Seeking Alpha

Tom Armistead's  Instablog

Tom Armistead
Send Message
I'm a well-informed retail investor and post on SA in order to expose my thought process to critical examination and comment from readers. It makes me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that encouraged me to... More
My blog:
Tom Armistead's Instablog
View Tom Armistead's Instablogs on:
  • Going Long Wal-Mart

    Wal-Mart (NYSE:WMT) is going down today on the combination of raises for minimum wage employees and less than expected guidance.

    On a PE5 basis the company is very cheap compared to the S&P 500, and trades at a much lower volatility.

    My take: poor employee morale and lack of ability to select associates has created operational difficulties that will be resolved by paying that little bit more. When last I looked at the company I was encouraged at the indications they would be investing in their associates. Now they are doing it, to include education and training.

    I bought Sep 77.5 calls and sold Sep 82.5 calls, to either make a profit if the stock stays above $82.50, or to reduce my cost basis if it goes below that level.

    Tags: WMT
    Feb 19 10:39 AM | Link | 11 Comments
  • Occidental Petroleum: Effect Of Crude Oil On Share Price

    This is a follow up on my post from yesterday, where I looked at Exxon Mobil (NYSE:XOM). I took 10 years of monthly price data for the S&P 500, NatGas, Brent and Occidental Petroleum (NYSE:OXY) and dropped it into a multiple linear regression calculator. Here's a chart:

    The visual fit demonstrates the connection, and the correlation at 0.88 is better than I would have expected.

    OXY has Middle East operations, and the California operations (spun off late last year) were also sensitive to the price of Brent, which gave a slightly better correlation than WTI.

    NatGas is a puzzler: the formula suggests that a lower price is better for OXY than a high one. It could be that the Chemical segment uses it for feedstock. At any rate, that's what the software developed as a relationship.

    A weakness of this approach is that OXY has been divesting assets, to include US mid west gas assets as well as the California operations that now trade separately as CRC. So going forward the equation developed may not be as useful as the correlation implies. Also, they have been working on selling other assets, which may enhance market expectations and lead to rapid share price moves on rumors.

    Brent would need to be in the $80 area to support the current OXY share price, according to the formula. After tinkering with various hypothetical levels for Brent and scratching my head for a while, I plan to sell August 87.5 calls over my existing LEAPS position. Brent would need to be at $90 to drive OXY up to the strike price, according to the formula.

    Long-term View

    Demonstrably the share prices of OXY and XOM respond to the short term moves in the price of Crude. Factually the value of the shares depends on oil prices extending out decades into the future, which are unknowable. If we can't predict the next 3 months, how can we do better for the nest three decades?

    On a common sense basis, existing wells and fields will continue to decline, while emerging middle classes and economic growth globally can be expected to increase demand. With that in mind, holding the majors while extracting income by means of covered calls seems like a sensible strategy.

    Tags: OXY, Oil, Energy, Options
    Feb 15 9:16 AM | Link | Comment!
  • Exxon Mobil: Effect Of WTI On Share Price

    This is interesting and reassuring, I thought I would post it here. Many investors hold Exxon Mobil (NYSE:XOM), and question the desirability of holding it at current oil prices.

    I took ten years of data for XOM, WTI and the S&P 500, monthly, and dropped it into a multiple linear regression calculator. Here's the result:

    The fit is visually good, and the correlation isn't bad.

    With the S&P at 2,097 and WTI at $52.78, the formula suggests a value of $89.37 for XOM, not that far from its current price of $93.37.

    Looking out a year from now, futures suggest WTI at $61.76: Keeping the S&P constant, XOM would be $91.68. $80 oil, $96.37; 100 oil, $101.52.

    After looking at this, I plan to hold my XOM position, but will be selling covered calls at 95, probably the July expiration, I should be able to get about $3 for them.

    Tags: XOM, Energy, Crude Oil, WTI
    Feb 14 6:59 AM | Link | 4 Comments
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.