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Ray Merola

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  • Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
    Your outlook is reasonable. I enjoy the feedback and alternative viewpoints. Time will tell.

    Do you like any of the Super Majors?

    BP, RDS, XOM, CVX or TOT?
    Jun 8 01:24 PM | Likes Like |Link to Comment
  • Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
    gtdrivr

    The last statement made above is spot-on: the more you know about Shell, the more you want to own shares.

    I don't care so much about where the stock has been; I'm interested in where I believe it's going. Shell now has a plan in place that will get executed....or not. If so, shareholder cash dividends will rise, with the clear expectation that the price will follow along.

    Running for cash is a generally sound strategy. Cash is king.
    Jun 8 10:57 AM | Likes Like |Link to Comment
  • Royal Dutch Shell Runs For Cash To Create Shareholder Value [View article]
    Thanks for your comments, wiesje

    If for no other reason, given the dividend, I'd be careful about shorting the stock.

    You are correct insofar as for the Super Majors, Shell and ExxonMobil have taken the most aggressive stance on the gas business. However, it should be noted that Shell is focusing more upon the NGL supply chain, not just dry gas production.

    The company has actually lowered debt considerably since 2010: both long-term debt and total debt. Indeed, if RDS is paying a five percent yield and can borrow at three percent, I suspect they will do some of that. A total debt-to-equity ratio of 20 percent gives them plenty of breathing room.

    Nigeria is a big headache. The Arctic deal is a marathon, not a sprint. That has yet to play out, though the first innings could have been better.

    I think the thesis here is whether or not the investor believes that Shell is now putting cash and shareholder returns in the limelight. At minimum, it appears they are making strong gestures at that. The plan laid out is straightforward; an investor can follow along and decide if they are tracked or not.

    Previously, shareholder returns have been lackluster. The only bright spot was the dividend.

    Perhaps that's changing. The dividend is a bit of a consolation prize while waiting to see if company management can execute the stated plan.

    Jun 8 10:28 AM | Likes Like |Link to Comment
  • Why Annaly's Decline Is Ironic And Mistaken [View article]
    I see NLY as a stock to own versus trade. If one believes in the depth of management, and past history, then add shares when the price v book and NIMs are down; like now. Reinvest dividends. Then wait until the yield curve opens up.

    Financial institutions generally do well when interest rates rise. NLY is no exception. Initially, there may be business disruption as MTM assets, prepayments, etc. re-settle. However, over time the NIM opens up and the basic business model takes over: borrow low, leverage, and capture the spread.

    It is difficult to time these moves. The bigger picture is easier to play.

    The Fed is not the enemy of large financial markets. I see no reasonable grounds for thinking they have accommodated the banks and lenders since the 2008 crisis, but now will turn on them and emphasize jacking up the short end of the curve and permit the long end to languish.

    NLY is a stock for the long view.
    Jun 6 10:53 AM | Likes Like |Link to Comment
  • Why Annaly's Decline Is Ironic And Mistaken [View article]
    Good article Markos

    Why are rising mortgage rates (and spreads) good for banks, but somehow bad for mREITs? I understand the NIM compression has been bad for REITs. If rates rise, would this not contribute to a gradual widening of this spread? And if these spreads get wider, why wouldn't NLY benefit from it?

    I see the current drop in share price an opportunity for those with a longer-term investment horizon, not a threat.

    Would not BV fall as a result of mark-to-market for existing securities as interest rates rise? However, if NLY holds these until maturity, what's the problem? Instead of pre-payments, forced liquidation and worrying about reinvestment at tiny margins, management can hold and reinvest as wider margins?

    Why would investors believe that the Fed will permit interest rates to spike (particularly on the short-end of the curve)? This is the part of the curve in which they have the most control. While the Fed cannot fully "control" all aspects of the debt / interest markets, they have consistently managed their affairs to the benefit of financial institutions.

    What would be their motivation to unravel this thinking now; after the concept of "tapering" has simply been telegraphed?

    Long NLY and selectively accumulating.
    Jun 5 12:13 PM | 5 Likes Like |Link to Comment
  • Doug Kass Says Buy Gold [View article]
    If there was a capitulation in the GLD, it appears to have been in April. GLD volume was quite high that month. In May, volume was reduced significantly; but the price still fell more.

    A monthly 10-year chart indicates we may be at a support level, but that's not easy to discern, either.

    For those who like Fibonacci retracements, the GLD rose to the first level back in late April / May, got rebuffed, and went back to down the zero bottom again. We're in no man's land now.

    Technicals on gold: good analysis or voodoo?

    Interesting thesis. Thanks for sharing it. Gold valuation is difficult.
    Jun 1 09:43 AM | Likes Like |Link to Comment
  • Halliburton May Offer A Rare Opportunity In This Hot Market [View article]
    Thanks jpmj

    Since you mention the ocean bottom, I believe the ongoing BP Macondo overhang continues to bother the stock. Halliburton's most recent 10-Q filing provides a fair amount of details (though no resolution) about the situation.

