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  • Seadrill: Positioned To Benefit From Rebalancing [View article]
    The author notes that Seadrill has delayed completion of several vessels, pending improvement in the market. Does the author know, or can he estimate, the cost to Seadrill to delay delivery? Presumably there are clauses in the contract that address damages associated with delay in taking possession of a vessel, after all it costs the yard building the ship money to delay completion.
    Feb 28, 2015. 12:02 PM | 8 Likes Like |Link to Comment
  • Time To Catch This Falling Knife [View article]
    This is an interesting article on a company I had never heard of. Based on the article, it appears this name has a large debt load, limited ability to borrow additional funds, and potentially serious issues covering the cost of capital. I would have expected a serious discussion within the article about the potential for this name to declare voluntary bankruptcy like GTAT recently did.

    Consider the benefits to the company. It gets rid of debt, allows for orderly recapitalization of the company, and potentially allows the company to continue doing business at a profit. What are the downsides of voluntary bankruptcy? Bankruptcy, voluntary or involuntary, is a long and accepted tradition in American business. As I recall, virtually every major American airline company has emerged from bankruptcy in the last decade, as have several car companies. I would be interested in the author's opinion as to the option for bankruptcy here, and how he assesses the value of bankruptcy risk in terms of buying stock in this name.
    Feb 23, 2015. 04:13 PM | 3 Likes Like |Link to Comment
  • Caterpillar: Macro Factors And Past Point To Solid Long-Term Returns [View article]
    That was an interesting article on an important industrial company. However, I am unable to follow the author's logic in concluding that CAT is a good long term play at this time. The author goes to some lengths to explain the economic headwinds facing CAT right now, with substantial reduction in mining, oil exploration, and other equipment intensive operations. The author further notes that CAT faces serious headwinds in the mid term (I assume this means around 1year) timeframe.

    Perhaps it is accurate that CAT will pickup in two, three or four years, but I am unclear why the author thinks that now is a good time to purchase. CAT has had a modest share price reduction, certainly not close to what it experienced back in 2008, and we seem to be heading into a year of worldwide retrenchment in major mining and oil investment. Perhaps the better plan would be to wait a year or so, then think about investing in CAT. Or possibly buy protective puts to cover what could be an ugly downside if investment continues to be soft.
    Feb 20, 2015. 09:12 AM | 1 Like Like |Link to Comment
  • Africa Could Mine Its Way To Prosperity If It Addresses Instability [View article]
    This was an interesting article on an interesting part of the world. The title suggests that Africa could mine its way to prosperity if only it addresses instability. But the only instability discussed in the article appears to be tax and royalty policy. Equally important is political instability. Governments change with alarming speed, sometimes due to elections, often due to military takeover or a coup by an unknown terrorist group (i.e. Lord's Army in DRC). It would seem challenging at best to invest in a long term play like a mine if the mining company has no idea who will be running the country when the mine is ready to produce.

    Political and military instability pose challenges of security, workforce retention, and capital preservation that would seem to be greater than the question of tax or royalty policy. Not to minimize those issues, but if Boko Haram takes over Niger, and you have a mine there, wouldn't personal safety take precedence over the royalty payments?
    Feb 19, 2015. 03:36 PM | 1 Like Like |Link to Comment
  • Fastenal: A Wide-Moat High-Growth Play With A Dividend Approaching 3% [View article]
    I want to thank the author for an informative article on an interesting company I was somewhat familiar with, but had never looked closely at. I believe the author is correct insofar as his analysis of Fastenal the company. It seems to be well run, it has a good business model, and it earns steady profits.

    The question of whether Fastenal the stock is a good investment is a totally different issue. I looked up the last five years using my Fidelity tools, and there are some interesting results. According to the Fidelity results, the stock reached a peak of approximately $54 per share in April 2012, when the P/E ratio was approximately 44. The stock has traded between 39 and 54 since then, and is currently around $43 per share. The P/E ratio has steadily declined to its current value of approximately 25. Earning have been pretty stable, generally around $0.35 or $0.40 per quarter over the last three years.

