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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry... More
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  • Investment Report - July 2012: Net Payout Yields

    This model was up 5.2% in June versus a 4.0% gain for the benchmark S&P 500. As expected the model jumped back after a weak May as investors jumped back into high yielding stocks.

    Trade

    No trades were made this month, but several stocks remain on the radar to sell as dividend stocks continue to outperform the market. Some of these stocks are reaching valuation levels were capital gains are likely to be limited for possibly the next few years.

    Bottom Performers

    With a strong market in June, it is always worthwhile to review the losing stocks to confirm the long term story remains intact. The model ended the month with 26 stocks, which is slightly higher than normal, and only two stocks had a negative price change.

    WellPoint (NYSE:WLP) was particularly weak following the Supreme Courts upholding of Obamacare. The stock had a nice gain for June until the ruling came out and caused the stock to plummet from near $70 to close the month at $63.79. The company has a significant buyback program that stands to benefit from the lower prices.

    On the other hand, Kohls (NYSE:KSS) was only fractionally down for the month. Not horrible, but considering the underperformance of the market the relative results were disappointing. The retail operator continues to struggle with weak sales. Fortunately the company remains in a strong financial position and has bought back over 20% of the outstanding float in the last year. This provides huge support to the stock. Once operations turn around, investors will see significant benefits from the continued reduction in shares.

    Top Performers

    Naturally numerous stocks in the model had great months with Ameriprise Financial (NYSE:AMP), DirecTV Group (NASDAQ:DTV), Lorillard (NYSE:LO), Raytheon (NYSE:RTN), and Time Warner (NYSE:TWX) all reaching gains of roughly 10%.

    Most of these stocks have significant buybacks and the interesting part is that most of them hit 52 week highs or at least approached such levels. The S&P 500 though remained considerably below highs hit back at the end of March. Unfortunately the media still ignores the buyback stories such as the above that work.

    Conclusion

    As expected the European issues continue to cause disruptions in the markets, but the impacts this summer aren't nearly as greats as in 2010 and 2011. As each day passes the market get more and more comfortable with the ability to avoid a major collapse.

    The main risk for domestic markets and stocks remains the fiscal cliff and pending election. Any inability to keep the markets calm regarding fiscal and tax issues in the US could lead to healthy losses. The most at risk stocks could be those of high dividend payers that have had an exceptional 18 months. These stocks might face the headwinds of higher tax rates that pushed them down at the end of 2010.

    Regardless of the markets, the average stock in this model yields greater than 10% with the majority of yields coming from buybacks. This provides huge support if the market turns weak again.

    Disclosure: I am long WLP, KSS, AMP, DTV, RTN, TWX.

    Additional disclosure: Please consult your financial advisor before making any investment decisions.

    Jul 08 5:29 PM | Link | Comment!
  • C&J Energy Services Makes An Accretive Deal

    C&J Energy Services (NYSE:CJES) remains one of the cheapest companies yet after the close the company announced an accretive $272M deal for a complementary wireline service provider named Casedhole Holdings. Not only is the deal expected to be immediately accretive, but the deal also provides exposure to new oily basins and large E&P operators not previously used by CJES.

    Per the press release, Casedhole is a leading multi-regional, independent provider of cased-hole wireline and other complementary services for energy producers in the United States. With 12 district locations, Casedhole provides premium services in the most complex and demanding operating environments focusing on oily and liquids-rich basins.

    After hours the stock jumped 1-3%, but it still remains down for the day. When the sector turns, this would be the top pick. The company remains a cash flow machine with top of the line margins. The $22OM credit line being tapped to pay for this deal will quickly be paid off via profits.

    Details on the deal:

    • The addition of Casedhole to be immediately accretive to C&J's 2012 earnings and cash flow per share.
    • The transaction is expected to close prior to June 8, 2012 upon satisfaction of customary closing conditions.
    • An expanded geographic presence in 10 of the most active U.S. areas, including the Williston and Uinta Basins and the Marcellus, Utica, Avalon and Bone Springs shale plays where C&J currently does not have a presence;
    • A loyal and expanding customer base of leading E&P operators which is largely non-overlapping and complementary to C&J's existing customer base;
    • A seasoned management team with extensive large-cap oilfield services management experience, as well as a full roster of skilled engineers and field-level personnel that bring extensive technical expertise and domestic and international basin knowledge;
    • Premium, custom-built assets, including 58 wireline units with an average age of less than three years, compared to an industry average of 10 to 15 years, and 11 pumpdown units that were added during the past five months;
    • Industry leading EBITDA margins and significant revenue growth that since June 2009 has outpaced the U.S. land rig count growth by more than 8 times. Casedhole's trailing 12 month revenue as of March 31, 2012 was $156.8 million, with substantial equipment additions occurring throughout the 12 month period.
    • C&J is funding the purchase of Casedhole through $220 million drawn from the Company's senior secured revolving credit facility, with the remainder paid from cash on hand. The credit facility was increased to $400 million from $200 million in connection with the signing of the definitive purchase agreement and was led by Bank of America and Wells Fargo.

