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J Mintzmyer
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J Mintzmyer is the founder of Value Investor's Edge, a premium subscription service offered in conjunction with Seeking Alpha. J is a CFA candidate (passed Level 1 exam) and investment enthusiast who utilizes Seeking Alpha to provide a free exchange of trading and investment ideas and to provide... More
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Mintzmyer Investments LLC
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  • Thoughts On Oil

    I have been exceptionally busy (in AF pilot training) the past few months, so I have been unable to write many of the articles that have been on my mind.

    I would like to get my thoughts down somewhere on the current oil pricing environment for two reasons:

    1) To inspire a discussion with fellow investors here and perhaps discover some new investing ideas along the way

    2) To have a verifiable way to check back in a few years and be able to judge the clarity of my decision making


    What I saw in early 2014

    I'll be the first to admit that I didn't see this coming. My #1 investment for 2014? BP. I wrote puts (thankfully spreads) and used most of the proceeds to buy out of the money calls. I looked at $BP in spring 2014 compared to $XOM and $CVX and I saw 50-100% upside potential. Needless to say this back-fired. Thankfully the put spread is for January 2016 and can be rolled to January 2017, but the losses are huge. I never post the $-size of my positions, but suffice it to say the paper losses are >10% of my net worth.

    Anyways- the point is that I was firmly entrenched in the bandwagon of long-term rising oil prices and my investments prove that (unfortunate) fact.

    What I'm thinking now (in response to 'buy big' theory)--

    Rather ironic that CVX and XOM are still relatively flat from their spring 2014 prices, while other US producers are down 50-90%.

    Obviously the long-term money isn't shifting focus while a huge majority of the growth/momentum money has fled the scene.

    If oil prices stay flat for a long time, CVX and XOM will likely gobble up 'cheap' reserves from bankrupt US producers. Although this will help both companies in the long-term, I wouldn't be surprised by a drop to 5-6% yield territory as some of the index money shifts. If 'cheap' (sub-$80) oil is here long-long (5+ years) term, than XOM and CVX may require a dividend cut, or at least a halt to growth-- perhaps 1c a year just to maintain aristocrat status.

    If oil prices recover in the short to medium term (by 2016), many US producers such as WLL, OAS, WPX, GST, etc could be 3-6x return plays.

    All 4 of the above and perhaps another half dozen US plays could be capable of surviving 2-3 years at these price levels. I'm not wasting my time looking at anything with a D/E above 100%, a P/B above 1 (book value is often far-inflated anyways), or D/A above 50%, or a Current Ratio below 1, when much safer plays offer 3-10x potential.


    Long response, but I suppose all this to say that XOM and CVX are indeed good long-term holdings, but are far inferior to nearly all other (financially conservative to moderate) producers if you believe an oil recovery is just around the corner.

    If you think oil will be cheap for a LONG time, than CVX and XOM are poor investments anyways.

    Allocation Comments (6 January)

    I'm personally long BP, CVX, XOM, GDX, FCX, BTU, ACI, ANR, EOX, DRYS, SALT. (TLM position just got taken out)

    Will soon be adding: OAS, WLL, GST, TPLM, ATXDY, WPX, EOX, RIG, BP, ORIG

    Reflection Time

    Digging deeper-- why didn't we... Heck ANYONE see this coming 6 months ago? Nothing fundamental has changed except for OPEC's stubbornness. China's slowdown has been expected, Europe's troubles have been known, Fed raising rates (ironically Tbills are moving in the opposite direction), massive US supply growth-- all of these factors have been known (expected) by the best and the brightest for at least 2 years.

    Why suddenly is everything so different?

    Perhaps we are just all on a negative group-think panic which is just the mirror image of the insanity of the 2008 oil peak?

    Really makes you wonder huh?

    Was oil exploration in the US just another investment bubble? Or are we in the middle of a groupthink bandwagon short-sighted panic? To be honest, I don't really know.

    All I do know for certain is that:

    1) in the END supply/demand will determine the pricing (even if that supply is artificially manipulated by the likes of OPEC)

    2) the companies I'm investing in can all survive 2-3 years with oil prices as low as $20-$30

    3) exploration will virtually halt in this price environment

    4) IF IF IF oil recovers within 2 years, the juniors can return up to 10x, while XOM and CVX will be lucky to go up 50%.

    Market Choice Observations

    Two observations:

    1) XOM and CVX were insanely cheap last fall and this spring (in regards to the current oil environment). Perhaps one of the cheapest multiples (to projected cash flows at $110 oil last spring) they've been in company history.

    2) Investors are fleeing en masse to:

    a- safety of oil (most people seem to buy into the theory that the big will get bigger and oil prices will rise in a few years while CVX and XOM 2x their reserves on the cheap)

    b- higher yields (notice the 10y Treasuries)-- with CVX yielding a A-grade 4%, this keeps investors there.

    I buy into the 2a theory, but I only see 50% max upside in 2 years on CVX and XOM. BP has 100-150% upside, and many of the better positioned US producers have 5x+ upside.

