Ray Merola's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/558993/comments http://seekingalpha.com/currents/post/1047111?source=feed#comment-19230451 19230451 Fri, 24 May 2013 21:55:20 -0400 http://seekingalpha.com/article/1460981/comments?source=feed#comment-19230101 19230101
I have a very difficult time handicapping this one, as the new FDA chief could engineer real problems for LO.

On the other hand, the Federal government is nearly as "hooked" on cigarettes at the smokers. There is big money on taxes to be had from Big Tobacco. Furthermore, on the most recent earnings conference call, the CEO Kessler didn't seem overly concerned about menthol regulations. He indicated that if regulations were rolled out, the company would have time to react.

In any event, I sold down my LO holdings (which were modest to begin with), as the valuation was looking a bit rich. This is true of many Consumer stocks right now. Furthermore, a hit from the FDA could mean an opportunity to buy back the shares at a discount.

Still long LO; at least a little.]]> Fri, 24 May 2013 21:36:13 -0400
I have a very difficult time handicapping this one, as the new FDA chief could engineer real problems for LO.

On the other hand, the Federal government is nearly as "hooked" on cigarettes at the smokers. There is big money on taxes to be had from Big Tobacco. Furthermore, on the most recent earnings conference call, the CEO Kessler didn't seem overly concerned about menthol regulations. He indicated that if regulations were rolled out, the company would have time to react.

In any event, I sold down my LO holdings (which were modest to begin with), as the valuation was looking a bit rich. This is true of many Consumer stocks right now. Furthermore, a hit from the FDA could mean an opportunity to buy back the shares at a discount.

Still long LO; at least a little.]]> http://seekingalpha.com/article/1460871/comments?source=feed#comment-19224381 19224381
I agree that ETN stock looks to be getting a bit ahead of itself. I envision the 2013 fair value to be between $65 and $70 a share. We're there: and the year isn't even half over. Perhaps the stock is priced for perfection.

However, the other thought is that the forward earnings are expected to grow by low double-digits for the next few years. Therefore, some investors may be "paying up" for the stock now in anticipation of those future earnings.

It is a bit of a dilemma: sometimes the stock is priced for fair value NOW (meaning the current year) and sometimes Mr. Market is pricing it for the FUTURE (meaning the out years).

I have long been very bullish on Eaton shares. It's a core position of mine and a security I've written about on S.A. as recently as late in 2012.

Longer-term investors must note the stock was converted in November, forcing investors the take a gain (hopefully) and reset the basis. Therefore, selling before November of this year will force a short-term gain. In addition, dividends may receive some favorable tax treatment due to the conversion. Part of the cash dividend may be considered a return of capital.

While one should never fear the tax man when looking at gains, I have written short call 65 options out to January 2014 in order to hedge the bet.

I believe ETN is a stock for the longer-term. Once the global economy begins to move, I believe it will be a forefront Industrial stock.]]> Fri, 24 May 2013 17:34:01 -0400
I agree that ETN stock looks to be getting a bit ahead of itself. I envision the 2013 fair value to be between $65 and $70 a share. We're there: and the year isn't even half over. Perhaps the stock is priced for perfection.

However, the other thought is that the forward earnings are expected to grow by low double-digits for the next few years. Therefore, some investors may be "paying up" for the stock now in anticipation of those future earnings.

It is a bit of a dilemma: sometimes the stock is priced for fair value NOW (meaning the current year) and sometimes Mr. Market is pricing it for the FUTURE (meaning the out years).

I have long been very bullish on Eaton shares. It's a core position of mine and a security I've written about on S.A. as recently as late in 2012.

Longer-term investors must note the stock was converted in November, forcing investors the take a gain (hopefully) and reset the basis. Therefore, selling before November of this year will force a short-term gain. In addition, dividends may receive some favorable tax treatment due to the conversion. Part of the cash dividend may be considered a return of capital.

While one should never fear the tax man when looking at gains, I have written short call 65 options out to January 2014 in order to hedge the bet.

I believe ETN is a stock for the longer-term. Once the global economy begins to move, I believe it will be a forefront Industrial stock.]]> http://seekingalpha.com/currents/post/1043691?source=feed#comment-19179131 19179131
Stocks become over or undervalued based upon price as a function of earnings and / or cash flow. Very few exceptions.

