Showing posts from May, 2014

IB Net Payout Yields Model

Cutting Spending to the Bone Might Not Be Enough for Cliffs Natural Resources

On news of further cuts to capital spending, it appears that Cliffs Natural Resources ( NYSE: CLF     ) is finally giving up on a turnaround in the primary markets of iron ore and metallurgical coal. Such a capitulation from a market leader is an important step toward reaching a bottom for any commodity. Cliffs Natural Resources has had nothing but negative news lately, with a weak first quarter report and plunging iron ore prices falling below $100 a metric ton. Unfortunately, leading iron ore miner Vale ( NYSE: VALE     ) recently reported some concerning trends that capital spending cuts might not overcome in the short term. Read the full article here . Disclosure: No positions mentioned. Please read disclaimer page for more details.

Sears Holdings: What Investors Are Missing

After another supposedly weak quarter for the company, the stock of Sears Holdings Corporation ( NASDAQ: SHLD     )  had a surprising rebound. The retailer, in the middle of a shift toward online sales and asset spinoffs, had some interesting takes that the typical bearish investor may have missed. Sure the company spent the quarter spinning off Lands End  and this, along with store closures and weak Sears Canada results, sent sales down over the prior-year period. Even worse, adjusted EBITDA declined further in the first quarter to reach a loss of $221 million, compared to a loss of $26 million last year. Despite these numbers and a horrendous domestic retail environment that resulted from weak consumer spending and bad weather, Sears Holdings had some relatively constructive numbers hidden in the details. Read the full article here . Disclosure: Long SHLD. Please read disclaimer page for more details. 

Range Resources Corp: Too Many Hedges?

With natural gas inventories close to decade lows, investors would probably prefer an exploration and production firm with limited hedges to participate in the potential price appreciation of the commodity. It is a double-edged sword to risk production and long-term capital investments without knowing the future price, but in the current market it's undoubtedly disappointing to invest in a firm with extensive hedges at lower prices. Range Resources Corp ( NYSE: RRC     ) is one of the largest and fastest-growing producers in the Marcellus Shale. The company has some of the most prolific wells helping it produce growth in excess of 20%. Unfortunately, the company is heavily hedged and not fully participating in the suddenly higher natural gas prices. It also will not benefit in a meaningful way in future price spikes over the next couple of years. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more detail

Sprouts Farmers Market: Health and Value Driving Profitable Growth

In the very competitive organic and fresh food segment, Sprouts Farmers Market ( NASDAQ: SFM     ) continues to outpace the industry by delivering healthy food at a value to the consumer. While the company doesn't focus as much on the expensive side of organic foods, it is delivering huge growth from pulling in everyday grocery shoppers that don't want the more expensive products from Whole Foods Market ( NASDAQ: WFM     ) Companies in the sector, including The Fresh Market ( NASDAQ: TFM     ) , have all been hit hard recently. At these times, investors need to focus more on the substance of the earning reports and less on the headlines and stock gyrations. Large stock dips can offer attractive entry points. Read full article here . Disclosure: No positions mentioned. Please read the disclaimer page for more details.

Uranerz Energy: Targeting Full Stride At The Right Time

Summary Uranium market headed towards a supply deficit favors companies bringing on production now. Multi-year low stock price provides opportunity for Uranerz Energy. Recent production start offers multi-year growth phase. Uranerz Energy Corporation ( URZ ) makes for an interesting play with uranium prices trading at near decade lows and the company recently starting up initial production. The combination doesn't appear ideal, but some under the surface catalysts suggest a company hitting full stride by 2016 an optimal scenario. The re-start of nuclear operations in Japan provides one of those catalysts for the industry, but many headwinds exist in the short-term that the industry must overcome. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Mosaic Co: Cost Cuts Won't Help

The highly profitable fertilizer business continues to remain under pressure as the thesis is that the supply/demand equation remains challenged. To address its substantially lower earnings during the first quarter,  Mosaic  ( NYSE: MOS     ) rehashed its intent to eliminate 500 positions as part of a long-term plan to cut costs by $500 million. This follows the recently implemented plan by Potash Corp ( NYSE: POT     ) to reduce costs following the crash in potash prices after the Belarusian marketing arrangement between Belarus and Russia broke up. With margins still relatively high in the potash market and the prime additional customers in the emerging markets of China and India unable to afford high prices, one has to wonder if the fundamental growth prospects aren't flawed. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

