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Showing posts from March, 2011

Factbox On Average Offshore Rig Age

Interesting stats from Reuters on the average age of offshore oil and gas drilling rigs. Its interesting because a lot has been made of the recent order boom for offshore rigs. Looking at the below data though it suggests that new rigs are very much needed. Seadrill (SDRL) is the only company in the list with an average age below 15. Now I'm sure the rigs for Diamond Offshore (DO) still do a good job, but rigs that are over 30 years old surely can't compete with new modern rigs.

Atwoods Oceanics (ATW) has been a favorite of Stone Fox Capital for a while. The company has recently gone on a building spree [see Atwoods Oceanics Is Drilling for New Rigs]. The company has 6 new rigs on order which is impressive considering the company only has 9 ships now.

The industry clearly has an issue with aging fleets. SDRL has some appeal as an investment though they are heavily indebted.  For now we'll remain focused on the investment in ATW and sleep much better knowing the building of…

Barron's Analyst Roundup on Cephalon Buyout

Barron's has a good summary of the Cephalon (CEPH) buyout announcement from yesterday. What's interesting and has kept us in the stock is that Valeant Pharma (VRX) traded up 12.8% today. This is unheard of for the bidder in a hostile deal to increase especially that dramatically. Apparently the market thinks the deal is very cheap with the analyst from Hapoalim Securities speculating on a significant increase in the bid of up to $86.

Several of the analysts increased their targets on VRX suggesting that the cost savings and ability to borrow low cost debt makes this deal very appealing. The $300M in savings would be incredible for a $5.7B deal and essentially covers all of the interest payments.

All of this points to a likely bump in the bid assuming the BOD at CEPH doesn't out right block the deal. An offer potentially in the $80s would likely be deemed attractive. It will keep us around for a while. Eventually though the potential upside might be limited and risk greatly…

Cephalon Gets $73 Proposal, Valeant Pharma May Find Additional Value

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Interesting news after the bell today on Cephalon (CEPH). Valeant Pharma (VRX) went public with a $73 all cash offer to buy CEPH. The deal would be valued at $5.7B and represents a roughly 25% premium from the closing price. Naturally VRX claims a 29% increase from the 30 day trading average, but going back the last year CEPH recently traded at 52 week lows. Shareholders are likely happy to see an offer with the stock swooning of late, but anybody holding the stock for most of the year sure expected a higher valuation and isn't exactly happy.

The claims by VRX are normal of hostile bids suggesting that the management of CEPH has done everything to prevent this deal even going so far as to make several acquisitions themselves in order to block the deal. Possibly valid, but this isn't a scorching high valuation.

CEPH is a key holding in our Opportunistic funds, but honestly the investment has been slightly disappointing having a loss on the investment until this announcement. CE…

Home Depot Issues Debt To Buy Stock

Home Depot (HD) announced after the close yesterday that they would issue $2B in debt to refinance $1B of senior notes and to accelerate a repurchase $1B of outstanding shares. Typically we're big fans of stock buybacks and place a major emphasis on stock re purchasers via the Net Payout Yields folio. Issuing debt though to repurchase shares aren't as attractive. Its the use of free cash flow and cash on hand that makes a stock appealing not debt. When a company can afford a large percentage buyback, then it clearly signals that the market likely misunderstands a stocks future.

HD has been one of the top investments in the NPY folio for a while since they have a nice 2.8% dividend combined with a history of strong buybacks. The company has already announced the intention to buyback $2.5B of stock this year placing the buyback yield at roughly 4% for this $61B market cap stock. Combined with the dividend, HD has a NPY of nearly 7% making them very attractive.

This debt enhanced…

Capitalized Corporate Profits Model

As corporate profits continue to hit all time highs, thought it was time again to review market valuations. While most investors expect higher year end stock valuations, most only expect modest gains from current levels because the market has run to fast since the March 2009 lows. As we've said on the this blog for the last couple of years, its not wise to use that panic low as a basis for historical measurements and average returns. The market collapsed like never before and should also rebound in a like manner.

