Richard Evans

Special situations, deep value, growth at reasonable price, arbitrage
Richard Evans
Special situations, deep value, growth at reasonable price, arbitrage
Contributor since: 2012
It has been screaming around - but looks to be establishing a floor at about $40.
Thank you.
He might nationalize some companies, but I doubt all. A perfect example is Rosneft. It already is majority owned by the government, but needs access to investor funds in order to monetize its vast resources. I'd put the chance of Rosneft in particular being further nationalized at about zilch. is the listing for trading Rosneft directly on the Russian MICEX market. While it is possible, most people who read Seeking Alpha will have easier access to the stocks traded on the London and OTC markets.
PBR is a good option, but the political and economic situation in many ways is just as roiled and dangerous as that of Russia. The failure of a number of government policies, tied to problems with preparing for its hosting of the upcoming world cup, has lead to widespread unrest, and raises the liklyhood of a government shift more to the populous/nationalizing type of Bolivia, Venezuela/Ecuador.
All investment in emerging markets hold more risk, but the possibility of more gain. All investors need to weigh their own needs and goals along with the risk - reward ratio.
Thank you for the comment.
Thank you for agreeing with my thesis. Of course, many people are willing to face more risk if it means a big upside.
Thank you for your comment.
I have not gotten elbow deep into the numbers like I have with some of the others - another on my "to do" list. From outside looking in it looks good
I applaud the stomach, but buying on a downward plunge is always very risky.
Good luck.
Actually I could probably write 2-3 articles. I am working on one right now.
As far as positively - I'd say PSX. Of these they are fighting the hardest to buy up rail cars and other means to get cheap crude to their refineries. The other biggie on this list, Valero, would be a near second.
Negatively I'd put DK, just because they are the ones most dependent on taking advantage of the Cushing fiasco. It would also hit Alon and HFC a little bit, but their refineries are located in a way that I do not believe the current pipeline plans will effect is as meaningful a way.
As far as question two - that really depends on how those hypothetical restrictions hit. I have thought about looking into that question in more detail, but have not yet. This might be a great time to do it.
The most important is crack spread, but that spread is impacted by the WTI/Brent ratio, at least for the mid-American refiners like HFC. If WTI is significantly lower than Brent, then the crack spread grows.
That said, there really is no economic reason for oil to be above $100, problems in Egypt and elsewhere does not affect Cushing and oil supplies remain high Stateside. However there is some emotional trading going on right now, so crack spreads will likely tighten for a few weeks. One reason why I wouldn't buy HFC quite yet.
Good question
Thank you and you are very welcome
Thank you for the nice comment. Hedge funds tend to be more short term - chasing the short term money.The tend to go more in and out, increasing volatility. Other institutional investors have longer term goals and tend to stay in a position longer.
It is a catch 22 -some long term institutional investors stay away to some extent because of the volatility, but it is more volatile because of the low level of long term institutional investment.
At least, IMHO
Can't agree more. Magnificent value and great, investor friendly board. However this is definitely not a buy-and-forget stock. Way too volatile for that.
I believe Brent is coming down due to the growing concerns that the Euro recession will languish longer than expected, while negative economic reports out of China worry traders about future weaker demand. Many analysts are down ticking their economic expectations going into the next few quarters.
Thank you for your comment.
Sure, many companies have more than one type of stock.
Remember that each share is actually a bundle or rights - rights of ownership, of voting on corporate decisions, on receiving dividends, etc.
In this case the "A" shares are the normal shares of the company. The "B" shares were issued as part of the combination of Shell and Royal Dutch (I think) and they had different rules as far as how much of a dividend they would receive, etc. As of 2011 the B shares are being bought out by Shell over a steady buyback and will eventually cease to exist. If you were already an owner of "B" shares or were interested in arbitrage opportunities then you might want to look into them. However if you are like 95% of most investors you should just ignore the B shares and look at the A shares.
Hope this helps
Actually Rocca's is a great companion piece. We basically came to the same conclusion but in different ways.
He was concentrating more on the internal factors and especially on the free cash flow and financial position of the company. I was looking more at HFC's external factors especially its competitive place within the refining market place.
Reading them together definitely adds to the story.
