Out Fox The $treet

This model lost a disappointing 5.8% in March versus a 3.1% gain for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods so the last month was a major exception. Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then. Unfortunately this theory took a major turn in March as investors piled into dividend paying stocks sending most major indices higher while at the same time selling the higher risk, global growth stocks. In some cases, it was just a small reversal of the gains from the last couple of ...

Big news lately on the LNG export front. Yesterday Cheniere Energy Partners (CQP) got approval to begin construction on it's export terminal in Louisiana. Today Sempra Energy signed agreements with 2 major Japanese companies to develop and construct a natural gas liquefaction export facility in Louisiana as well. While another major step towards exporting the abundance of cheap natural gas in the US, it will take until 2016 before the facility would commence operations. With these 2 commercial agreements with Mitsubishi Corporation and Mitsui & Co ., the project would already have 66% of production set for 20 years. Now the question is whether the US government will ultimately allow the export of this natural resource. The answer so far is yes, but what happens in 2014 when the future prices for 2015 and beyond start soaring? The plan involves building 3 liquefaction trains with a total export capability of 12 Mtpa of LNG, or approximately 1.7 Bcf per day. Constructi...

After a bad 2011, this year got off to a fantastic start with the model seeing a 25% gain in January easily outperforming the 4.4% gain for the S&P500. The model spent most of the month accumulating cheap stocks in order to take advantage of the market rallying against the proverbial 'wall of worry'. January was an interesting month with stocks rising even in the face of what appeared like continued negative news out of Europe. With the continued focus on Greece, most investors stayed out of the stock market and missed that yields on Italian and Spanish bonds saw dramatic declines. The ability to isolate the problems to Greece and Portugal to a lessor extent were a big relief to a market pricing in a European blowup in December. In addition, the decline in emerging markets inflation was a big benefit to the under performing stock class in the new year. Specifically fast growing countries like China and India saw multi year lows in inflation rates allowing monetary polic...

After a strong 2009 and 2010, 2011 was a year to forget for this portfolio. The market hit highs around the end of April and this model was soaring to new heights at the time. Many of the holdings had valuations nowhere near the 2007/08 peaks or even close to what would normally be considered rich. Regardless, leverage was reduced since some gains were significant. Then, unfortunately most of the stocks collapsed and even in a few cases approached 2009 lows. With too much leverage left, the model was hit very hard. The good news is that valuations started the year as attractive as during the financial collapse of 2009. 2012 Outlook Portfolio Construction The portfolio remains overweight on the global growth theme. Most of the stocks in this sector trade as if emerging markets are headed towards a recession instead of continued growth. The biggest challenge to our investment strategy in 2011 was the major inflation fears in emerging markets like China, India, and Brazil. As 201...

Earnings results for Flour (FLR) and Foster Wheeler (FWLT) were less than stellar last week after horrible numbers for McDermott (MDR) the previous week. Looking into the details for at least FLR and FWLT the numbers weren't as bad as first glance. Revenues have been increasing since the lows in 2010 and order expectations remain strong for 2012. Not to mention FLR reported a record backlog. For this sector, it really comes down to global growth expectations and confidence. Everybody knows that demand will exist in the future has power demands continue to grow. The question is when companies will move forward with large multi billion dollar projects. Projects that will utilize any existing over capacity in the industry there by pushing up margins. Even though margins are not overly robust both FLR and FWLT have great balance sheets that allow for strong share repurchase programs. FWLT has reduced the float by 8M and FLR by 5M in the last 12 months so shareholders are getting ...

The best thing about the 3rd quarter is that it finally ended. The global growth stocks in this model were absolutely crushed while large cap dividend stocks held up much better than in 2008. This led the model to seriously underperform the benchmark. The good news is that many stocks in the model such as Alpha Natural Resources (ANR), Foster Wheeler (FWLT), Hartford Financial (HIG), and Terex (TEX) reached levels similar and as attractive as the 2009 lows. Considering most of the companies have seen little to no impact from the financial crisis in Europe, the sell off was unwarranted. The bad news is that risk still remains that the European Union will be unable to solve the crisis before it implodes or that China's economy might have a much feared hard landing. A good chance exists that the market has already priced in either outcomes. Being that the model remains highly leveraged in order to take advantage of the cheap valuations, the risk of more downside can not be ignored...

On Saturday, Dow (DOW) and Saudi Aramco signed the Joint Venture agreement to create Sadara Chemical company. Sadara will be a $20B project comprised of 26 manufacturing untis, several of which constitute "mega projects". The complex will be one of the largest integrated chemical facilities and the largest ever built in one single phase.  The plan is for the facility to take advantage of the cheap feedstock from Aramco and combine that with DOWs chemical expertise. Also, it will take advantage of cheap labor in Saudia Arabia.  This project was originally discussed in 2007, but eventually delayed due to the financial crisis.  It should be a boon for Engineering & Construction companies such as Flour (FLR) and possibly other like Jacob's Engineering (JEC) and Foster Wheeler (FWLT). FLR already has $1.9B contract for connecting all the utilities for the complex, but all companies in the sector will benefit as the project soaks up industry capacity.  ...

