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Jake Huneycutt  

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  • How Minimum Wage Imposes Heavy Costs On Skill Acquisition [View instapost]

    Thanks for the thoughtful comment.

    I'd say the US has an unusually high cost of skill acquisition. This is largely the result of Federal government subsidies for higher education lending. The impact over the past several decades has been increases in tuition annually that have been in the 8% - 15% range. One might think education subsidies would result in more "educators" but much to the contrary, it's actually resulted in a vast expansion of administrators and bureaucracy. I'd say this is one of the US's big problems moving forward, but it's not easy to figure out how to fix it without cutting off access to higher education for a ton of people.
    Sep 28, 2015. 08:08 PM | 1 Like Like |Link to Comment
  • Range Resources: A Strong Buy In The Natural Gas E&P Space [View article]

    The oil and gas sector has always been risky, but that's why it has high upside. My preferred method of dealing with this risk is diversification. You buy into 4-5 different companies with different profiles. In the event that one of them goes bust, you're actually more likely to make greater long-term returns on the others.

    For the record, I think it's unlikely that any of these companies "go bust" because their costs of productions are low. That means the assets have value to other companies and it also means that all they have to do to stay solvent is reduce capex.

    If you're sitting around speculating on when the absolute worst moment will come from natural gas E&Ps, I think there's a great chance you miss the boat. I'd much rather buy early, see more distress, analyze things again, and buy more. I don't necessarily know that RRC is the "best" play, as I've said, I've bought into several other companies in this sphere.

    As for "blood on the streets", there's already blood on the streets. No one wants to touch this sector. Take a look at the comments here and on other natural gas articles.

    As one final note ... and frankly, I'm taking a position that goes counter to my own training, but I don't think the "strongest balance sheet" necessarily wins here. I think the "lowest costs of production" are much more important. It's not as if RRC is losing money selling gas right now. It's losing money investing in more capital expenditures. That's a very key distinction to me.

    Regardless, RRC's cost of debt is very low. I calculated a weighted average interest rate of 4.7%, and most of their notes are not due till around 2019 - 2023. So, even going by the balance sheet, they are not in bad shape. I keep hearing people throw around low cash numbers for E&Ps, but those are largely irrelevant as long as cash flows from operations are well in the black.
    Sep 12, 2015. 03:15 PM | 3 Likes Like |Link to Comment
  • Range Resources: A Strong Buy In The Natural Gas E&P Space [View article]

    Thanks for the comment. I haven't done a deep dive analysis on CHK, but I'd wager to guess you're looking at different figures. $0.69 per Mcfe might be the direct operating costs as opposed to all-in costs of production. Just from a quick glance at a CHK investor presentation, they cite $2.50 - $2.60 per Mcfe as a break-even price in Haynesville, Marcellus, and Utica West.

    If you take a look at my cost breakdown for RRC, you'll see that direct operating expenses only account for about $0.35 per Mcfe. Depletion (i.e. capex) and G&A expenses are the biggest costs.
    Sep 12, 2015. 01:08 AM | 3 Likes Like |Link to Comment
  • How 'Wet Hot American Summer' Explains Netflix's Dominance (But The Stock Is Still Overpriced) [View article]

    Great comment.

    I agree with you on the margins. However, the problem is that I think NFLX will have to continue pricing its offerings low for the next few years at the very least to maintain its competitive position. Amazon seems unlikely to win this war to me, but they have deep pockets.

    More competition will also come in over the next few years, as well, I suspect. This competition may not look exactly like NFLX, but it could still compete for consumer's dollars.

    Ultimately, I find it difficult to buy into any scenario where NFLX isn't standing near the top in another decade. Yet, they may have to bleed cash or live with subdued cash flows to maintain that position over the next 3 - 10 years. That's really the best case against the stock's valuation. Speculating on cash flows 12 years into the future is a dangerous game.
    Sep 9, 2015. 04:11 PM | 6 Likes Like |Link to Comment
  • High-Quality Natural Gas E&Ps Are Strong Buys [View article]

    Thanks for the comment.