Papaone -
Couldn't agree more. I honestly have to challenge people to come up with a company that is anywhere near as investor friendly as HFC - the closest I can come up with is The Buckle (BKE) another one that uses special dividends to reward investors.
It was a really hard decision to sell my stake in HFC a few months ago, but I had some short term investment opportunities that were too juicy to pass up - once in a decade stuff. I had to sacrifice $0.80 in dividends to do it and overall I am happy in what I did, but I cannot wait until I can catch an entry point to get back into HFC.
It is the old "depends." I must admit my own investment portfolio is pretty defensive right now. I have the smallest percentage of long positions as I've had, with the largest short holdings I have ever had in my life, with a fairly large cash position. So market-wise I am about as Bearish as I can be.
But like everything, there are always opportunities when faced by problems. I see HFC as a strong buy WHEN IT STOPS FALLING. I just don't know if it will stop falling tomorrow or in September. It might bottom at 40, or it could slide much farther to the low 30s. At this point neither would surprise me. But at either price HFC with a levelled share price would be a good position. In fact if it does wait until 32 to solidify I would be a big buyer.
I do agree we are looking at a weak market and strong correction the next few months, I do expect a year end rally and I am not convinced we have seen the peaks for the year.
Absolutely true. Look at how many companies are shedding their refining assets now? They are good in today's economics but they are not a buy-and-hold-forever sort of stock, at least in my mind.
They are also not as insanely profitable as they were 20 months ago. But they are still very profitable, and with PE below 5, they are at extremely low valuations, and with the case of HFC it has a nice 8% dividend return as a Grahamian margin of safety.
That is the truth, but on the other hand I can see the board logic. When you put out a regular dividend it comes with strong expectations that it will continue at least to the same level. It is good for stock price.
But what happens if it comes a time the board cannot pay that dividend? That always terrifies investors and the stock crashes. The board is basically saying that it is rewarding investors for the profits it is making, but does not want to box itself in the corner if the market turns and the profits dry up.
Short term it probably is not a good strategy, but long term I think it is. I always appreciate it when a board is looking towards the long term interests of its shareholders.
Actually I got out when it went above $55. Not that I didn't like it, but there were some other screaming buys at the time and I needed to make a decision, and HFC wasn't such a value then. In hindsight I am oh so glad I did.
Wherever it bottoms I'll be happy to pick up some shares. It is liable to be 2-3 weeks though, or more.
Thank you for the comment
Right now I consider refiners an excellent bag right now, and investing in a refining ETF would be good, safe approach.
As far as the individuals, it really depends on your goals. I like CVR Energy (CVI) right now, tiny but it is tied in so well to Cushing, it is able to buy crude at a sizable discount to market, while it still has lots of room to improve the productivity of their second refinery. Delek (DK) is an excellent option, their internal numbers are just a bit under those of HFC.
For the big ones I'd take Phillips 66 (which I own). They are doing great things to maximize refining profits, but I also like the way they are plowing money into their chemicals and plastics units. This should set them up well for whenever the US economy starts to expand with a purpose. Valero (VLO) is a good choice also.
Sorry, that was four :)
You have a valid argument about PB, and I did use PE, but when dealing with the big internationals I find that some more advanced measures can be deceiving, especially when looking at a broad analysis such as this article tried to do. The reason is that reporting rules for assets are quite different from country to country, especially for energy assets located in places like Southeast Asia, China and Russia, where most of these companies have large elements of their future operations.
Energy assets are broadly valued based on how likely they are to be recoverable using current technology. It would be nice if everybody used the same standard. However while the SEC has some basic rules many of the accounting reporting standards are based on the requirements of the local country's standards. Just compare the reporting rules between Canada and the US is bad enough, compare Russia with Vietnam and you will get headaches.
If I was doing a deeper analysis of 1-2 companies I would use those other measures.
As far as the spelling - geesh! How did that happen? Got past my assistant, me and an editor! Thanks for catching that one for me. At least it was just the one time. The rest of the article it is spelled correctly, but why did it have to be a headline? Argh!
And thank you for your comment.
True, it also explains how China has been able to grow so aggressively this past 15 years or so. External investment creates economic activity, which funds the government. It has worked amazingly well up until the last year or two. Now that China is no longer the low cost producer in Asia, it is changing the dynamic, which means that the Chinese government will have to change the way it does business. How it makes those changes will be key, both for the future of the Chinese economy as well as external investors.