    Besides the obvious benefit of an accretive deal, the exposure to new basins and shales with new customers could be huge for CJES down the road. The company isn't much more than an Eagle Ford play now and expansion into the Marcellus, Utica, and Williston plays to name a few could be hugely positive.

    The stock isn't likely to act all that well tomorrow with more follow up from the Haliburton (NYSE:HAL) margin problems, but it remains one of the best deals in the market sub $20.

    Disclosure: Long CJES. Please review the disclaimer page for more details.

    Disclosure: I am long CJES.

    Additional disclosure: Please consult your financial advisor before making any investment decisions.

    Jun 07 6:06 PM | Link | Comment!
  • Is Shopkick The Future Of Mobile Advertising?

    After recently writing about how some of the new media companies had failed to embrace new business models, along came my initial introduction to shopkick. Last week, shopkick announced that it has signed up Target (NYSE:TGT) as the largest retailer to use the service. My issue with some of the new media companies is that the revenue source remains very old media since a large salesforce is needed to attract advertiser dollars.

    Shopkick is an interesting app for the iPhone and Android phones that makes shopping more delightful. Users are rewarded with points known as "kicks" for walking into stores or scanning products. These kicks can be redeemed for gift cards, Facebook (NASDAQ:FB) credits, iTunes downloads, or donated to charity. Guests can also receive special in-store deals including coupons and discounts.

    Brand Awareness

    After trying the app at the local Target store, it struck me that no better advertising tool existed for brand products than having consumers locate an item, pick it up, and scan it. In this scenario, a vendor knows the consumer interacted with the product unlike a TV ad or an ad running on new media services such as Pandora (NYSE:P) or Yelp (NYSE:YELP).

    After my experience at Target, I now know that Bounty, a Proctor & Gamble (NYSE:PG) company, has three different types of paper towels after performing the scans for 30 extra kicks. Does it make me more likely to buy Bounty? That is questionable since it is an established brand already. The real benefit might be for new products or brands where getting the product in consumer hands provides a huge benefit. Just locating the latest soft drink or gum or toothpaste could provide huge benefits to an advertiser such as Proctor & Gamble.

    Retailers

    The retailer also benefits as it encourages shopper foot traffic which is potentially better than click traffic via internet searches. As mentioned above, Target just started using the service and Wal-Mart (NYSE:WMT) already had been using it. Will both retailers just cancel out each other with this service? Regardless, it might be a cheaper and more productive way of attracting users than a circular in the local paper or mail.

    Maybe this is the path that new CEO, Ron Johnson, at J.C. Penny (NYSE:JCP) should've gone with his new promotions plan. Instead of reducing them to simple monthly promotions, he could've jumped head first into a technology solution that drastically improved the promotional process and lowered the expenses versus the costly process of continuously updating sales displays in stores.

    J.C. Penny recently reported Q112 results that showed a stammering 18.9% loss in comp sales. Consumers clearly aren't on board with the reduced promotions as much as investors were originally with the concept of eliminating the wasteful costs.

    Instead the retail guru from Apple (NASDAQ:AAPL) has already allowed fellow department store Macy's (NYSE:M) to outflank him in this technology area.

    Though still early in the turnaround, it doesn't appear that reducing promotions works at J.C. Penny. Unfortunately the department store is probably backed into a corner on adopting a technology solution that would allow for frequent and efficient promotions. Such a shift would counter a plan just recently launched.

    Private Company

    This is exactly why shopkick appears to be an ideal solution though unfortunately the company remains private. The financials naturally are unknown, but it would appear that the concept of acquiring the revenue dollars commitment from retailers and brands first rather than the user is more ideal.

    Monetizing Mobile

    This concept does show how mobile traffic can and will be monetized. Maybe not by Google (NASDAQ:GOOG) via search or by Facebook via display ads, but location based mobile traffic will be key to the future of mobile monetization.

    In this case, customers are attracted to locations where they can use coupons and collect kicks for gift cards. The future potential still exists for locations to alert or contact nearby customers, but that theory still seems questionable.

    What consumer wants to be barraged with ads while walking down the street? Does this make shopkick the ideal app? Let consumers find the nearby discounts when they are looking.

    Conclusion

    While the success of converting shopkick users into repeat customers is still unknown, the process of pulling in foot traffic probably can't be beat in the advertising world. Considering the success of the Target test, look for more innovative brands and retailers to join into the process. These companies might just gain a technological lead on the market.

    Disclosure: I am long AAPL.

    Additional disclosure: Please consult your financial advisor before making any investment decisions.

    Tags: AAPL, FB, GOOG, JCP, M, P, PG, WMT, YELP, TGT, long-ideas
    May 31 11:36 AM | Link | Comment!
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