    Not sure why "Retained Earnings" are relevant. It's a made-up accounting concept that has no basis in economic reality. The only thing that matters is cash flow.

    None of the E&Ps will be in good shape if the current prices persist for 2 years, but what's likely to happen is the higher-cost producers will be forced to cut production significantly. Moreover, you'll start seeing significant declines in capex across the board.

    Companies like RRC, UPL, AR, and COG are likely all fine if they simply cut back on capex. I didn't highlight operating cash flows in this article, but that's the real metric you should be examining to understand solvency. (Also examine hedges, as well, as AR has an aggressive hedging strategy that makes their balance sheet much stronger than it might immediately appear.) On the downside, keep in mind that even in scenario where debt becomes an issue, these low cost producers do have value to potential acquirers, so it's unlikely that you'd see the stock prices fall to $0.
    Sep 6, 2015. 02:49 PM | 3 Likes Like |Link to Comment
  • High-Quality Natural Gas E&Ps Are Strong Buys [View article]

    Thanks for your comment. I'm a big fan of your articles and think you're one of the best oil & gas analysts out there, but I'm going to have to strongly disagree with your assessment. On some level, it sounds like you are falling victim to the industry analyst tunnel vision mentality.

    First off, you are misinterpreting the article quite a bit. I make no claim that there is 'no further downside'. I explicitly state in my article that you shouldn't buy unless you are prepared for further bloodshed in the near-term. But there's a difference between the near-term (the next 24 months) and the long-term (2 - 8+ years). My claim is that if you are a long-term investor (i.e. you're willing to invest for at least 2-5 years and wait), the downside from here for the quality E&Ps is likely limited.

    Sure, E&Ps with too much leverage and high production costs could still go bankrupt. Even the good E&Ps could still fall another 20%, 30%, or even 50% in the next six months. I can't see the future and don't really care what short-term morons and speculators do. But the idea that spreads are going to stay at virtually nil for 5 years into the future is a pretty big stretch if you ask me.

    Some of your comments are odd to me. I need to "prove" margins will widen? This is investing, not science. If your prerequisite is that you need to be able to "prove the future", then you might as well limit yourself to investing in long-term US Treasury bonds. You're never going to be able to "prove" the future. All you can do is take a look at history and data and make rational guesses about what will happen. Diversify your portfolio in a smart way to manage risk. That's what good Portfolio Managers do. But trying to prove the future isn't a viable tactic.

    Who cares what a bunch of gas CEOs said in 2009? To be perfectly honest, I've encountered the EXACT SAME ARGUMENT in every single bear market. When housing was bottoming in 2011, people constantly reminded me that housing CEOs thought that the downturn in 2006 wouldn't last. Which said absolutely nothing about the housing market in 2011.

    Here's the thing: if you're only looking at prices, you've been missing half the story anyway. Range Resources was more profitable in 2014 than it was in 2008 when prices were much higher. The reason why? Volume is dramatically higher. The volume story is much more important than the pricing story. Indeed, pricing has always been and always will be cyclical.

    Love your work, Richard, but I think you've got to realize on some level that these stocks are fairly cheap right now. RRC is selling at the same price it sold at in March 2009 even though its production has quadrupled. I'm not saying spreads are going to magically shoot up to $4 per Mcfe tomorrow. I am saying that spreads aren't staying at $0.25 per Mcfe for the next 10 years.
    Sep 5, 2015. 10:55 AM | 7 Likes Like |Link to Comment
  • High-Quality Natural Gas E&Ps Are Strong Buys [View article]
    A Farmer,

    Hadn't seen it before now. Looks like a very lazy article. The author merely ran a screen to find leveraged companies, but that's a pretty flawed methodology.

    The reason AR's stock has held up better than most of the other gas E&Ps is exactly because their balance sheet is one of the strongest. It's true that they have high debt on the face of it, but that's offset to a significant extent by very aggressive hedging (which btw, looks pretty brilliant now!).