The Opportunistic Levered (Arbitrage on Covestor.com) model had another rough month. The model was again hit by fraud concerns among Chinese companies and emerging markets stocks fell due to concerns over inflation pulling down growth. Over the 29 months of tracking this model, it has had numerous months of 10% plus swings. Unfortunately some cases were to the downside. In those cases the stock holdings just got more attractive in the process. Even with China fraud scares, the three stocks owned in this model still appear to be worth more than our original purchase prices not to mention multiples of that. The size of declines in some of the stocks in this model caught us off guard. It didn't surprise us that June was weak, but the level of weakness in several sectors such as industrials and emerging markets such as China caught us off guard. Bottom Performers The bottom performers were again lead by the China stocks in the model. ChinaCache International (CCIH) and Lihua Int...

This is the third in a series of articles on the performance of stock sectors since the financial crisis. The first article focused on  steel producers  while the second article was on  women's apparel . As with the first two articles, the goal is review a sector where stock prices remain drastically depressed from highs seen prior to the financial crisis back in 2006-2008. In some cases, this might be a sign that the sector was just overvalued back then and hence the current price is deserved. In other cases, this might signal that the sector has plenty of room for recovery especially if the global economy gets over the current soft patch. Read the full article at Seeking Alpha .  Disclosure: Long FWLT in client and personal accounts. Please review the disclaimer page for more details. This information is provided for informational purposes and should not be relied upon as investment advice. 

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.

The market continues to prove that it's forward looking. Before the market opened, Foster Wheeler (FWLT) reported a decent revenue and profit miss. So is the stock down 5, 10 or even 20%? Actually NO! FWLT is up over 5% today. Naturally helped by the huge rally in the overall markets today. How could a company that just reported another disappointing quarter have such a bright day? Actually pretty easy. First, they announced a re initiation of the stock buyback program and a Q3 purchase of 4.3M shares for nearly $100M. Combine that with $500M more in the pipeline and only a $3.2B market cap this adds up to nearly 20% of the float. Second, the company announced that they've signed 2 major deals in the first part of Q4 and see a further pick up in orders. For a company like FWLT, orders typically trump current period earnings as proxies for the stock price. Another issue was the recent departure of the CEO. The stock initially sold off following the announcement of his depart...

Coventry Health Care (CVH), Teradyne (TER), Foster Wheeler (FWLT) The market has become increasingly technically driven making investment decisions based on fundamentals virtually worthless. Too many investors feel the fundamentals could collapse with a double dip just as they did in 2008. As I wrote in a previous entry [Coventry Health Ups Guidance - Stock Limps Higher], even a company showing fundamental improvements is ignored by the market. CVH trades at a 7 PE multiple which in normal environments would be 2-3x higher. James Altucher published a piece in the Wall Street Journal highlighting 7 reasons why the SP500 could hit 1,500. Nearly a 40% gain from the current levels. He highlighted several reasons regarding the strength in corporate profits something that is historically important to stock prices. When the market stabilizes, profits will once again become important so its key to understand where the market could go based on current projections. Corporate Profits at Record H...

In the wake of the of the Goldman Sachs (GS) fraud case, Stone Fox capital decided to use the opportunity to unload the remaining shares in the UltraShort Russell (TWM). It just doesn't pay to hold these ultrashort shares and we don't see the fallout from a 2007 fraud case being long lasting. The case may gather steam and cause more damage then I expect, but we'll stay tuned next week. We added back to the Foster Wheeler (FWLT) shares that we sold for the Growth and Hedged Growth Portfolios last month and started a new position for the Opportunistic Portfolio. Technically FWLT is in a position to breakout with the 20ema crossing the 200ema and we like the future prospects for infrastructure growth. Asia and the Middle East (OPEC) should be ramping up now that world growth is flourishing. Best of all, FWLT is still considerably below the $80 high they hit in 2008. On the earnings front, FWLT made $3.73 in 2008 and they likely will retest those levels by 2012. The estimate fo...

Considering that oil has traded in the $80s range for months now, it shouldn't be that surprising that OPEC would revive projects shut down in 2008-2009. Apparently ever project is now moving forward though that wasn't conveyed by Foster Wheeler (FWLT) and other energy engineering firms in their Q4 reports. Maybe its a sign that we'll see some awards in the next 6 months. Today OPEC announced that some 150 projects are now moving forward to increase annual production by 12M barrels by 2030. Of those projects, some 35 were canceled/delayed and have now been restarted (other reports suggested that 135 projects were delayed). Either way the E&C firms should see higher order rates in the near future if true. Another big issue during the crisis was financing and I'd expect with oil maintaining at these levels that will soon disappear as an issue as well. Members of Opec, the oil exporters’ group, have revived the oil projects they put on hold when oil prices collapsed t...