    It does indicate that a settlement is close, and the $1.3 billion reserve may be sufficient. There was also a note that HAL did not provide certain data and documents initially that have now been brought forth. This was not a positive development.

    The sooner the incident is put behind them, the better.
    Jun 1 09:30 AM | 2 Likes Like |Link to Comment
  • Intel Inside Your Portfolio [View article]
    Unclear about the thinking here: dividends are declared and paid independent of earnings. I am not sure how dividends are calculated from the.

    They are paid to shareholders or unitholders in cash. A dividend does not reduce EPS, nor are they contingent upon earnings. The board has the right to declare a dividend even if the earnings do not cover it. The payout ratio (dividend / earnings per share) is an indicator, not an accounting function.

    Dividends are declared in excess of earnings (somewhat routinely) by mREITs since the dividend is deducted from cash flow, not earnings. In some cases, the two are not aligned.

    In any event, I plan to backtest U.R.'s formula a bit and think about it some more.
    May 31 12:37 PM | 1 Like Like |Link to Comment
  • Intel Inside Your Portfolio [View article]
    The dividends are paid and deducted from cash, not net income. So while I have to stew on this some more, it's an interesting twist on PEG ratio.

    My problem with many of the online PEGs is that they try to forecast a five-year EPS growth rate. I believe about three of those years is a crapshoot. I like a PEG for current year plus one; or two at most.
    May 31 11:59 AM | 2 Likes Like |Link to Comment
  • Intel Inside Your Portfolio [View article]
    Thanks. Interesting. I like it.

    Might work it using a PEG three-year, but it's still quite workable.
    May 31 11:54 AM | Likes Like |Link to Comment
  • Intel Inside Your Portfolio [View article]
    Good recap.

    Question:

    What is the PEG + Y ratio and how is it calculated?

    How many years out is the G forecast? Is Y yield?
    May 31 10:18 AM | Likes Like |Link to Comment
  • An Opportunistic Options Play For Intel Bulls [View instapost]
    kjjerome

    The call dates in the article were ok.

    Currently, the INTC January 15 $25 calls may be bought for about $2. You were correct. The January 15 $20 puts may be sold for about $1.55.

    If you BUY the call and SELL the put, the net debit will be about $0.45. The spread has changed a little since I wrote the article, but the concept is still in place.

    That $0.45 debit is the cost to control one Intel share until January 2015. It will expire worthless if the stock closes below $25.

    The sale of the $20 puts may create a different set of outcomes, contingent upon the share price at expiration. If the shares are greater than $20, the sold options become worthless to the buyer, and the premium is kept by the seller. Upon expiration, if the stock finishes below $20 the seller will get "put" the shares, thereby obligating them to buy the stock at $20 per share.

    Does that help?
    May 30 10:34 PM | Likes Like |Link to Comment
  • Intel: Solving The Margin Puzzle [View article]
    MJDouma and Michael Blair:

    Thank you for the comments re the January 2015 INTC $25 calls. I believe it's a most interesting opportunity. After having investigated the situation, I bought the calls but in conjunction as part of a long combo options trade, then wrote an Instablog post about it. You can check it out here:

    http://bit.ly/141aZLW
    May 30 03:29 PM | 1 Like Like |Link to Comment
  • Cyclical Securities: Too Early? [View article]
    Thank you for a thoughtful article.

    However, I do not look at cyclical stocks as a monolith, but rather individual companies. It is a market of stocks versus a stock market.

    Some cyclical companies may very well be over their heads, but I suspect some are not.

    Indeed, the traditional valuation methodology suggests that cyclicals are overvalued when the P/E is low, not high. This stems from the thinking that the price component has become overheated, thereby trumping the rising earnings component. Too much froth.

    At this time, I contend that is not the case for a company like Caterpillar (CAT). Earnings are forecast to decline, market sentiment is very negative, and the P/E multiple is hanging around a 10-year low. I believe that if CAT fortunes improve, the multiple will expand, not further contract. It is an exception in the usual P/E cyclical behavior.

    On the other hand, Nucor (NUE) steel is following a more traditional pathway. The current P/E is about 33x, because the earnings are weak and the industry is disliked. Steel has yet to experience any real recovery since the depths of the 2008-09 financial crisis.
    May 30 02:35 PM | Likes Like |Link to Comment
  • Halliburton May Offer A Rare Opportunity In This Hot Market [View article]
    I generally acknowledge brokerage upgrades / downgrades, but don't put much emphasis on their recommendations. Sometimes the content may include some data points that I find valuable.

    My two cents is that these recommendations tend to:

    1. Follow the herd
    2. Come too late or are just plain wrong
    3. Emphasize short-term trading mentality; thereby generating portfolio churn and brokerage commissions
    4. Whipsaw investors between buying and selling

    A downgrade can mean a buying opportunity for an undervalued stock. An upgrade is viewed with suspicion. Once "everybody" is buy-side, then who's around to sell? And vice-versa.
    May 30 12:51 PM | 2 Likes Like |Link to Comment
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