Dislocations between price and earnings and / or cash flow present buying opportunities or indicate it is time to sell. These signals are rooted upon the reasonable probability of an outcome, not a certainty.

I view the stock market as a market of stocks, not a monolithic structure.

Many stocks are looking above fair value to me now. Lots of stocks are at fair value. Few appear to be undervalued.

Rarely does the market go straight up. However, a crash usually involves an event or chain reaction of events.

Diversification is the only "free lunch" in town. Now is certainly no time to call for an exception.

Good luck with all your 2013 investments.

]]> Thu, 23 May 2013 16:25:18 -0400
Stocks become over or undervalued based upon price as a function of earnings and / or cash flow. Very few exceptions.

Dislocations between price and earnings and / or cash flow present buying opportunities or indicate it is time to sell. These signals are rooted upon the reasonable probability of an outcome, not a certainty.

I view the stock market as a market of stocks, not a monolithic structure.

Many stocks are looking above fair value to me now. Lots of stocks are at fair value. Few appear to be undervalued.

Rarely does the market go straight up. However, a crash usually involves an event or chain reaction of events.

Diversification is the only "free lunch" in town. Now is certainly no time to call for an exception.

Good luck with all your 2013 investments.

]]> http://seekingalpha.com/article/1454511/comments?source=feed#comment-19132441 19132441
Despite the recent run-up, the stock still appears pretty cheap.

I'd like to see an overall market pullback and buy some more.]]> Wed, 22 May 2013 16:19:58 -0400
Despite the recent run-up, the stock still appears pretty cheap.

I'd like to see an overall market pullback and buy some more.]]> http://seekingalpha.com/article/1449411/comments?source=feed#comment-19081861 19081861
Over time, the spreads will widen. I am not smart enough to know when. But they will.

I offered the following comment on another article about NLY:

"If history is any guide, mortgage interest rates rose between 2004 and 2008. In 2004, NLY dividend held up but the share price fell, then in 2005 the dividend fell, but the share price rose consistently into 2008."

By 2008-2009 the underlying share price had fully recovered. It actually got a little frothy and it was time to trim back.

Currently, I reinvest the dividends for more shares. I plan to continue this practice until the share price is consistently above book and the spread widens. I also pick at a few additional shares when the price falls significantly below net book. When the shares reach what I consider fair value, then I'll just go back to skimming the dividends.

As R. S. points out, all investments have risk and NLY is no exception. The dividend is not safe or guaranteed. However, the management is the best in the business, they have been through the cycles before, and the company is run conservatively.

For me, Annaly is very much an investment, not a trade. I'm not sure how to trade it at all, but frankly, I'm not very good at that strategy anyway. ]]> Tue, 21 May 2013 14:35:24 -0400
Over time, the spreads will widen. I am not smart enough to know when. But they will.

I offered the following comment on another article about NLY:

"If history is any guide, mortgage interest rates rose between 2004 and 2008. In 2004, NLY dividend held up but the share price fell, then in 2005 the dividend fell, but the share price rose consistently into 2008."

By 2008-2009 the underlying share price had fully recovered. It actually got a little frothy and it was time to trim back.

Currently, I reinvest the dividends for more shares. I plan to continue this practice until the share price is consistently above book and the spread widens. I also pick at a few additional shares when the price falls significantly below net book. When the shares reach what I consider fair value, then I'll just go back to skimming the dividends.

As R. S. points out, all investments have risk and NLY is no exception. The dividend is not safe or guaranteed. However, the management is the best in the business, they have been through the cycles before, and the company is run conservatively.

For me, Annaly is very much an investment, not a trade. I'm not sure how to trade it at all, but frankly, I'm not very good at that strategy anyway. ]]> http://seekingalpha.com/article/1414681/comments?source=feed#comment-19014851 19014851
Thanks for reviewing my article and commenting. Indeed, I believe there are several E&P companies that have good upside potential. I've had my eye on EOG Resources, for one.

My Energy sector exposure is significant. I own stock in RDS, HAL, XOM and ETP; all of which I have written about on S.A. I have not thought about writing about some of the other E&P companies, since other than EOG, I doubt I would take on more exposure to the sector.