Thank you for the comment.
I have been using Y-Charts for about a year now. I am not particularly technologically inclined - my wife does rings around me on her iPad, but I find Y-charts incredibly easy to use, with many options so I can mix-n-match as needed.
Thank you for the comment
Actually, when BKE hit $54 I tripled up on my shorts. In my mind BKE is still due for a big correction between now and September. However the market, IMHO is engaged in some "Irrational Exuberance." There is little economic data pushing the market - definitely not to the level it has moved the last 30 days. Investors are simply looking at the alternatives of bonds, gold, etc and seeing there are no better options, and clinging to any semi-positive economic news that comes out.
I am still looking at the macro view, and the macro view is still the same. This bull market in general, and BKE in particular, is way over due for a major correction. The higher the market goes now. the more likely the correction will be sharper and deeper.
True, by greatly expanding my short bet I open myself to even greater losses, however my investment is averaged into a much higher sell price. If the stock falls as I do expect, the payoff will be even greater.
Of course this is an extremely risky approach, and definitely not for everybody. However I conclude there is little actual downside remaining (ie much chance of continued updraft in stock prices) while the profit potential is growing by the day.
I really expect the new Ohio reporting laws to have little if any direct impact on GPOR. However I have recently been cutting my holdings. Partly this is because of the runup from the $2-$5 range where I entered into poitions in GPOR turned my holdings unbalanced. But also I am concerned with the lagging infrastructure which is underserving the rapidly growing oil play in places like Ohio, as well at Eagle Ford and the Baaken.
I expect GPOR will continue to grow and be a good investment, just not at the insane rates as it has experienced over the last few years. My view is GPOR should now be a strong hold in a growth portfolio.
The advantage of buying a stock at an extremely low valuation (69% of book, in this case) is the stock offers buoyancy in down markets, but tends to rise faster in good. As in Graham's Mr Market, short term markets are erratic, fickle and frankly sociopathic. Long term markets recognize value.
Anytime I can buy $1 in assets for $0.60 I am very interested. If the company is profitable, financially sound and on a decided upswing I am salivating. The fact the price is still under $20 means it is definitely a long term buy for my portfolio.
The basic problem with this analysis is it looks only at BAC in complete isolation. Financial Analysis 101 is you cannot analyze one company or situation by itself, because there is so much variation in the business models between different businesses. The business needs t be compared to other similar companies to get a meaningful picture. What is the status of underperforming loans in Citibank, Wells Fargo, etc? Without that measure, this analysis has no meat.
BKE has broken under the 150 day price line and is under $47. I have sold short on shares. If the price rallies in the ext two weeks I may sell more shares short.
Stephen - Thank you for the reply.
Market sentiment is almost all a stock price is based on short term. I subscribe to the Graham - Dodd - Buffet school that believes that long term the market recognizes value, but that short term it is short sighted and manic.
The chart above on revenues is quite revealing when compared to share action, in my opinion. Whatever the connection, there historically has been a very firm and clear one the last five years.
True, BKE is an exceptionally strong company, and I am very bullish on it long term. However my opinion is April is not the time to launch a long position in this stock during the period it reliably marks up annual highs. I would buy (have bought, will buy) BKE strongly in the July-September season when the stock is reliably at annual lows.
My opinion would change if I saw a major, positive change in the market or the company. But the market looks to me like it is topping out, while changes and improvements in BKE look incremental to me, not game changing.
Obviously you disagree, and that is fine. It is this type of give and take that can lead everybody to a better understanding.
Thank you for the comments.
Agree with the general chorus. With BAC trading at such a massive discount to BV, it would be complete mismanagement to issue Dividends at retail price (wherein shareholders will be taxed, diluting the profits) as opposed to investing at wholesale (huge discount to BV) for both the company and the shareholder. Buy a $3.6bn benefit for $5bn (dividends) or an $8bn benefit for $5bn (share buyback)? Hmmm, that is a tough decision.
In fact, if BAC had significantly upped dividends in lieu of a share buy back, I would be looking suspiciously that management agreed with those detractors who charge that BAC's assets are over valued.
You are absolutely correct. It is not a debt, but a form of preferred dividend.