Michael Polodna

Long only, short only, activist investor, contrarian
Michael Polodna
Long only, short only, activist investor, contrarian
Contributor since: 2011
The Exxon Mobil iPad app as a legitimate reason for buying XOM over BP fails the common sense test.
Is it possible that we're putting more emphasis on social networking/web 2.0 than it deserves? While it may be a valuable tool in some industries, I don't think it really applies to major oil and gas producers. Realistically, does anyone care which company sells them their gas? No, they care about who sells it the cheapest and most conveniently. As long as the product is of uniform quality, the price is much more important than brand loyalty. The only exception I can see to this is exceptionally bad press for a company (such as BPs Gulf spill) driving away customers on principle. An iPad app is not going to save you if you spill millions of gallons all over somebody's coastline.
Additionally, a 15 second search finds that both BP and XOM have a gas station finder app.
Disclosure: No positions.
JJ,
I'm not an expert of any sort on futures contracts, but here's my understanding of why you usually won't see the upside.
Contango is the condition where futures contracts trade at a premium to the spot price at expiry. Futures contracts trade at a premium to the spot price because the buyer is paying the seller to lock in their price. The premium covers the seller's cost of carry (the costs of storing the commodity, the interest forgone, and any other costs). Typically, the further out you want to lock in your price, the more it will cost you to do so. The closer you get to the expiration date, the less you have to pay to lock in a price. Because UNG doesn't physically take delivery, it always finds itself buying a longer dated contract and selling it closer to the expiration date, which means that it loses money on the pricing of the contracts, regardless of how the natural gas spot price performs.
There is a way that your second scenario could happen, it's called backwardation. Backwardation occurs when there are expectations of an impending shortage, so buyers prefer having the commodity now rather than later. In this case, near term contracts carry a higher premium than longer term ones. Theoretically, in that case UNG would be making a bit of extra money on each contract. You sometimes see this in oil markets when geopolitical events threaten a shortage and companies rush to ensure that they have secured the oil they need to continue to function, but with the current domestic natural gas supply glut it seems unlikely that UNG would benefit in the near term.
There is such an ETF, the United States 12 Month Natural Gas ETF (UNL) that has a slower rate of decay than UNG. Could be worth looking into.
Good article. I've been holding BKE off and on for some time now. The special dividend is usually announced in the August-October time frame and executed late between late October and early December. The stock it pretty volatile, I usually try to pick it up on dips and before the end of July.
Didn't you get the memo? The whole European crisis thing is fixed, Dow 20,000. /sarcasm
Seriously though, great article. I think a lot of people are making the mistake of thinking that this is a liquidity crisis, when in reality it's a solvency crisis. These bailouts are like giving blood transfusions to a hemorrhaging patient without doing anything about actually stop the bleeding.
Yeah, not really sure what happened there. Somehow after I submitted the title changed and about 3/4 of it got double posted. Hopefully an editor can help me out on this one.
That's a very good question. The creative accounting strategies have just spiraled out of control over the past couple of years, and the pressure to grow EPS each quarter is keeping the banks from taking a quick reality check. If C reported its actual operating EPS for the quarter (30-something cents) the result would be disastorous for the company. I think grasping for short term results is killing the long term prospects of these banks.
Agreed, the fundamental problem is that a huge number of ships were ordered back before the great recession when the economy was good. Now those ships are finished and there's a glut of shipping capacity that's holding down prices and utilization. I'd be very careful about making assumptions like 98% utilization, especially if the global economy slows again and shipping volumes fall.
Thanks for the comment Al. Like Franc above you said, there are a couple of these quality smaller banks floating around the market.
Great article, while I love the current valuations and yield, the thing that has me worried about COP (and other oil companies) is that whenever the US decides to actually get serious about the debt issue, one of the first targets to raise revenues will doubtlessly be the politcally unpopular oil companies. What would the implications to COP's business if their tax rate went up, say, 10%? I imagine that their P/E might be a little higher, and those dividend increases might not be as dependable as in the past.
Don't think I would make a decision to buy RIMM based on trailing valuation metrics. Until there's some sort of indication that management can produce a product that will be more competitive with the offerings from AAPL and GOOG, I think those metrics are going to keep sliding and you may find that you aren't getting the bargain you thought you were.
You make some excellent points that certainly warrant some follow up research, particularly about prisoner medical expenses. My initial thoughts (no research, shooting from the hip here) are that ultimately the government will bear the cost of medical care to prisoners, one way or another, and it is probably more cost effective to have a private company negotiate these costs with a provider than have the beauracracy do it.
I couldn't agree with you more. In a perfect world this company would be going bankrupt, but the positive trumps the normative in this case.
Thanks for the comment, I think that's a prudent approach with the uncertainty in the market. I wrote this article when the stock was around $34.50, and it has since recovered a bit. Make no mistake about it, if the market crashes like some are predicting BKE will get clobbered, but it will be an incredible buy for those who get shares cheap during the panic. So if you're unsure about market conditions, the best course of action at this point is probably to put it on a watch list, wait for another steep drop, do a little research to ensure the fundamentals remain unchanged, then buy in slowly on the way down. Worst case scenario, the market recovers and you just keep the money you have right now.
Common sense tells me that if I can't understand what a business does and get a clear picture of the risks involved, I shouldn't be putting my hard earned money at risk investing in it. I wish you the best of luck, but I'll be sitting this one out.