However, I may reconsider based upon your suggestion.]]> Sun, 19 May 2013 23:10:32 -0400
Thanks for reviewing my article and commenting. Indeed, I believe there are several E&P companies that have good upside potential. I've had my eye on EOG Resources, for one.

My Energy sector exposure is significant. I own stock in RDS, HAL, XOM and ETP; all of which I have written about on S.A. I have not thought about writing about some of the other E&P companies, since other than EOG, I doubt I would take on more exposure to the sector.

However, I may reconsider based upon your suggestion.]]> http://seekingalpha.com/article/1414681/comments?source=feed#comment-18993591 18993591 Sun, 19 May 2013 08:16:27 -0400 http://seekingalpha.com/article/1428561/comments?source=feed#comment-18966811 18966811
If 2013 doesn't see an uplift, then there's a problem.]]> Fri, 17 May 2013 18:53:55 -0400
If 2013 doesn't see an uplift, then there's a problem.]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18935761 18935761 Fri, 17 May 2013 08:15:23 -0400 http://seekingalpha.com/article/1437871/comments?source=feed#comment-18868081 18868081
The quirk about this stock is the persistent, abnormally low P/E. It's about 8x now. Based upon growth metrics, it would seem like it should be about 15x, but I just can't see that kind of multiple expansion anytime soon.

The historical cash flow multiple doesn't change the calculus, either. This stock just doesn't seem to command a "normal" multiple on an earnings or OCF basis.

I model 2013 EPS at $6.39. Place a 10x P/E on it, and it looks like a $64 stock.

Curious for any explanations or additional analysis.

]]> Wed, 15 May 2013 17:00:30 -0400
The quirk about this stock is the persistent, abnormally low P/E. It's about 8x now. Based upon growth metrics, it would seem like it should be about 15x, but I just can't see that kind of multiple expansion anytime soon.

The historical cash flow multiple doesn't change the calculus, either. This stock just doesn't seem to command a "normal" multiple on an earnings or OCF basis.

I model 2013 EPS at $6.39. Place a 10x P/E on it, and it looks like a $64 stock.

Curious for any explanations or additional analysis.

]]> http://seekingalpha.com/article/1436011/comments?source=feed#comment-18841941 18841941
High yield is like a wild high school party just before the parents get home: pretty good blowout, but when the party's over, there's going to be hell to pay. Beer's still on tap now, so I'm still carrying on with one eye on the door.

My benchmark spread is the Baa yield vs the ten-year T-note, both found on the FRB website. It's 2.81 now. When it gets below 2.0, it's time to exit. Might start scaling out a bit before that.]]> Wed, 15 May 2013 08:42:48 -0400
High yield is like a wild high school party just before the parents get home: pretty good blowout, but when the party's over, there's going to be hell to pay. Beer's still on tap now, so I'm still carrying on with one eye on the door.

My benchmark spread is the Baa yield vs the ten-year T-note, both found on the FRB website. It's 2.81 now. When it gets below 2.0, it's time to exit. Might start scaling out a bit before that.]]> http://seekingalpha.com/article/1434572/comments?source=feed#comment-18835861 18835861
There's value there for the patient investor. The dividend yields are such that it makes the wait easier.

My current fav is RDS.A; I am not convinced the BP culture has changed enough post-Macondo, TOT has potential but lacks the management moxie of some others, while Chevron and Exxon are generally good, safe choices. Shell's got a game plan to run for cash, increase dividends, maintain a strong balance sheet, and reinvest heavily in new business. ]]> Wed, 15 May 2013 00:18:06 -0400
There's value there for the patient investor. The dividend yields are such that it makes the wait easier.

My current fav is RDS.A; I am not convinced the BP culture has changed enough post-Macondo, TOT has potential but lacks the management moxie of some others, while Chevron and Exxon are generally good, safe choices. Shell's got a game plan to run for cash, increase dividends, maintain a strong balance sheet, and reinvest heavily in new business. ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18830121 18830121
While I suspect Morningstar has a lot of guys smarter than me, I believe I would not "consider selling," at $85.05; unless they are talking several years from now.