CenturyLink: Attractive Free Cash Flow Machine

The provider of local data and voice services might have limited growth prospects, but CenturyLink ( NYSE: CTL     ) continues to innovate to maintain high levels of free cash flow, or FCF. The stock has recently surged following strong earnings and vindication that the large stock-buyback plan is paying off. The company is shifting from legacy voice services to strategic products of high-speed Internet, Prism TV, and managed hosting services. The move isn't as much geared toward reinvigorating growth as stabilizing earnings and FCF potential. The other similar local telecom providers of Frontier Communications ( NASDAQ: FTR     ) and Windstream Holdings ( NASDAQ: WIN     ) sit in a similar situation, attempting to trade legacy revenue for new strategic products to maintain cash flow. Are investors starting to warm up to the sustainability of this model? Read the full article here . Disclosure: Long CTL. Please read disclaimer page for more details.

Weatherford International Ltd: Cutting Revenue in Order to Grow Margins

Shares of Weatherford International Ltd ( NYSE: WFT     ) surged to multi-year highs following the news of a solid quarter. The oilfield services firm has long been pressured by disappointing results and struggling operations, but the management team might finally be focused on the right metrics. The key to the turnaround is a focus on improving operations and trimming the fat. Weatherford is in the middle of a cost-cutting program that will eliminate 7,000 employees, though the company suggests that the cut is only eliminating duplicated functions and operations. When complete, the move will save the company $500 million annually. The company's recent results suggest that it is working. Read full article here . Disclosure: Long WFT. Please read the disclaimer page for more details.

Here's Why DISH Network Doesn't Offer Any Value

With the recent buyouts in the video subscriber area, DISH Network ( NASDAQ: DISH     ) becomes a speculative target for other cable and wireless network operators. The second-largest satellite provider offers investors a large subscriber base of 14.1 million and a unique asset, assuming DirecTV ( NASDAQ: DTV     ) consummates the merger with AT&T ( NYSE: T     ) . At the same time, DISH faces tougher competition going forward from a DirecTV, now backed by the bigger AT&T that offers the potential triple play of pay TV, broadband, and wireless services. DISH Network offers a unique asset to the market, whether via an acquisition from a major cable operator or a wireless provider such as Verizon ( NYSE: VZ     ) . In a lot of cases, the integration of a major competitor can leave the independent provider with an advantage of being focused on the target market. Unfortunately, a potential acquirer must overcome some hurdles to justify any deal. Read full ar

Surprisingly Strong Results From Transocean Ltd

For the first quarter, Transocean Ltd ( NYSE: RIG     ) generated earnings that smashed analyst estimates. The offshore driller, which has struggled since the Macondo accident and is plagued with old rigs, put together one of the best quarters in years. For offshore drillers, two key metrics dictate the level of profits: revenue efficiency and fleet utilization. In the case of Transocean, revenue efficiency hit 95.7% to reach the highest level since 2008. Fleet utilization is still struggling at 78%, but the level is high enough to produce huge profits. Read full article here . Disclosure: No positions mentioned. Please read this disclaimer page for more details.

Glu Mobile Inc. Is Real

The recent results of Glu Mobile ( NASDAQ: GLUU     ) suggest the mobile game developer is finally hitting full stride. The company solidly smashed previous guidance for a second straight quarter and now looks more likely to reach its high goals for the rest of the year and into 2015. Possibly more important, the company has turned a profit in the last couple of quarters, proving that the concept can deliver. The mobile game sector has been under pressure due to the weak IPO from King Digital Entertainment ( NYSE: KING     ) . While King Digital and Zynga ( NASDAQ: ZNGA     ) before it were plagued by one-hit wonders that the companies couldn't repeat, Glu Mobile is starting to generate solid repeatable results based on small hit franchises. Read the full article here . Disclosure: long GLUU and ZNGA. Please review the disclaimer page for more details

Here's Why Energy XXI Ltd Has a Lot More Value

Energy XXI Ltd ( NASDAQ: EXXI     ) provides a prime example of how the market doesn't like a company in transition or involved in a high-premium merger. Even with the backdrop of a strong market for energy exploration and production stocks, Energy XXI trades at multi-year lows. The upcoming merger with EPL Oil & Gas ( NYSE: EPL     ) provides the opportunity to exploit several large offshore fields while taking advantage of the seismic capabilities of that company. Read full article here . Disclosure: No positions mentioned. Please read this disclaimer page for more details.