    Exploration vs. 'Pumping' Costs

    (in response to this: )

    What I see (assuming this data is relevant):

    'Finding costs' are clearly the major issue here. 'Finding' takes exploratory capex, which usually only floods in when 50-100%+ IRR is promised (due to the rates of failure). With average 'finding' costing 75-100% of the current crude rate, NOBODY will invest in (new) exploration.

    Exploration-->Full Production can take anywhere from 1 year to 10 years depending on the complexity of the projects, so essentially there will be a giant ripple effect globally.

    Production ('lifting') costs on the other hand, are extremely low, so current finds will produce as much as possible to pay the bills. This could keep prices low for years in the worst case scenario. Not sure if yall have noticed, but even with US juniors and middles cutting their capex by up to 75%, most will grow production y/y. Even the worst cuts (EOX for example) still result in flat y/y production for 2015.

    Ultimately the further the price goes down, the higher it could sky-rocket in the future. sub-$30 is feasible, but so is $150-$200+ (for a very short period as the zero-exploration ripple hits).

    Thus, oil will begin to trade more and more like a TRUE commodity (extremely cyclical). OPEC's control of 40-60% of the global supply has artificially kept prices high and slowly rising so far. It also has helped that South America, Africa, and the Mid-East are extremely unstable. With the majority of the supply growth in ultra-stable US, this has changed.

    In Conclusion

    Not really sure what I really think anymore (in regards to what will happen to the oil price in the next few years).

    All I know is the juniors have 10x upside while majors have maybe 50% upside.

    What's the chance of success? Is it 1% that oil will be $100 in a few years, or is it 50%, or 95%?

    Only in a scenario where the odds of oil increasing are 10-20% would investing in the super majors (over juniors) make sense. In that same scenario the super majors would be horrendous investments at these prices- perhaps down up to 75% with $RIG style yields.

    What do you think?

    What I'm Investing In

    Stock Talk feed:


    I post 100% of my trades, typically within seconds but always within hours.

    I look forward to your insights and I hope I don't come back in 5 years to regret this post and my potential investment approaches.

    Jan 08 10:28 PM | Link | 18 Comments
  • Extreme Short Float On Angie's List

    Beyond the news of Angie's List (NASDAQ:ANGI) CEO William Oesterle selling 27% of his shares over the past year, several 13G filings have popped up on the EDGAR and they spell a scary story for shorts.

    Combined with short interest on Jan 31 of 18.4M shares, and assuming none of the big holders (top 8) have sold any of their shares, it appears that the practical short float may be as high as 120%!

    I've heard across the board that ANGI shares are impossible to borrow and I've heard of limited anecdotal reports of brokers forcing shorts to cover their shares due to limited supply. If my rudimentary chart below is anywhere close to accurate, and especially if any big players have upped their stake, we could be in for some massive short-term stock manipulation.

    In essence this stock is so heavily shorted that it is physically impossible for the stock to move much lower without one of the 'big names' folding.

    It seems as if Capital Research Global has 'seen the light,' but the rest of the institutions continue to increase their ownership.

    At this point, I'm resigning to the fact that my puts will probably expire worthless. Long-term the company is a $0, and probably under $5 within the next year, but for now it's devolving into a high stakes game to see who blinks first. A few of these big bag holders are going to get burnt extremely badly, but not perhaps before a significant number of shorts are crushed.

    With shorts being forced to cover and the 'big players' upping their stakes almost universally, this one could get really nasty really quickly. In fact the 'smart' trading move might be to load up on $17.50 calls for March. I won't be doing this, but I do have a $22.50/$20 Mar14 call spread play left over as an insurance play against earnings-who knows, it might pay off significantly.

    Ulterior Motives?

    On a side note, I received a message from an anonymous user suggesting that I had 'ulterior motives' due to the fact that I published an article bashing Angie's List while also holding puts ($12.50s and $15s). If anyone has any issues with what I post, please post below in a public forum, don't try to attack me or threaten me in a private message. Also please make sure you leave your full name. If you think there's any misleading information, by all means, feel free to contact the SEC. I'd love it if they looked into this company, maybe they'd find some suspicious insider dealing behavior by the CEO … Perhaps the $10.4M of insider sales while giving (allegedly) misleading statements?

    Trade History

    As often as possible, I post my trades on Seeking Alpha and Twitter within minutes in an effort to be transparent. Here is my recent history on ANGI trades (2014):

    Anyways, best of luck to everyone- it's going to be a wild week out there.

    Disclosure: I am short ANGI.

    Additional disclosure: I am short via Feb14 puts ($15 and $12.50). I also am long bullish call spreads for Mar14 ($22.50/$20).

    Feb 14 6:17 PM | Link | 34 Comments
  • Amazon ‘Kid-Gloves' Insanity Continues

    I'm posting this at around 5pm, prior to the Amazon (NASDAQ:AMZN) conference call, but after witnessing the Q4-13 results and the subsequent market reaction. This reflects my initial results after reading the results and watching the market impact.