Within the next year or so, at $85, I don't think it would take me more than a second of "consideration" before hitting the "sell" button. ]]> Tue, 14 May 2013 20:46:41 -0400
While I suspect Morningstar has a lot of guys smarter than me, I believe I would not "consider selling," at $85.05; unless they are talking several years from now.

Within the next year or so, at $85, I don't think it would take me more than a second of "consideration" before hitting the "sell" button. ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18829051 18829051
Thanks for stopping by to read and share some comments.

I'll try to offer a few thoughts on your queries.

The size of APL units and Sunoco stations is large enough to matter to the ETP storyline. The units were worth about $1.3 billion when Energy Transfer obtained them as part of the propane divestiture deal. At least on paper, the unit price is higher today than it was a year ago. So that seems to bode well. As they say, a billion dollars ain't chicken feed.

The Sunoco retail business is harder to evaluated. From memory, I think that business might generate as much as $200 million cash a year. Then there's some run-and-maintain capital to offset it. The margins are low, but pretty ratable. Maybe that business is worth $1.5 to $2 billion? It would move the needle, too.

Indeed, if the APU units and Sunoco stations were divested; it would make a difference.

As far as the project slate, I'm pretty keen on the Trunkline opportunity. The other project that got my attention in the NGL import-export terminal at Nederland, TX with Shell as an anchor client. Shell is into NGLs in a big way. They will not go away, nor would they sign a deal with SXL without knowing they have the staying power.

Interesting time for Energy Transfer. The past has not been all that good; just a big (but stagnant) distribution.

That calculus may be changing. ]]> Tue, 14 May 2013 19:52:18 -0400
Thanks for stopping by to read and share some comments.

I'll try to offer a few thoughts on your queries.

The size of APL units and Sunoco stations is large enough to matter to the ETP storyline. The units were worth about $1.3 billion when Energy Transfer obtained them as part of the propane divestiture deal. At least on paper, the unit price is higher today than it was a year ago. So that seems to bode well. As they say, a billion dollars ain't chicken feed.

The Sunoco retail business is harder to evaluated. From memory, I think that business might generate as much as $200 million cash a year. Then there's some run-and-maintain capital to offset it. The margins are low, but pretty ratable. Maybe that business is worth $1.5 to $2 billion? It would move the needle, too.

Indeed, if the APU units and Sunoco stations were divested; it would make a difference.

As far as the project slate, I'm pretty keen on the Trunkline opportunity. The other project that got my attention in the NGL import-export terminal at Nederland, TX with Shell as an anchor client. Shell is into NGLs in a big way. They will not go away, nor would they sign a deal with SXL without knowing they have the staying power.

Interesting time for Energy Transfer. The past has not been all that good; just a big (but stagnant) distribution.

That calculus may be changing. ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18821431 18821431
I don't know much about APL. Quick check indicates it's small, and concentrates on natural gas and NGL transportation. The cash flow statement looks alright. Good revenue growth. Suspect management will continue to issue new units to pay for capex.

Going forward, I like Energy Transfer since they have so many new, moving parts now. APL is structured similarly to what ETP looked like several years ago. They concentrated in different basins, but the natural gas tilt is much the same. ]]> Tue, 14 May 2013 15:14:28 -0400
I don't know much about APL. Quick check indicates it's small, and concentrates on natural gas and NGL transportation. The cash flow statement looks alright. Good revenue growth. Suspect management will continue to issue new units to pay for capex.

Going forward, I like Energy Transfer since they have so many new, moving parts now. APL is structured similarly to what ETP looked like several years ago. They concentrated in different basins, but the natural gas tilt is much the same. ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18809631 18809631
While I'm sure you know it's a question to be answered contingent upon the investors' overall objectives, I think a case can be made to own both. If the Energy Transfer enterprise is successful, the GP could stand to make more capital gains through IDRs. Please note that ETE put off the receipt of a number of IDRs for several years to make some of these recent asset deals happen. Those will wash back in later; with the expectation of significant gains for the General Parnter.

The rule-of-thumb is that the GP runs for capital gains with less income; the LP runs for higher income and less capital gains.

