEET

     

    CURRENT ASSETS

    CURRENT LIABILITIES

    LONG TERM DEBT

    2001

    $276.543,00

    $268.757,00

    $167.173,00

    2002

    $295.222,00

    $289.632,00

    $167.331,00

    2003

    $310.723,00

    $299.072,00

    $177.998,00

    2004

    $295.487,00

    $278.050,00

    $129.330,00

    2005

    $269.459,00

    $256.017,00

    $119.980,00

    2006

    $279.196,00

    $282.661,00

    $171.832,00

    2007

    $279.264,00

    $273.636,00

    $168.530,00

    2008

    $216.052,00

    $231.773,00

    $151.669,00

    2009

    $192.040,00

    $199.860,00

    $131.635,00

    2010

    $164.687,00

    $165.360,00

    $103.988,00

    When we look at Ford’s current assets, we observe a declining trend since 2003. In 2003, the value of current assets was $299 million whereas in 2010 current assets amount to only $165 million. Current liabilities are highly volatile and they barely match the current assets. The only good news is the reduction in Ford’s long-term debt.

    Historical Fundamentals

     

     P/E

    PROFIT MARGIN (%)

    2001

    -7,90

    -3,30

    2002

    71,00

    0,20

    2003

    30,50

    0,40

    2004

    9,10

    1,80

    2005

    12,00

    0,90

    2006

    -1,10

    -7,90

    2007

    -5,70

    -1,70

    2008

    -0,80

    -10,30

    2009

    6,70

    2,30

    2010

    7,80

    5,10

    Ford’s average P/E ratio is extremely volatile and in years 2006, 2007, and 2008 it was negative. Net Profit margin is also remarkably low and in the same years, it was negative. Ford was able to achieve the maximum profit margin of 5.1% in 2010. However, 2008 was a disastrous year where net profit margin was -10.3%. 

    Direct Competitor Comparison

     

     

    F

    PVT1

    GM

    TM

    Industry

    Market Cap:

    56.95B

    N/A

    54.39B

    140.74B

    27.43B

     

    Employees:

    198,000

    N/A

    209,000

    318,001

    24.31K

     

    Qtrly Rev Growth (yoy):

    -1.30%

    N/A

    27.20%

    5.80%

    13.30%

     

    Revenue (ttm):

    133.36B

    17.71B1

    131.04B

    246.36B

    58.17B

     

    Gross Margin (ttm):

    15.73%

    N/A

    10.35%

    13.39%

    21.40%

     

    EBITDA (ttm):

    13.98B

    N/A

    9.10B

    23.37B

    5.77B

     

    Operating Margin (ttm):

    6.54%

    N/A

    1.66%

    3.00%

    6.46%

     

    Net Income (ttm):

    7.26B

    -3.78B1

    638.00M

    6.75B

    N/A

     

    EPS (ttm):

    1.89

    N/A

    -0.02

    4.30

    2.88

     

    P/E (ttm):

    8.68

    N/A

    N/A

    20.86

    15.85

     

    PEG (5 yr expected):

    0.49

    N/A

    1.17

    0.67

    0.46

     

    P/S (ttm):

    0.42

    N/A

    0.41

    0.57

    0.54

     

    Ford’s gross margin of 15.73% is below industry average of 21.40%. In 2010, operating margin was 6.54% which is slightly higher than the industry average of 6.46%. The expected PEG ratio of 0.49 is below industry standard as well. In past years, while revenues in the automotive industry were growing at a rate 13.30%, Ford’s revenues declined by -1.3%.

    Insider Transactions: Another warning sign about Ford stocks is the large volume of sales by the vice presidents, directors, and general counsel. In the last 2 months, insiders sold 633,000 shares worth $11.5 million.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 07 4:54 AM | Link | 7 Comments
  • Hedge Yourself Against Rising Oil Prices

    The political chaos in North Africa and Middle East caused Brent oil price to hit $110 a barrel for the first time since 2008. Libya is at the edge of a civil war; foreigners are trying to save their lives by running away from the country. It is not just Libya. Another large oil supplier, Iran witnessed thousands of protesters marching in Tehran demanding a change. Even in Saudi Arabia, the ministry of interior confirmed about protesters and threatened to crash them. The dictatorship regimes of the region are falling one-by-one. Tunus first, Egypt second. Who knows which one will be next? Obviously, there is a lot of uncertainty in that region which raised the oil prices above $100.
    The crude oil prices are up by $4.63 from a week earlier, and $21.04 higher than the last year. The future contracts imply that oil prices are expected to stay at least at the current level:

    Crude oil futures price

    Crude Oil Futures Price
    Naturally, changes in crude oil price is quickly reflected in the retail gasoline prices: Gasoline is now at a national average of $3.392 a gallon. Two years ago the national average retail price was $1.90

    Average National Retail Oil Prices  

    Average National Retail Oil Prices

    What can we do about rising gasoline prices? Automotive Experts suggest the following:

    • Check your air and oil filter.
    • Straighten up and align your tires properly.
    • Tune up the engine.
    • Pump up the tires.
    • Check the gas cap.
    • Drive slowly and smoothly (optimal speed is 55mph).
    • Lighten up your load.
    • Turnoff the engine when you are idle.