    It seems like the author made no real pains to distinguish the profiles of the companies, either. Sort of lumped Antero in with "oil producers" even though they are more gas focused and have hedges for their production regardless.
    Sep 4, 2015. 08:40 PM | 7 Likes Like |Link to Comment
  • High-Quality Natural Gas E&Ps Are Strong Buys [View article]

    Thanks for the comment. I doubt that oil prices will be the major hurdle for mainstream adoption of EVs. EVs have much lower maintenance costs than oil powered vehicles. If prices fall and ranges increase, it will simply be a no-brainer for consumers to opt for EVs.

    The only real question is whether battery costs can fall far enough to make that happen. If they do, the price of oil will likely become only a minor consideration.
    Sep 4, 2015. 07:31 PM | Likes Like |Link to Comment
  • Smith & Wesson - Great Company, Overvalued Stock [View article]
    Good points, John. I agree on #1 and #2. Though, I still think the larger point might be that the margins will probably come down in the future and in a more normalized environment, I'm not sure S&W would be raking in such huge profits. But you're right --- army contract could be big and could possibly offset margin contraction.

    #3 is a tougher issue, because it could also result in more regulations which would hurt sales. There is a certain irony though in that the "gun grabbers" are essentially creating a larger class of gun owners over time through their hysteria. The hysteria can benefit the gun makers, but only if it doesn't get coupled with UK-style gun regulations. (And I hope it doesn't.) Feel like the past few years have been the perfect storm for gun makers because we've seen gun hysteria, but there's been no chance that a Republican Congress would give in to it.
    Aug 28, 2015. 08:47 AM | Likes Like |Link to Comment
  • IBM's 21st Century Transition Is Failing [View article]
    Excellent article, Peter.

    I tend to agree. I briefly bought into IBM a few years back. Warren Buffett bought it which was a huge endorsement. It looked cheap and it was, after all, IBM! It stood to reason that it could benefit from a transformation.

    Yet, the more I dug into things, the less confident I became in that thesis. There does seem to be a culture problem at IBM and I'm not sure I really buy into the transformation strategy fully. I sold out of the stock a few months after buying in. That's something I rarely do, but I did not feel confident about where IBM was heading.

    Perhaps the biggest red flag came talking to a few friends who were IBM employees. They didn't say anything negative per se. They weren't saying a single thing positive either. I noticed a pattern that I didn't like.
    Aug 26, 2015. 01:01 AM | 2 Likes Like |Link to Comment
  • Why I'm Starting A Short Position In Cabot Oil & Gas [View article]
    Thanks for posting this comment, Richard. I have to agree.

    I'm researching COG now and this article left me extremely confused. I've only done 20 minutes of research thus far and even with that, I was extremely puzzled by the author's statements that seemed to contradict the data I'm seeing in the financial statements.
    Aug 24, 2015. 06:56 AM | Likes Like |Link to Comment
  • What Does Google And SpaceX Mean For ViaSat? [View article]
    Excellent article, Brian. Just now coming across this.
    Aug 21, 2015. 01:21 AM | Likes Like |Link to Comment
  • Chinese shares dive; Hong Kong enters bear market [View news story]
    20,000 tons of gold = $46 billion

    China's debt = $27 trillion ++++
    Aug 20, 2015. 08:16 AM | 2 Likes Like |Link to Comment
  • Report Claims Mercedes Ditches Tesla And Upgrades Electric Car To 310 Miles Of Range [View article]
    To me, this goes to show two important points:

    (1) Electric cars could be mainstream within a decade,
    (2) Tesla will still be a poor long-term investment

    If electric cars go mainstream, nearly every major automaker is going to have an electric car. Tesla is going to be in a sea of competitors, many of which will probably be more cost-competitive. Not that Tesla can't be successful, but it will expose the valuations of the past couple years as preposterous.

    If one expects electric cars to go mainstream, I tend to think that natural gas, solar, and electric utilities will make better investments than automakers.
    Aug 19, 2015. 06:04 PM | 9 Likes Like |Link to Comment
  • Eastman Chemical: Strong Management, Reasonable Valuation [View article]
    There is a video for this article, but thus far, it appears Seeking Alpha has not embedded it.
    Aug 19, 2015. 06:51 AM | 3 Likes Like |Link to Comment