I have been thinking about the same thing for my own account. Currently, I only own the LP units.]]> Tue, 14 May 2013 11:03:41 -0400
While I'm sure you know it's a question to be answered contingent upon the investors' overall objectives, I think a case can be made to own both. If the Energy Transfer enterprise is successful, the GP could stand to make more capital gains through IDRs. Please note that ETE put off the receipt of a number of IDRs for several years to make some of these recent asset deals happen. Those will wash back in later; with the expectation of significant gains for the General Parnter.

The rule-of-thumb is that the GP runs for capital gains with less income; the LP runs for higher income and less capital gains.

I have been thinking about the same thing for my own account. Currently, I only own the LP units.]]> http://seekingalpha.com/article/1432051/comments?source=feed#comment-18809241 18809241 Tue, 14 May 2013 10:55:04 -0400 http://seekingalpha.com/article/1432051/comments?source=feed#comment-18804631 18804631
The consensus is that as the Fed has compressed interest rates, the NIM has likewise compressed and pressured mREIT profits. I think I understand that part.

So why would rising interest rates also hurt mREITs? Would not Fed action tend to raise the long end of the interest rate curve, thereby improving NIMs and mREIT profits? ]]> Tue, 14 May 2013 09:21:39 -0400
The consensus is that as the Fed has compressed interest rates, the NIM has likewise compressed and pressured mREIT profits. I think I understand that part.

So why would rising interest rates also hurt mREITs? Would not Fed action tend to raise the long end of the interest rate curve, thereby improving NIMs and mREIT profits? ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18803231 18803231
The company profile today has been re-arranged versus the asset base in place a few years ago.

As noted, ETP units have outperformed the AMLP composite ETF year-to-date; larger cash distribution discounted. ]]> Tue, 14 May 2013 08:55:19 -0400
The company profile today has been re-arranged versus the asset base in place a few years ago.

As noted, ETP units have outperformed the AMLP composite ETF year-to-date; larger cash distribution discounted. ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18802661 18802661 Tue, 14 May 2013 08:38:09 -0400 http://seekingalpha.com/article/1427941/comments?source=feed#comment-18795381 18795381
The occasionally weak transcription service is often due to the actual telecom being difficult to hear. Since I actually listen to the calls real-time from time to time, I can tell that sometimes it will be difficult to create a strong transcript. The audio isn't very good.

Why listen to any call or webcast at all? The tone and inflection of analysts and company management can be decided tips. Confidence, reluctance, irritation, etc. can be fairly easily picked up upon the audio. Often, the transcript cannot capture it. ]]> Tue, 14 May 2013 00:01:40 -0400
The occasionally weak transcription service is often due to the actual telecom being difficult to hear. Since I actually listen to the calls real-time from time to time, I can tell that sometimes it will be difficult to create a strong transcript. The audio isn't very good.

Why listen to any call or webcast at all? The tone and inflection of analysts and company management can be decided tips. Confidence, reluctance, irritation, etc. can be fairly easily picked up upon the audio. Often, the transcript cannot capture it. ]]> http://seekingalpha.com/article/1427941/comments?source=feed#comment-18784681 18784681 Mon, 13 May 2013 17:53:43 -0400 http://seekingalpha.com/article/1427941/comments?source=feed#comment-18784491 18784491 Mon, 13 May 2013 17:48:42 -0400 http://seekingalpha.com/article/1428561/comments?source=feed#comment-18784311 18784311 Mon, 13 May 2013 17:44:31 -0400 http://seekingalpha.com/article/1427941/comments?source=feed#comment-18778421 18778421
Shell's riskiest E&P activities are the Arctic and Nigeria. You are correct: energy exploration and production is dirty, dangerous and expensive. However, given the scope and scale of the Super Majors, the risk is due to sheer size.

For instance, Shell has been roundly criticized for spending about $5 billion over the past several years to permit and drill in the Alaskan arctic region. There has been zero success to-date. Zippo.

Meanwhile, RDS has been significantly increasing operating cash flows during the last three years. Free Cash Flow has gone straight up between 2010 and 2012. Forecasts indicate the numbers won't back off in 2013.