The Buyout by AT&T Could Provide an Opportunity to Sell DirecTV at the Top

After holding a stock for a few years, no better exit opportunity exists than unloading the stock on a buyout with a nice premium. In the case of DirectTV Group ( NASDAQ: DTV     ) , the company's stock has nearly doubled in the last couple of years and the gains are attracting competition. The purchase price of $95 by AT&T ( NYSE: T     ) would provide an ideal exit point from an investment in the leading satellite television provider. Exiting a position is always tricky, especially for one that has worked extremely well. The stock of DirectTV Group traded below $45 as recently as the middle of 2012. With the company's stock now worth nearly $42.5 billion with it trading around $85, it might have peaked... especially with competition heating up from AT&T ( NYSE: T     ) and the recently proposed Comcast ( NASDAQ: CMCSA     )   and Time Warner Cable ( NYSE: TWC     ) merger. Read the full article here . Disclosure: Long DTV and T. Please review

Cabot Oil & Gas Corp Seeking Eagle Ford Expansion Despite Marcellus Potential

Despite prolific Marcellus shale wells detailed in the fourth-quarter earnings review, Cabot Oil & Gas ( NYSE: COG     ) made a recent decision to expand drilling assets in the Eagle Ford. The company continues to face infrastructure and price realization issues in the Marcellus that are impacting short-term investment decisions. In six short years, the company has already reached total production in the Marcellus shale of 1 trillion cubic feet on only 290 wells. Even more interesting, the company has 51 wells in various stages of reaching production, including waiting on pipelines and completions. Based on that data and recent Eagle Ford drilling results, maybe investors shouldn't be surprised by the move to add a rig and capital spending to oil production in that area. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Freeport-McMoRan Copper & Gold Inc Increasing Gulf of Mexico Exposure

Considering the desire to reduce debt, it wasn't a huge surprise that Freeport-McMoRan Copper & Gold ( NYSE: FCX     ) agreed to sell its valued Eagle Ford Shale assets. The slight surprise was the willingness for the company to continue spending large sums in the Gulf of Mexico. With the energy market going shale-crazy, the shift from hot shale assets to out of favor deepwater assets is probably a brilliant move. Not to mention, the assets appear to have similar reserve potential, yet Freeport will net approximately $1.3 billion after tax to repay a portion of its gigantic $20 billion debt load. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Nuverra Environmental Soluionts Inc. Is Stumbling Forward

The first quarter results for Nuverra Environmental Solutions ( NYSE: NES     ) are probably best described as a stumble forward. After a few years of weak results, the stock surged nearly 10% following the release of earnings that were better than feared, but not exactly strong. The environmental solutions provider for the energy sector, built to benefit from the waste disposal of hydraulic fracturing fluids and water, is making noticeable steps in the right direction. The stock, though, is a noticeable laggard in an oilfield services sector generally on fire. Unfortunately for Nuverra, an accident with a large customer's well led to reduced spending that affected an already slow quarter due to severe weather. Read the full article here . Disclosure: Long NES. Please review the disclaimer page for more details. 

WPX Energy Inc: Higher Natural Gas Prices Solve Most Problems

Since its spinoff from Williams Companies ( NYSE: WMB     ) , WPX Energy ( NYSE: WPX     ) has struggled with low natural gas prices and weak production numbers. Surprising to some in the market, the company reported a large first-quarter profit that smashed low estimates even though the company didn't achieve any surprise production numbers. In fact, the production numbers beat forecasts while still showing year-over-year and sequential declines. The results for WPX Energy were solid based on factors beyond the company's control and show how the market is bigger than any management team. Despite the shift of capital spending to oil, WPX Energy still obtains nearly 80% of production from natural gas. Along with a company like Chesapeake Energy ( NYSE: CHK     ) , higher natural gas prices will solve most of the ailments that these companies have faced in the last couple of years. Read the full article here . Disclosure: Long WPX. Please review the disclai

Mosaic Co Earnings Decline and Future Remains Cloudy

The fertilizer industry continues to struggle as the long-term demand thesis is under pressure. Investors are learning the lesson that price matters in the commodity business. In the case of potash fertilizer, the substantial gross margins of the past may never return after to the breakup of the Belarusian marketing arrangement. First quarter earnings for The Mosaic Company ( NYSE: MOS     ) were mostly disappointing, with declining prices for phosphate and potash pushing down operating income. The numbers follow those of PotashCorp ( NYSE: POT     ) , where analysts continue to forecast a substantial drop in earnings for this year. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Zynga Improves Results Predictability