The SP500 is still considerably below its October 2007 high even though corporate profits have already surpassed those levels. Of course, valuing a market in the vacuum of a single data point can be dangerous. This is why the capitalized profits model factors in the 10-year Treasury Yield to calculate the estimated market valuation. Naturally lower rates should mean higher valuations as stocks become more attractive then bonds.

Ironically from the chart below, the SP500 h…

Invest Like a Wolf or a Fox

Never heard of Michael Purves of BGC Financial, but I like his concept of trading like a wolf. I'd go for fox instead of wolf, but thats besides the point. His best quote is "you have to be agile and short-term and cannot just sit on stocks and hope". Now I don't agree as much with the short term concept, but I'm in full agreement with the concept of not just buying a stock and hoping. If the reason for buying a stock changes, then dump it. Thats the whole theory of being opportunistic. Unfortunately too many of these traders have zero focus on the damage short term trades can have when the tax man cometh.

Now the Breakout Crew at Yahoo is interesting. First time to watch their work and I'm amazed to see Jeff Macke appear again. He of the famous melt down on CNBC. Jeff appears to remain very negative and seems to be chomping at the bit to short this market. Nothing has changed even since the bottom.

Watch if you've got a few minutest to waste....



Dicks's Sporting Goods Eyes Store In My Area

After years of being an investor in Dick's Sporting Goods (DKS) and not being able to shop there since they aren't located in Oklahoma, it appears they are finally looking at a location in Broken Arrow just down from my office. They've owned the Golf Galaxy store in Tulsa for a while now, but this will be the first Dick's store within several hundred miles.

According to the Tulsa World, BA approved a $900K tax rebate incentive for a store at the Shops at Broken Arrow site. The deal would give Dick's a $90K sales tax rebate for 10 years. Seems like quite the deal for a strong retailer like DKS.

From a competition stand point, this location is ideal with BA having a population of close to 100K with zero access to big league sporting goods store. Not to mention any stores in Tulsa like Academy and Sports Authority are very far away. And of course they aren't much competition anyway. The store would also be within a mile of the largest high school in the state.

Hop…

China Cache Looking to Breakout

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While the US tech sector its a rough patch, some Chinese tech stocks like China Cache (CCIH) are looking very bullish technically. Networking stocks like F5 Networks (FFIV) and Riverbed Tech (RVBD) along with just about all of the optical equipment stocks and even the US CDN leader Akamai (AKAM) have fallen below the 200ema. Typically this is a very bearish sign especially if the 20/50emas dip below the 200 as well.

CCIH on the other hand has regained the 20/50ema. The 200ema isn't active yet since the company hasn't been public that long.

CCIH is the leading CDN provider in China, but has dropped dramatically from its post IPO high near $35 all the way back in November. Along with the general weakness in the Chinese market that started back then, they also faced the scare that the COO leaving signaled internal issues at the company. Based on the Q4 results those issues were put to rest and the stock has been basing since then.

From looking at the chart below it appears that i…

Are Banks' Net Payout Yields Attractive Now?

Pre financial crisis, banks provided some of the most consistent dividends, but the crisis for the most part wiped out the money returned to shareholders. Even the better banking stocks like JPMorgan (JPM) only maintained small dividends of $0.20 or 0.4% on an annual basis. Basically just enough to claim they pay a dividend and not much more. Buybacks were all but outlawed by the regulators.

On Friday, the market got news from some of the large banks that the government will allow them to start returning capital to shareholders. Considering our focus on Net Payout Yields (combination of dividends and net stock buybacks) we wanted to analyze the forecasted payouts of the top banks to see which ones will now be at attractive yields. 




See the rest of the article at Seeking Alpha.

Cisco Systems Ups Net Payout Yield With First Dividend

Today Cisco Systems (CSCO) announced its first dividend payment on April 20th to shareholders of record as of the close of March 31st. While the $0.06 quarterly or $0.24 annual dividend yields only 1.4% it does add to an already sizeable buyback program that yields over 5%. In total shareholders will get a over  6% returned to them via the combination of buybacks and dividends.