I agree that in the oil patch, it's not a bad idea to diversify. I like to do across industry lines within the sector. My favorites are RDS, XOM, HAL, and ETP. ]]> Mon, 13 May 2013 15:54:00 -0400
Shell's riskiest E&P activities are the Arctic and Nigeria. You are correct: energy exploration and production is dirty, dangerous and expensive. However, given the scope and scale of the Super Majors, the risk is due to sheer size.

For instance, Shell has been roundly criticized for spending about $5 billion over the past several years to permit and drill in the Alaskan arctic region. There has been zero success to-date. Zippo.

Meanwhile, RDS has been significantly increasing operating cash flows during the last three years. Free Cash Flow has gone straight up between 2010 and 2012. Forecasts indicate the numbers won't back off in 2013.

I agree that in the oil patch, it's not a bad idea to diversify. I like to do across industry lines within the sector. My favorites are RDS, XOM, HAL, and ETP. ]]> http://seekingalpha.com/article/1427941/comments?source=feed#comment-18772171 18772171
"....However, through a reasonable learning curve, he / she should be able to grasp the basics of the business, particularly if they have some at least some peripheral background on it....."

This was my personal view even when working managerial assignments whereas I was no "expert" in that specific part of the business: learn the basics, ask a lot of questions, and know where to go to get the answers. ]]> Mon, 13 May 2013 14:07:01 -0400
"....However, through a reasonable learning curve, he / she should be able to grasp the basics of the business, particularly if they have some at least some peripheral background on it....."

This was my personal view even when working managerial assignments whereas I was no "expert" in that specific part of the business: learn the basics, ask a lot of questions, and know where to go to get the answers. ]]> http://seekingalpha.com/article/1428561/comments?source=feed#comment-18771861 18771861
The unit price action has been cooperative. Year-to-date, ETP units have outperformed best-of-breeds KMP but lagged EDP. Adding in an approximate 300 basis point advantage in distributions, Energy Transfer cuts that EPD diff down. These are the big boys. I have been encouraged by the fact that ETP units have outpaced the AMLP by a good margin. AMLP is the industry benchmark ETF for the MLP space.]]> Mon, 13 May 2013 13:59:13 -0400
The unit price action has been cooperative. Year-to-date, ETP units have outperformed best-of-breeds KMP but lagged EDP. Adding in an approximate 300 basis point advantage in distributions, Energy Transfer cuts that EPD diff down. These are the big boys. I have been encouraged by the fact that ETP units have outpaced the AMLP by a good margin. AMLP is the industry benchmark ETF for the MLP space.]]> http://seekingalpha.com/article/1430071/comments?source=feed#comment-18768351 18768351
I project this year's EPS to be about $2 given current data. My view is a strong 2Q forward forecast could propel the shares to $28.

This is one of those stocks that I would not rush to sell because there are several significant unknowns that have the potential to alter the landscape. Some of these will become more apparent in the next quarter to two.

Long INTC. ]]> Mon, 13 May 2013 12:39:42 -0400
I project this year's EPS to be about $2 given current data. My view is a strong 2Q forward forecast could propel the shares to $28.

This is one of those stocks that I would not rush to sell because there are several significant unknowns that have the potential to alter the landscape. Some of these will become more apparent in the next quarter to two.

Long INTC. ]]> http://seekingalpha.com/article/1427941/comments?source=feed#comment-18765211 18765211
This is exactly why I recommend the small investor limit their stocks to those which he/she understand the basic business model, and a few select operational / financial metrics that help evaluate the specific company and industry.

Furthermore, if the investor does not plug into the earnings conference call, in particular the Q&A session, I believe he misses out on a bevy of soft data that cannot be obtained by simply reviewing the financial statements.

Perusing the 10-Q or 10-K (I like to start in the back with the footnotes) also can afford the small investor some pretty good non-mainstream information.]]> Mon, 13 May 2013 11:39:13 -0400
This is exactly why I recommend the small investor limit their stocks to those which he/she understand the basic business model, and a few select operational / financial metrics that help evaluate the specific company and industry.

Furthermore, if the investor does not plug into the earnings conference call, in particular the Q&A session, I believe he misses out on a bevy of soft data that cannot be obtained by simply reviewing the financial statements.

Perusing the 10-Q or 10-K (I like to start in the back with the footnotes) also can afford the small investor some pretty good non-mainstream information.]]>