In order to raise some cash for the Growth and Hedged Growth Portfolios we sold roughly 50% of our positions in both Gafisa (GFA) and Foster Wheeler (FWLT). Both stocks have traded weak of late with GFA dropping below its 20 & 50 EMAs and FWLT being unable to get above the 20EMA even with such a strong tape. Long term though we still like the macro situation for both stocks. Short term we let the charts tell us that the action might turn bearish. GFA is doing an offering next week so that explains the weakness on that stock. With FWLT, its difficult to see why it remains so weak. The news seems bullish and it continues to trade at much cheaper levels then a competitor like Jacobs Engineering (JEC). Foster Wheeler ( FWLT ) estimate changed at Barclays. FWLT 2011 EPS estimates introduced at $2.50, 2010 maintained at $2.30. Reiterate Overweight rating and $38 price target.

After the SP500 touched just below the 200EMA at 1046, Stone Fox Capital used the roughly 7% cash we had accoummulated from selling US Steel (X) a few weeks back to become fully invested. The portfolio has only $4500 left in cash so we'll likely look to trim a few positions on a solid bounce in the market next week. A huge oversold market (at one point down 4.7% in less then 2 days) creates a great entry point for adding to positions. Added to our positions in some extremely oversold stocks such as Foster Wheeler (FWLT), Terex (TEX), Puda Coal (PUDA), Phoenix Companies (PNX), and to a couple of stocks still in strong positions Local.com (LOCM) and Terremark Worldwide (TMRK). Most of these stocks will likely bounce the hightest, but if they stall at key technical levels on the way up that will trigger selling these purchases. Some charts like FWLT, TEX, and PNX are clearly broken. They all have 14 day RSI sub 30 and CCIs in the -160 range. For example, TEX has been down 14 of the l...

Interesting timing by Goldman Sachs (GS) considering FWLT has nearly doubled over the last couple of months and we've already noted that its broken above key technical levels in early August when it burst above $23. Possibly time to take some profits knowing how these upgrades work. Long term though FWLT is likely to benefit big time from the push for LNG in Australia. The Gorgon Project is a huge. Stone Fox is still betting that FWLT returns to old highs in the $70s so the $41 target is meaningless especially from a company that watched the stock bounce from $23 to $34 recently without uttering a word. Foster Wheeler ( FWLT Quote ) upgraded at Goldman from Neutral to Buy. Company trades at a reasonable valuation and has leverage to Australia LNG growth. $41 price target.

With the $31+ close, FWLT has officially broken out. Nice analyst call with a $35 target and a contract in Poland. FWLT remains one of our favorite plays as the developing world continues to need new energy power generation and construction projects. We look for FWLT to easily surpass that target this year with huge projects in Australia, Middle East, and Asia to be awarded now that the global economy is back growing.

Pakistan has initiated a plan to increase oil and gas investments from $1B to $3B a year or a total of $15B over the next 5 years. This is yet another example of the projects in the works for upgrading the oil and gas infrastructure of the world that has long been neglected. Its also a sign that countries with high growth need more access to oil. Pakistan currently only meets 60% of the energy demands of its 166M citizens (yes it is the 6th largest populated country in the world) with demand expanding by 5% each year. That bill can be dramaticaly decreased if they can expand oil production. What amazes me is that most of the investments will be off the coast of Pakistan (not sure I knew they had a coast). This is very bullish for a deepwater driller like Atwoods (ATW) and possible a infrastructure builder like Foster Wheeler. It isn't really clear where the money will be spent or whether they'll even get the outside investments considering the lack of stability in the country....

A manager of close to $100B moves into overweight on commodities. AMP Capital moves into commodities b/c of the strength in China according to Bloomberg . Surprising that they are making the move into copper and oil after 50% runs. We agree that these sectors will be a great place to invest over the next 3-5 years. Just more proof that a lot big money has completely missed these runs. Freeport (FCX), Foster Wheeler (FWLT), Atwoods (ATW), and Alpha Natural Resources (ANR) are our favorite plays on the commodity boom. 2010 could be the first in a while that both China and the US show growth in the demand for copper. This at a time that gobal supplies have shrunk due to the recession with some $200B in projects delayed. More from AMP: AMP Capital Investors, which manages close to $100 billion, is plowing cash into commodities on expectation demand will strengthen with a China-led recovery in the global economy. The company yesterday switched from an “underweight” allocation in commodi...