The biggest complaint with the recent IPO of King Digital Entertainment ( NYSE: KING     ) was the inability to predict future revenue streams. In the case of King Digital, the big hit game of Candy Crush Saga fundamentally distorted future results. If the company and industry can't guarantee repeated success, then the market will have a difficult time providing high valuations to the mobile and social game developers. In the case of Zynga ( NASDAQ: ZNGA     ) , new CEO Don Mattrick made the concept of sustainable franchises a cornerstone of his arrival at the large game developer. It mirrors his past experience at Electronic Arts ( NASDAQ: EA     ) , where the focus was on repeatable game franchises that brought in consistent revenue streams in the way of large console hits. The ability to predict mobile and social success is very difficult with the diluted playing field and relatively easy entry. Read the full article here . Disclosure: Long ZNGA. Please

Concho Resources Inc: A Cheap Permian Producer

As the Permian Basin gains attention, investors need to become more acquainted with Concho Resources ( NYSE: CXO     ) . The company is a leading pure-play operator in the basin, producing over 20% production growth and generating solid profits. While the company's stock has surged recently, it is cheap compared to fellow Permian operator Pioneer Natural Resources ( NYSE: PXD     ) . It also offers an important lesson to investors focused on the attention-grabbing companies such as SandRidge Energy ( NYSE: SD     ) . While SandRidge Energy was busy making deals for assets, Concho Resources quietly built up a solid acreage position and is now reaping the rewards of strong production growth. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Did Alpha Natural Resources Inc Really Just Report a Profit?

The coal sector continues to be hammered with declining prices and lower margins, causing some large miners to continuously report losses. In the case of Alpha Natural Resources ( NYSE: ANR     ) , the metallurgical-focused miner is facing lower pricing for the prime coal used to produce steel. Its most recent earnings report showed that the company generated a very shocking profit, however. At first glance, Alpha Natural suggested that the company produced first quarter 2014 revenue of $1.1 billion and adjusted EBITDA of $289 million. Considering the weaker metallurgical coal markets and that the company only made an adjusted EBITDA of $71.4 million in the prior quarter, these numbers seemed off. After quickly reviewing the details, the gains were based on an asset transaction that was clearly too good to be true. Read full article here . Disclosure: Long ANR. Pleas read this disclaimer page for more details.

Facebook Inc's User Metrics Are Discouraging

Facebook ( NASDAQ: FB     ) remains a story of slowing user trends and surging monetization metrics. Wall Street likes to focus on revenue growth and the shift to mobile, but the real story is the peaking user base and limited growth in the developed world. The social media giant now has 1.28 billion monthly active users, or MAUs. But the real issue is the engagement of those users. The news reports continue to suggest lower user engagement, especially in the younger crowds, but the headline numbers from Facebook don't necessarily match the reports. Read full article here . Disclosure: No positions mentioned. Please read disclaimer page for more details.

Yelp: Just Getting Started

Summary International expansion provides growth catalyst. Cohorts nearing 10-years old are still growing in the 60% range. The stock is approaching cheap valuations based on growth prospects. The incredible part of the Yelp ( YELP ) story is the consumer review site is only getting started internationally. During April, the company entered the 26th country in the form of Japan, but it only obtains roughly 3% of revenue from those international locations. Read the full article at Seeking Alpha.  Disclosure: Long YELP. Please review the disclaimer page for more details. 

Yelp: 40% Growth For The Next 6 Years

Interesting analysis from Piper Jaffray senior analyst Gene Munster on Yelp (YELP) . Along with Zillow (Z) , these new-age Internet companies are attracting the business clients. Long-term these businesses could have more staying power than a social media stock that loses the cool factor. Yelp and Zillow provide consumers with real actionable information that is attractive to a business. Disclosure: Long Yelp and Zillow. Please review the disclaimer page for more details.

Freeport-McMoRan Copper & Gold Inc Thriving Despite Indonesia

Considering the lingering issues in Indonesia, the best investors can say about the first-quarter earnings report is that Freeport-McMoRan Copper & Gold ( NYSE: FCX     ) is thriving despite the troubles in that country. The company is facing export bans on about 50% of production at the giant Grasberg mine in Indonesia, but it didn't stop the copper and gold producer from achieving solid income and operating cash flow. Ironically, the company benefits from the reduced copper supply on the markets with mines in North America, South America, and Africa. Even more encouraging and important is that China demand remains robust, and European demand is finally rebounding. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details.