    So what we seem to have is a retail stock that was glamorous in 2012, and is gradually losing its glamor status and is operating more like a utility. Yes it is well run, yes it supplies important industrial parts like fasteners, but I do not see what is going to propel the stock higher. The earnings seem to be stable, there is no indication that they have a break out product that is going to cause a large upside move. The P/E ratio that the market is willing to pay could just as easily go down to a more realistic value of 15 or so, perhaps more typical of a low growth business in the commodity fastening business. This is not a knock on the company, they seem to be well run and have a good plan, but the article is about what price the market will pay for the company, and I have to believe the market has voted in the past three years that they will no longer pay a large premium P/E for the company.
    Feb 19, 2015. 03:11 PM | 2 Likes Like |Link to Comment
  • Bellatrix Exploration - Attempting To Do More With Less [View article]
    Is this article the author's research, or is it simply a recitation of management projections and opinions? I find it remarkable that a company increase production while still cutting CAPEX so drastically, and the author apparently agrees that this is remarkable. Did the author attempt to verify this claim, or does he accept management claims at face value?
    Feb 18, 2015. 06:19 PM | 2 Likes Like |Link to Comment
  • Alpha Natural Resources: Cutting Costs While Waiting For A Metallurgical Coal Market Recovery [View article]
    If I understand your article correctly, Alpha expects to earn about $250 million this year (gross), and will expend something like $610 million, for a net loss of about $360 million. This may not include the cost of permanently closing existing unprofitable mines, which no doubt have permit requirements for closure that could involve a variety of measures needed for safety and environmental concerns. I am not clear what steps Alpha is undertaking to "reuse" idled assets, I don't see what value there is in a close coal mine, unless the equipment has some salvage value.

    So my question is do you think Alpha should be considering voluntary bankruptcy at this time to get ahead of what looks like a potentially devastating next few years? What is the advantage of limping along like Radio Shack, prolonging what may be inevitable? If Alpha declares bankruptcy now, they may have a chance to restructure debt, avoid pension obligations, and basically remake their company, ala GM or GTAT or any number of other recent examples. Why wait for events to overtake them, wouldn't now be a good time to get out from under a pile of crushing debt?
    Feb 18, 2015. 10:46 AM | 4 Likes Like |Link to Comment
  • Statoil - A Superb Upside Opportunity In The Energy Sector [View article]
    I can think of several reasons why STO would trade at lower ratios than similar integrated oil producers. First off, the large stake held by the Norwegian government offers the unpleasant potential for political decisions to overrule business decisions. A good example is the Norwegian energy minister trying to push the Snorr project even though STO has suggested putting it on the chopping block. Very dangerous when governments make decisions that are best left to business leaders.

    What happens when the government decides that STO should maintain payroll even in the face of reduced profits? Will business interests or political interests prevail? In full disclosure, I owned STO until about 6 months ago when I sold it all. In a difficult business environment, I prefer companies that have the flexibility to do what it takes to earn profits, rather than be forced to weight every business decision against political motives.
    Feb 10, 2015. 04:30 PM | 5 Likes Like |Link to Comment
  • Natural Gas: Groundhog Day [View article]
    "Seriously, given the historical volatility of natural gas, it is unlikely that the price of this commodity will continue to grind lower until it gets to zero."

    I do not understand why you think there is a correlation between volatility and the direction of movement. Volatility is a directionless variable, all it measures is the relative amount of movement, not the direction. A high volatility commodity like natural gas is just as likely to go up as down, regardless of the value of volatility. You have stated in your article that the fundamentals are against NG, excess production, excess inventory, warm weather, low demand etc., so regardless of volatility, your article suggests NG will continue to drop.
    Feb 9, 2015. 09:47 AM | 4 Likes Like |Link to Comment
  • Why Peabody Is An Attractive Long-Term Bet [View article]
    I don't really understand the fundamental thesis of the author. He cites a variety of statistics showing that seaborne coal growth was negative last year. Then he suggests that increases in consumption in India, not China, will drive consumption higher, thereby increasing prices. There seems to be conflicting statements in the article regarding U.S. coal consumption. There are comments that the reduced cost of natural gas will drive coal consumption down, then there are other comments that electric generation via coal will go back to 40% over the next few years. I really can't understand the author's overall picture.

    Regardless of the amount of coal consumed in the U.S., the author does not demonstrate a causal link between global coal consumption and profitability for Peabody. Other articles in SA have suggested that export of thermal coal from the U.S. is a small market not likely to grow significantly due to port constraints, the high cost of U.S. thermal coal, and the strong dollar. If U.S. consumption of coal remains low by historical standards, and export of U.S. coal is hindered by lack of port and rail capacity, high prices, and strong competition, it is difficult to understand how that makes Peabody a good long term stock.
    Feb 5, 2015. 06:27 PM | 2 Likes Like |Link to Comment
  • The Natural Gas Rebound Will Be Fueled By Low Oil Prices [View article]
    "As we can see from these numbers, most wells are currently not producing at a profit. As a result, many wells are closing."