With over $25B in cash and massive annual cash flows, CSCO should be able to easily handle these payouts and as long as the stock remains below $20 the yields will be huge.

CSCO clearly has a lot of issues with their products and margins, but every stock has a value point and this might just be the spot. At least as long as the yield remains this attractive.

Via CSCO PR:
A quarterly dividend of $0.06 per common share will be paid on April 20, 2011, to all shareholders of record as of the close of business on March 31, 2011. Future dividends will be subject to Board approval."As the role of the network expan…

King Coal!

With the nuclear crisis in Japan, it's become very clear that coal will remain the King fuel of the developed world and maybe even the emerging world as even China delays its nuclear program. Considering the Opportunistic portfolios managed by Stone Fox has a heavy does of coal investments this is good news. Even if the reason for the gain is because of such a horrible tragedy.

Sadly, though nuclear has many benefits it can be a very unstable fuel option. Sure coal has likely killed more people especially in the underground mining and even via the pollution caused by the burning of the material, but it never causes mass panic of a major catastrophe. With coal, the only people that really face daily danger are the miners. People supposedly paid for taking that risk and fulling understanding the danger whether they can find other employment or if that is the only option in the area. With radiation though, whole cities can be destroyed and even though a major catastrophe hasn't h…

Fear of Radiation Exposure Overdone

At least that is what most experts continue to report. Market keeps getting crushed despite most of the experts downplaying all the risks on radiation. Use your own judgement on the risk of a radiation crisis in Japan, but the risks seem a lot lower then the panic on the street. Naturally I wouldn't want to hang around within 50 miles of the Fukushima plant and take even a 5% risk, but that doesn't mean investors should flee stocks.

Whats absurd today is the market swooned on reports from a EU energy minister called the situations a 'catastrophe'. Though he was only throwing in his conjecture of the whole situation the market took it to mean a radiation catastrophe was just starting. Now we're hearing news that the Japanese utility has just about got a new power line to the location that could hopefully turn the cooling system back on.

The new remains fluid, but the Chernobyl situation doesn't appear on the table and if so stocks are very cheap. Watch the Tech …

Out Fox The $treet

Introducing the new blog name.... Out Fox The $treet (outfoxthestreet.com). Obviously the blog name goes along with the 'Fox' concept of the firm, Stone Fox Capital Advisors, ran by Mark Holder. The blog will continue to have the same general information but will now separate the advisory functions from the blog posts that are provided for general information only and should never be used as investment advise.

Some of the reasons for choosing Out Fox The $treet. It was partially chosen because it just works with the firm name. Mainly though it highlights the concept of investing better by not being part of the herd that is Wall Street. Small independent firms or just individuals willing to do the work can easily outperform the larger mutual funds or hedge funds. For one, small amounts of money can be easily invested and also you have less corporate restrictions and decision makers hampering the quick decisions needed on Wall Street.

A couple of points from Wikipedia that highl…

4 Top Net Payout Yield Stocks

Most investors continue to focus on high dividend yielding stocks paying very little attention to stock buybacks. Unless you're a retiree living completely on fixed income, it's a mistake to not focus on the complete picture of returns of capital to shareholders. The combination of stock buybacks and dividends or Net Payout Yields (NPY) has offered higher returns in the past.

Buybacks can be a more efficient return of capital to shareholders as it reduces the tax burden of investors.....


Read the rest of the article at SeekingAlpha




Disclosure: Long WLP, GPS, and MHS. Please review the disclaimer statement.

New Website

Finally took the time to create a professional website to separate from the blog format I've used for a while now. The website should be up any minute now assuming I've reset all the domain information and published it correctly. Which is probably a stretch.

The blog will remain the same format, but I will be rolling out a new name for it as well. Stay tuned...


www.stonefoxcapital.com

Total Yield of the SP500

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On this blog I don't spend much time focusing on Net Payout Yields and the model developed to mimic this concept. By its very nature the model is very conservative and hassle free as it completely focuses on what companies do with their excess cash. Hence its typically not as exciting as discussing the investments in the more aggressive opportunistic models.

