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Ray Merola

 
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  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Feel the stats, Ortho!

    Panic often breeds opportunity? We may not have reached complete capitulation yet. This was the case in 2008, 2001, 1998, 1991 and 1987.
    Maybe again in the Energy patch today?
    Dec 10, 2014. 12:33 PM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Darren

    Thanks for sharing. Energy companies that pave "toll roads" were not covered in this article, but merit consideration. Storage and pipeline companies fit that bill. I prefer ETE in that space, but there are many others.

    Preferreds is another way to play it with more safety.

    Even safer are some energy company bonds. I picked up one good producer's bonds (maturing in 2020, so short maturity) that yield 8%. Some risk, well yes. But I believe default risk is considerably lower than operational risk.
    Dec 10, 2014. 12:15 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Jack

    I looked at these charts and got a headache. Not really, but I trust you get my point. What do these tell you? I'd like to find the insight.....as they say, "Well, there's a pony in there somewhere!"

    Many thanks for sharing.
    Dec 10, 2014. 12:11 PM | 2 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thank you Larry Wrende

    You make a good point: the spot price of crude isn't exactly the same as what's going on in the "real world." Many producers don't float all their bbls on the spot markets. Various hubs have differential prices. The markets tend to be much more volatile than the real business economics.

    This often creates opportunities for patient investors.
    Dec 10, 2014. 12:08 PM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    BrutalHonesty

    I suspect you know your question is unanswerable. Oil futures are a bet on bald commodity prices. So from a big picture standpoint, buying futures is highly volatile versus buying say, Royal Dutch Shell. It's apples and oranges.

    As an investor, not a trader, I am less concerned with short or even medium-term energy prices. I am focused upon the underlying companies, their management competencies, the balance sheet, margins, returns, etc.
    I leave it up to senior leadership to navigate commodity risk, which the best companies have done successfully over the years.

    Continuing to use Shell as an example, the shares have provided investors with a dividend that has not been cut since WWII. The current dividend yield is nearly 5.75%. Futures have zero income associated it. Shell also has interests in gas, wind, solar and all manner of products and chemicals. This further diversifies revenue and net income streams.

    One underlying assumption is that spot oil will not trade at $50 to $60 very long, if it gets that low. The long-term trend has been up for decades. Developing nations want to improve living standards. Energy is required to do that. There is no substitute for oil and gas in our lifetimes. Other energy sources will mature, but these won't displace oil and gas. Even coal isn't going away anytime soon.

    I'm banking on such premises to carry the day for the energy sector.
    Dec 10, 2014. 12:05 PM | 2 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    A reasonable approach, L-S V, especially for those willing to to review the smaller-cap names.

    I agree that risk is a function of hard work than perceived rewards. In the cases of RDS, HAL and EOG the reason I like those names is precisely for the reasons you cited above: financial ratios and balance sheets confirm these companies are not going away. In addition, their strategies and business plans provide diversification and/or mitigate bald commodity risk.
    Dec 10, 2014. 11:55 AM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for sharing the link to your article, F&GT. Recommend reading for those who want to know more about the details of Halliburton's proposed acquisition of Baker Hughes.

    The BHI "premium" versus HAL shares was about 12% when I figured it earlier in these comments. It was greater when F&GT wrote his article.
    Dec 10, 2014. 11:52 AM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Agree Craig.

    I do not dabble with commodities. Too hard for me. Stocks like RDS, HAL and EOG are not commodities. These stocks are plays that do business via the energy commodities. Not just crude oil.

    Companies like Shell have business in the entire vertical supply chain.

    These stocks tend to follow traditional valuation metrics; at least for investors. Traders may find otherwise.
    Dec 10, 2014. 10:49 AM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    moatfrog

    Agree in principle, but waiting for "firming" prices is elusive. I have found it nearly impossible to know when "firming" is enough versus a pause before another leg down. Once the trend is unassailable, it's often far too late to make any money. The stocks have all recovered. The market tends to look out about 6 months ahead; sometimes it does this well, sometimes not so much.

    In my estimation, buying "cheap" stocks requires 2 fundamental premises:

    The underlying companies must be best-of-class: with the management and financial wherewithal to weather the storm; and

    The investor should scale into or accumulate a position over a period of months, or using set stops. Never all at once. For instance, I've set limits to accumulate HAL shares at $39.50, $35.50, and $32.00. For the record, I conversely sold HAL shares earlier this year at prices ranging from $54 to $70.