    I think the author misses the critical detail, pointed out in some of the comments, that wells continue to produce, even at a loss, due to cash flow consideration, and the cost to shut in, and later reopen, a well. The author does not define what he means by "many wells are closing", nor does he substantiate the claim. There are many ways to "close a well", including deliberately not completing a drilled well, stopping production but leaving the pump in place, stopping production and removing the pump, or pumping the well full of grout (permanent closure). If the author wishes to claim that many wells are closing, he needs to define what he means by closure, substantiate where he got his figures from, and demonstrate a connection between closure (as he defines it) and reduced production. Simply counting rigs in the field may have nothing to do with closure of existing wells, it may be related solely to drilling of new wells, or completion of existing wells.
    Feb 5, 2015. 02:50 PM | 9 Likes Like |Link to Comment
  • Natural Gas: Bears Win [View article]
    "However, the lower natural gas goes at this point, the more chance of an eventual recovery."

    I don't understand what you are saying here. You seem to be a fan of momentum theory, or at least some sort of technical analysis (you talk a lot about resistance levels). So isn't it just as reasonable to claim that the lower natural gas goes, the lower it is likely to go (pseudo momentum theory). If your fundamental claim that there is excess gas in the market, not likely to change any time soon, and winter is warmer than normal, what is going to stop the downward slide in pricing?
    Feb 2, 2015. 08:54 AM | 2 Likes Like |Link to Comment
  • Sorry Big Mac, It's Going To Take Plenty More To Change This Company [View article]
    I think the article raises an interesting and important point. No matter how good the history of providing dividends, companies go through periods of growth, periods of retreat, and usually either go bankrupt or get sold eventually. Just check out the list of companies from the New York Stock Exchange from 50 years ago, and ask yourself how many of those companies exist today in the same form.

    So in light of the author's interesting approach to McDonalds, allow me to suggest that many of the other stocks in the listed portfolio have similar issues. Exxon Mobil, Johnson & Johnson, Coca-Cola, Procter & Gamble, AT&T, Chevron, McDonald's, Walgreens Boots Alliance, Apple, General Electric, HCP Inc., Ford, and Conoco Phillips.

    Exxon deals in a currently out of favor commodity (oil), Coca-Cola has an out of favor main product (caffeinated sugary soft drink), AT&T has an out of date business model (weak mobile service), General Electric has not regained its lost luster since it went into the finance business, Ford is selling a product (automobiles) that are out of favor among the critical 20-30 year old demographic. Perhaps the author would consider applying the same razor sharp approach to these other companies that he applied to McDonalds. If so, I would guess that most (perhaps all) of the ones I listed would get sold, perhaps to be repurchased years from now when they get their business model together.
    Jan 31, 2015. 03:26 PM | 2 Likes Like |Link to Comment
  • Natural Gas: A Rebound To 4/MMBtu And Higher Is Not Out Of The Question [View article]
    I am not sure I understand your position. Are you suggesting that the main reason for closing bearish positions is because of market complacency? How do you measure market complacency? And why does market complacency, whatever it is, have any effect on the future price of NG? The rest of your article seems to suggest that natural gas could go up, go down, or stay the same, depending on factors like weather, El Nino, a hurricane, that you don't claim to be able to predict.
    Jan 29, 2015. 06:19 PM | 6 Likes Like |Link to Comment
  • Fuel Cell Industry Shows Potential [View article]
    Thank you for the reply. Please note that kw is a unit of power, not a unit of energy. I am not trying to be picky, but when you state (correctly) that the cost per kw has come down, that is a statement about cost per unit of power, not a statement about cost per unit of energy generated. The two measures are very different.

    For example, the power output per lb of a jet engine is much higher than the power output per lb of a piston engine. That is why jet engines are used, they are lighter than an equivalently powered piston engine. Yet the piston engine is more efficient on an energy basis, since it produces more useful work out of a gallon of fuel than a jet engine. And a piston engine is less costly per lb of thrust than a jet engine. Same argument goes for fuel cells. They can have a relatively high power density, while still remaining poor in energy efficiency. My point in comparing the jet engine vs. piston engine and the fuel cell is that energy efficiency only drives decision making when other considerations are equal. In the case of a fuel cell, if energy efficiency were the only consideration, there would be no market at all for fuel cells.
    Jan 28, 2015. 08:12 PM | 1 Like Like |Link to Comment