If a company pays out a large percentage of the market cap in dividends or stock buybacks, then the portfolio invests in that company. Just a few restrictions exist such as the company having a market cap in excess of $10B (at least for the Covestor model) and with manager discretion high debt companies will be excluded. In the future, I'll try to highlight the NPY stocks and better explain the concept.

Its a very attractive conservative investment option. To me, its a sleep well at night investment. The stocks in this portfolio are by nature large and financially strong. Then, due to the dividends and buybacks, they provi…

Don't Expect a Market Correction Anytime This Year or Next

As the two year anniversary of this bull market that started in March 2009 has come and gone, it's time to actually review some of the facts surrounding typical bull markets. From listening to numerous media reports yesterday, its common place for analysts and hosts to spew out information without researching the past.

From this Bloomberg article, numerous real facts about the market were revealed. It's also revealing that alot of the players that called the bottom remain bullish and alot of the cronies that called for a further correction are still bearish. Sometimes it makes you wonder if any of the so called bears had any real insight other then a broken clock is correct twice a day. It also makes me wonder if we'll say the same about the bulls down the road.

Clearly a two year rally without a 20% correction seems impressive and sounds like a very long time. At least thats what you get from the typical media. But is it really all that impressive? According to research, …

Radware CEO on TheStreet.com

Radware (RDWR) is a recent addition to the Opportunistic models. Being at the juncture of network speed and security makes them a very intriguing investment. Also, the stock tends to trade at a reasonable to discount to growth and the tech sector in general. Not to mention the major catch phrase 'cloud computing'.

Check out this interview with the CEO on theStreet.com.







Disclosure: Long RDWR. Please read disclaimer page. 

Significant Upside Potential at Lihua International

Early this morning, Lihua International (LIWA) officially reported Q4 earnings. The results were not much of a surprise after having preannounced on the 6th. The company reported sales growth of 164% for the quarter and 129% for the year. The company reported a whopping $.45 in earnings yet the stock trades sub $12.

The company currently forecasts $53M in net income for 2011 or roughly $1.8 per share. The key though is that the company tends to underestimate earnings on a routine basis and they clearly point out a couple of drivers to higher earnings. First, the projections only forecast one quarter of sales from its new copper recycling facility. Second, the company is not assuming any reduction in costs of goods sold if they receive the importers' license.

Both items will contribute to significant growth in 2012 earnings so the question really remains a mute point on whether 2011 garners more benefits. The importers' license will allow them to source scrap copper from intern…

Investment Report - March 2011: Net Payout Yields

February was a disappointing month for this model on a relative basis as it underperformed the SP500 (1.88% versus 3.2%). Large caps in general continue to struggle as the market works its way upwards. Other then a few losing positions, the model mostly lacked the big gainers to keep up with the market.

Trades
For a second consecutive month, no trades were made in this model. This is very normal for this model as transactions are limited to reduce costs and realized capital gains. Though it is expected that some transactions will me made over the next few months to move out of positions where stock gains have reduced dividend yields and buybacks have declined significantly.

Top Performers
Walt Disney (DIS) was the top performers in February with a 12.5% gain. DIS is a prime example of a stock where the yield has continued to fall making them less attractive to this model.

Wellpoint (WLP) had the second largest gain of 7%. This move was not surprising as they've consistent bought bac…

Dick's Sporting Goods Continues to Shine

Another quarter and another solid report from Dick's Sporting Goods (DKS). DKS has to be one of the best run retailers in the world. They continually take market share in a fragmented sporting goods market that has mainly weak competitors. This trend should continue for years.

For Q4, DKS reported earnings of $0.76 after forecasting roughly $0.70 on the Q3 report. They achieve this growth mostly by seeing 9% comp sales growth gained mostly from an 8.6% increase at Dick's Sporting Goods stores and a whopping 36% increase in e-commerce. As they continue to gain market share, its possible that the e-commerce site becomes the go to destination with a preference for in store returns to a superior retailer.