    Besides listening the automative experts, you can also follow T.Boone Pickens, and invest in energy stocks. While the increasing gasoline costs are not good for consumers, it benefits those who invest in energy stocks. The best hedge against retail oil prices is the energy stocks that have the highest correlation with them. Therefore, we decided to compute the Pearson Correlation coefficient between major oil related stocks and retail oil prices. This coefficient shows how two variables are related. A value close to 1 implies perfect positive correlation and a correlation coefficient close to 0 implies no relation at all. Since it is also of interest to see how correlation changes between intrasector classifications, therefore largest 3 companies are selected from each oil and gas category. When available up to last 19 years of data were used. 

    Here are the results:

    The 1st table shows the correlation coefficient for Independent Oil & Gas Companies  (Occidental (OXY), Apache (APA), Anadarko (APC)) and Major Integrated Companies (Exxon (XOM), Chevron (CVX), ConocoPhillips (COP)). Data on Chevron starts from October 2001.

    As we can see, the correlation between large oil and gas companies that have integrated operations are very high. Companies in these sectors provide almost perfect hedge against rising oil prices.

    OIL and GAS

             

     

    Retail Gas

    OXY

    APA

    APC

    XOM

    CVX

    COP

    Retail Gas

    1.000

    0.919

    0.955

    0.925

    0.894

    0.870

    0.941

    OXY

     

    1.000

    0.975

    0.938

    0.871

    0.926

    0.865

    APA

     

     

    1.000

    0.967

    0.918

    0.942

    0.923

    APC

     

     

     

    1.000

    0.922

    0.906

    0.913

    XOM

     

     

     

     

    1.000

    0.957

    0.942

    CVX

     

     

     

     

     

    1.000

    0.884

    COP

     

     

     

     

     

     

    1.000

    The 2nd table shows the correlation coefficient for Drilling Companies (Continental (CLR), Concho (CXO), Diamond (DO)) and Equipment Companies (Schlumberger Limited (SLB), Halliburton (HAL), National Oilwell Varco (NOV)). The results show that stock prices of oil related equipment companies are very much related to oil prices. The weak correlation of Continental and Concho may be attributed to the limited data: Data on Continental and Concho is available from 2007; Diamond Offshore data is available from 1995, and National Oilwell data is available from 1996.   

    DRILLING and EQUIPMENT

             

     

    Retail Gas

    CLR

    CXO

    DO

    SLB

    HAL

    NOV

    Retail Gas

    1.000

    0.510

    0.105

    0.864

    0.899

    0.835

    0.905

    CLR

     

    1.000

    0.728

    0.038

    0.258

    0.533

    0.417

    CXO

     

     

    1.000

    -0.448

    -0.003

    0.261

    0.116

    DO

     

     

     

    1.000

    0.949

    0.872

    0.916

    SLB

     

     

     

     

    1.000

    0.930

    0.964

    HAL

     

     

     

     

     

    1.000

    0.856

    NOV

     

     

     

     

     

     

    1.000

    The 3rd table shows the correlation coefficient for Pipeline Companies (Kinder Morgan (KMP), Williams (WMB), Spectra Energy (SE)) and Refining Companies (Marathon (MRO), Valero Energy (VLO), Hess (HES)). 
    There is almost a perfect correlation between refining company stocks and retail oil prices as we expected. What is interesting is the high correlation between retail gasoline prices and Kinder Morgan stocks. While Kinder Morgan is a large pipeline transportation and energy storage company that claims to "...operate like a giant toll road and receive a fee for our services, generally avoiding commodity price risk." pearson coefficient shows the opposite. The fundamental reason for this high correlation is about their customer base: Their customers include major oil companies, energy producers and shippers, local distribution companies and businesses across many industries. They are also the second largest oil producer in Texas. Therefore, it is quite natural to see such a high level of correlation.

    PIPELINE and REFINING

             

     

    Retail Gas

    KMP

    WMB

    SE

    MRO

    HES

    VLO

     

    Retail Gas

    1.000

    0.856

    0.229

    0.683

    0.897

    0.926

    0.784

     

    KMP

     

    1.000

    0.175

    0.338

    0.773

    0.770

    0.655

     

    WMB

     

     

    1.000

    0.855

    0.358

    0.296

    0.257

     

    SE

     

     

     

    1.000

    0.790

    0.519

    0.641

     

    MRO

     

     

     

     

    1.000

    0.887

    0.907

     

    HES

     

     

     

     

     

    1.000

    0.705

     

    VLO

     

     

     

     

     

     

    1.000

     

    Another interesting result about KMP is the low level of correlation between other pipeline companies. The correlation coefficient with Spectra and Williams co. are 0.338 and 0.175 respectively. We also checked KMP with other companies. KMP stock price is almost perfectly correlated with major oil & gas stocks such as Apache (0.907), Anadarko (0.903) and Exxon (0.894). Correlation with Concho was also high (0.888).



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: KMP, APC, APA, XOM, CXO, OXY, COP, CVX, SLB, MRO, HES, NOV, CLR, HAL, DO, VLO, SE, Energy, Long Ideas
    Mar 06 5:55 AM | Link | 28 Comments
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