    As far as whether the overall stock market is in a corrective mode: I confess I have absolutely no idea at all. I heard folks tell me this nearly the entire way up from 2013 and 2014 every time the averages slipped a few points. Remember this summer was going to be a revisit of the 2008 lows?

    Maybe this time is different; maybe not.
    Dec 10, 2014. 10:46 AM | 6 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thank you, gabby1945
    Dec 10, 2014. 10:38 AM | Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    NOTE to READERS: Thank you for making this an active comment board. Here's some more info in conjunction with the topics:

    OPEC produces about 30 million bbls of oil a day. The U.S. produces about 8 million bpd. Worldwide production is ~100 million bpd, and currently the demand imbalance is likely something less than a million bd. I find it interesting that the Saudis indicate they wish to push back against North American "tight oil" aka shale oil production when it only accounts for but 8% of worldwide production.

    What is this doing to Russia and other non-OPEC countries that account for 62 mbd? Is the assumption all this production will sit tight? I wonder if there's more than meets the eye?
    Dec 10, 2014. 09:26 AM | 4 Likes Like |Link to Comment
  • Caterpillar Is In Trouble [View article]
    Josh

    I read your articles with interest.

    CAT is a notoriously difficult stock to project earnings. It's the mother of all cyclicals. As such, DCF and historical averages often don't work very well, as you've noted in the article.

    Caterpillar can be a bit of a proxy for global economic activity. Broadly, I see China, EU and Latin America in a funk for now. However, North America is doing well and this comprises a large chunk of the business. ME and Africa are also expanding.

    The Resource Industries business has been down so long that many investors act as if that's a terminal condition. Recently, the company did a presentation that outlined that the drop in oil prices will not have much effect on its Energy and Transportation segment. Construction Industries are doing fine.

    As long as management continues to raise the dividend and buy back stock, I would not be in a hurry to get rid of all shares. For years, I have scaled up or scaled back on the stock when the fundamentals (and mostly the sentiment) gets too high or low. Currently, the sentiment is waning, so I'm inclined to accumulate on the way down.

    I contend it's nearly impossible to time the bottom or the top of this volatile monster. The dividend payout compensate us for avoiding the exercise.
    Dec 10, 2014. 09:15 AM | 5 Likes Like |Link to Comment
  • Halliburton: Short-Term Pain, Long-Term Gain [View article]
    Thanks for the shout out on my article, DAG1996.
    Dec 10, 2014. 09:03 AM | 1 Like Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thank you Merano

    I would not worry much about currency risk. Shell collects cash in virtually every world currency and consolidates its accounts in US Dollars. There's a level of currency hedging in place, too.

    The RDS.B shares trade on the London exchange, but the shares trade here in USD via the ADRs.

    I believe the greater risk on Shell shares has been the overall influence of the European stock market. Those markets have had trouble for years, and it seems to spill over into Shell stock, dragging it down with it. However, I also seem to notice that if Shell stock is down overnight in Europe, the ADRs often rise throughout the day here, albeit often from the initial hit. I wonder if money is flowing out of the EU markets into the NYSE.
    Dec 10, 2014. 09:02 AM | 3 Likes Like |Link to Comment
  • Never Let A Good Bear Market Go To Waste: Energy Gems Amidst The Rubble [View article]
    Thanks for reading and commenting, Augustus

    I enjoyed reading the link. It's plausible that oil could fall as low as $50 a bbl; but as Mr. Hall forecasts, it would recover in the first half of 2015. That's been my experience: oil falls hard but bounces back. The commodity is remarkably self-correcting.

    One item not mentioned in the article is the demand side of the equation. Some suggest that crude prices have plummeted on over-supply and reduced demand. China, EU and Latin America are all experiencing slowdowns. When these economies shape up (which they will at some point), then demand goes back up and the fragile supply/demand balance moves toward equilibrium.

    Some folks talk like China and EU will be down forever. I think a rebound will come sooner, rather than later.

    If a few highly leveraged, weak hands shake out of the North American shale boom, then so be it.

    I agree that RDS or other Super Majors are a good, safe way to play energy. First, these companies are global and are diversified via various forms of energy, not just oil; plus downstream integration affords other profit sources. These also pay big dividends.

    Of the oil service companies, I'd stick with HAL and SLB. The little guys have the propensity to get pushed around too much.
    Dec 10, 2014. 08:46 AM | 3 Likes Like |Link to Comment
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