See the rest of the story at Seeking Alpha.


Disclosure: Long DKS. Please review disclaimer page.

Investment Report - March 2011: Opportunistic Levered

After a disappointing January, February was a welcome return to outperforming the market. The model returned 6.17% versus the 3.2% of the SP500. The market remained strong even in the face of Middle East turmoil and continuous calls that the market is overbought. Certainly the returns have been strong since the beginning of September, but a review of the first year of this model and market has only gained roughly 20% over that time period. While thats a great return for the 13 month life of this model, it isn't anything excessive considering the massive market drop during the financial crisis. Also investors need to consider that corporate profits are returning to the peak levels of 2007 all while the SP500 is still some 250 points below the all time high of 1,576. In that context the market appears cheap and has plenty of room to run.

Definitely cognizant that the market needs a breather or even a minor 5% or so correction. Though market participants need to understand that a 10%…

Fushi Copperweld Going Private Could Be Huge for Chinese Equity Valuations

At first glance, it might not appear that a small Chinese manufacturer of copper wire for various industries would be that crucial to the Chinese small cap sector as a whole. The key is that the Co-CEO has made an offer to take the company private for $11.50, or roughly 20% above current prices. It could open the door to higher valuations in the sector as a whole, or maybe similar transactions across the sector as management grows increasingly tired of dealing with US investors that think every Chinese company is a scam.
Read the whole article at Seeking Alpha
Some of the comments on this article lead me to that a couple of other going private deals have been proposed. The more interesting is China Security and Surveillance (CSR). Something else worth following to see if the completion of these deals drives more investors into these stocks that offer extreme valuation. Hard to see these companies as fraud if somebody is willing to pony up $400M. 

Disclosure: Long LIWA. Please read discl…

Foster Wheeler Call Volume Surges

Interesting note on Foster Wheeler today. According to Bloomberg, call volume at noon on FWLT hit 10,400 which is nearly 4x normal average.

Now the report suggests this has something to do with a contract won in Abu Dhabi. This seems like non-sense as the deal doesn't seem like anything exceptional (FWLT didn't list the value). Mainly though the majority of the calls bought today were for March '11 in the $38-40 range suggesting that some investors expect a significant increase in prices.

Though one needs to consider that the average option price of $.25 means the investor isn't heavily invested.

High option volumes can be a good indicator of something big in the works or just a huge headfake. Time will tell on this one.

Investors Fleeing Emerging Markets

Emerging markets stocks have been a major theme of the Opportunistic portfolios at Stone Fox Capital so I'm actually pleased to see investors fleeing emerging market stocks. Weak emerging market performance has reduced portfolio performance over the last 2-3 months, but it also provides opportunity for picking up long term growth stocks on the cheap.

According to this AP report, EPFR Global reported that investors pulled $5.45B out of emerging market funds during just the second week of February alone. Yes, thats correct. It only took a few scary moments in the Middle East and some high inflation for investors to jump ship.

Emerging markets have long been a traders market as investors jump in and out depending on the market direction. Oddly though, these markets provide a lot more long term growth and hence investors should be buying the dips in a lot of these markets. That doesn't appear to be the case though as I wrote yesterday about how the Chinese market has perked up thi…

China Markets Heating Up

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Don't look now, but the China markets have been heating up the last 40 days. After a significant selloff following the highs back you November, the market had completely left China for the dead. That was clearly the wrong move.

Lately it appears that China has been able to slow down its economy with PMI reporting the lowest total in the last 6 months over night.

The Shanghai Composite is on the verge of  a significant breakout if 2,950 can be broken soon. A run back at the 3,150 high made back in November is the likely target. So while financial professionals are overly focused on the US markets and the Middle East, the lack of focus on the economy that leads the world these days has taken off.

In that regard, our investments in China commodity plays like Puda Coal (PUDA) and Lihua International (LIWA) should perform well. Also, the recent purchase of ChinaCache (CCIH) appears ultimately timely a few weeks back. At the time CCIH was trading in very oversold levels, since the stock…