    I'm choosing an instablog post so that I can more freely express my feelings. Keep in mind I have puts, slightly itm, so I have a vested interest in this company.

    Although initially only suffering a muted impact, Amazon is currently down almost 8%. However, this needs to be taken in problem context-via 2 metrics:

    First- AMZN was up 4.9% on an insanely undeserved tech bounce brought about by Facebook (NASDAQ:FB). Taking this away makes Amazon's true hit closer to only -3%. Remember that Apple (NASDAQ:AAPL), arguable the hottest tech company and ironically also the biggest large value play in the world missed by far less than Amazon (and beat EPS markedly!) and got hit for a 9-10%.

    Secondly- AMZN was at $363 after Q3-13 results, so the current market pricing has actually made a 0% impact to Amazon since their last publicly available report.

    Amazon's Multiples are Unexplainable- even P/S

    As I've mentioned before in previous coverage, Amazon is valued almost entirely on sales. Profits are practically non-existent. Amazon lost money in 2012 and earned a total of 59c in 2013. That's a Price-to-earnings of 683 based on the pre-earnings price of $403. If you ask anyone on Wall Street they will say "yes, AMZN is valued on SALES, not profits," but what they fail to realize is the sales multiples are also insane.

    The only logical way to value Amazon is by sales. Fair enough. Amazon is an online retailer with side offerings of technology. Amazon is best of breed in customer service, but its profit margins are lacking. However, just for grins let's compare AMZN against the P/S ratios of what I believe to be the top 4 retailers and the top 4 technology companies. Ebay (NASDAQ:EBAY) is also a 'decent' comparable, so we'll bring them in as well (P/S of 4.21, with a P/E of 24-if we're going direct 1-1 comps you cannot ignore earnings). If you have disagreements on my comps, feel free to substitute your own in, and let me know what you find.

    First, all of the above 8 comps have fantastic profit margins and earnings growth rates. Amazon's comparable 5 and 10 year earnings growth rates are abysmal. Amazon hardly has the benefit of a 'profit margin.' Anyone who thinks the above comps are 'unfair' to Amazon is operating on an entirely different playing field, albeit not too far off the broad market's "field."

    The more important question is: "What true mix is Amazon?" I believe that in the most optimistic scenario AMZN is 75% retail and 25% tech. I believe the 'fair' split is close to 90/10.

    What valuations do the 'best' and 'fair' bring? 1.39 P/S and 0.88 P/S respectively.

    AMZN has TTM sales of $74.45B and mid-level forward estimates of $91.64B. First of all-the mid-level forward estimates are insane. Amazon will be lucky to achieve 18% y/y growth, let alone 23.1%, but for the sake of optimism, let's assume they both make the sales guidance and deserve the forward P/S.

    That brings a 'fair' to 'best' value for AMZN of $80.6B to $127.4B, or roughly $172 to $271.

    Assuming the mid-point, that's over 40% down from where they are currently trading. Currently AMZN is trading assuming tech/retail split of 40/60% (1.89 forward P/S). That's assuming both the forward growth is met AND the forward P/S is applied over a TTM P/S.

    Amazon Had No Excuse to Miss

    Amazon had virtually every tailwind imaginable. GDP is picking up, unemployment is down, B&M retailers suffered, record online visits, record package deliveries, extreme winter weather effect, new Kindle launches, new console launch season for gamers, Prime video upgrades, AWS expansion.

    I probably missed a few tailwinds, but the fact is AMZN had it extremely easy this winter. On company reputation and popularity alone combined with the above elements, a ham sandwich could have given Amazon 15%+ y/y sales.

    Q1 Forecast is Atrocious

    As we all know, forward guidance is everything. Amazon has guided for a 13-24% y/y gain in sales. 24% gain is hot. 13% gain is an unmitigated disaster. AMZN is clearly hoping analysts pick a high mid-point here, instead of the more likely range of 14-18%.

    What Thesis?

    The way I see it, Amazon has just received a free pass on the only metric that matters (apparently). Amazon is once again guiding for an earnings free quarter (-$200M to +$200M in profit for Q1-14), and attempting to pump every possible 'social media' and 'web payments' coattail they can.

    Trade Actions?

    I cannot in good faith recommend anything on Amazon (AMZN). This is perhaps the most broken stock I've ever witnessed on Wall Street. Sure Netflix (NASDAQ:NFLX) and Facebook (FB) have huge multiples, but they also represent amazing new technologies. Google (NASDAQ:GOOG) is on a run, but their earnings and revenues are skyrocketing. Amazon has been receiving a free pass for over a decade, and the sales growth thesis finally is collapsing, but the market still ignores it.

    Clearly I do not understand this company. Best of luck to everyone involved.


    The entire above contribution is opinion only and does not constitute any level of 'investment advice.' This material is disseminated for entertainment purposes only.

    Disclosure: I am short AMZN.

    Additional disclosure: I am short AMZN via $370 puts for 7Feb14. I am long MSFT, TGT, AAPL.

    Jan 30 5:14 PM | Link | 19 Comments
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