Tag - NYSE:BP

Today we'll look at Helix Energy Solutions Group (NYSE: HLX), a contracting company that provides services to offshore energy companies. Helix Energy Solutions Group isn't a dividend payer like Carbo Ceramics, but it's attractive for an entirely different reason - its services should help get America's deepwater drilling in the Gulf of Mexico back on track following the 2010 oil spill by BP (NYSE: BP).

Welcome back old friend - volatility.

After a massive run in stocks, a day when the major indices all rallied more than one percent, and BP PLC (NYSE: BP) stated it is restoring its dividend, traders are throwing around support and resistance levels on major indices as if they were discussing the weather. And people who work far outside the investment world are joining in as well.

These past two weeks have been incredibly hectic for oil companies.  The biggest oil players all jockeyed for remaining oil scraps - in three separate locations.  I'd be remiss not to mention these oil stories even if there weren't any small cap investment implications - but there are, and I'll get to them in a minute.   

To be brief: 

On March 4, Exxon (NYSE: XOM), Shell (NYSE: RDS) and BP PLC (NYSE: BP) finalized contracts with the Iraqi government to start bringing oil to market from Iraq's massive Rumaila oil fields - the world's third largest. The deal is worth a total of nearly $5 billion per year for these three companies alone.   

Then on March 11 (last Thursday), British oil giant BP completed a deal that will give the company access to some of Brazil's massive offshore oil fields.  These fields were discovered in 2007, and represent some 5 billion to 8 billion barrels of oil. That’s a boatload of oil. In fact, it's the biggest oil discovery in the western hemisphere since 1976. And combined with the growth in Colombia’s oil industry over the last decade, the Brazilian oil fields help to solidify Latin America as a major global player for the indefinite future.   

Investors saw lots of red in today’s trading session as regional manufacturing data suggested that economy is not picking up as much as had been hoped. Most economists had expected gains in the New York Fed’s manufacturing index but were instead treated to numbers indicating that the factory sector shrank at a more severe rate than expected.

A stronger U.S. dollar pulled oil below $70 away from its eight month high.

As of press time, 3:30 P.M. Eastern, the Dow was down -194.75 to 8,604.50; the Nasdaq was down -46.29 to 1,812.51, and the S&P 500 was down -23.25 at 922.96.

The Russell 2000 Index, comprised of the top 2,000 small-cap stocks, was down 16.77 at 510.06.

Bucking the downward trend today was pharma and financials. Two of the top percentage gainers were JazzPharma (Nasdaq:JAZZ) up 69.7% on positive news about it fibromyalgia drug and MAP Pharma (Nasdaq:MAPP) up 11.89%. MAPP has been on a tear since late May when it shot up to $11.39 from $3.15.

Other small-caps showing leadership today include QEP (Nasdaq:QEPC) up 39.07%, Tongxin Intl (Nasdaq:TXICU) up 24.75%, and two financials, American Capital (Nasdaq:ACAS) up 14.67% and New Century Bancorp (Nasdaq:NCBC) up 14.83%.

Small-cap decliners were lead by Oil-Dri Corp. of America (NYSE:ODC) down 23.24% following Friday’s news that it will lose its largest customer in the cat litter retail segment. Other leading decliners include Virgin Mobile USA (NYSE:VM) down 16.98%, book retailer Borders Group (NYSE:BGP) down 13.16%, and Integrated Electrical Services (Nasdaq:IESC) down 17.64%.

*****Summer doesn’t officially start for a few more days. Tell that to the parents who are now getting their kids off to camp or getting ready for vacation. For the standard two-income household, living easy in summertime is just a memory.

Including today, we have just 12 more trading days until the end of June and the end of the second quarter. I suspect we will have seen the highs for stock prices by then. That is, if we haven’t seen them already.

Oil backed off recent highs on Friday. And that’s likely to continue. Oil was too cheap at $33 a barrel. But $73 is too high, at least for now while much of the developed world is still mired in an economic downturn. We know demand is still weak. And we know there are looming supply issues when demand picks back up. However, the issue right now is the economy.

*****Oil has been rallying as the news cycle has been relentlessly optimistic about an imminent economic recovery. In fact, many leading economists expect U.S. GDP to actually grow in the third quarter.

Oil stocks that we’ve been following have been on a tear the market bottom, including Graham Corp. (AMEX:GHM) up 81%; Brigham Exploration (Nasdaq:BEXP) up 239%; Gulfport Energy Corp. (Nasdaq:GPOR) up 326%. Even the majors like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), and ConocoPhillips (NYSE:COP) are bringing investors some decent returns, though not as great as small-cap stocks in the same sector.

Investors have bought the rumor of economic recovery. We’ll see how they respond to the news. I’ll be watching oil as the leading indicator for economic expectations.

Right now, it seems like stock prices have priced in a modest recovery. And if investors perceive that there’s not much upside left for stock prices, it would makes sense to trim exposure, take profits, or however you want to put it.

*****We’ve seen anecdotal evidence that investors are moving funds out of the stocks that have led the market higher. Technology has been having trouble making headway. And we’ve seen strength in healthcare and consumer staple stocks. Plus, the Volatility Index (VIX), which measures the cost of put options (which rise in value as stocks or indices fall, thereby giving investors downside protection) has been on the rise.

This suggests that investors are preparing for a downside move for stock prices, or, at the very least, protecting gains they have made.

*****On Mondays, I’m going to start offering a look at the economic data coming out during the week ahead. This week is a bit unusual as all the economic data is out on Tuesday. Tomorrow we get Housing Starts, Building Permits and the Producer Price Index (PPI).

Of course, consumers will focus on the housing numbers. But I’d expect any numbers will be interpreted with optimism. Investors seem to understand that the bottoming process for the housing market will be volatile and that wild swings in the data should be expected.

In my opinion, the PPI is the one to watch. The U.S. dollar rallied a bit last week, but there’s no doubt that massive Treasury bond sales have investors worried about a weaker dollar the potential for inflation to pick up. Add to that improving retail sales numbers, helped by higher gasoline prices, and you have the potential for a higher-than-expected PPI reading. Needless to say, that would not be good for stocks.

I’ll talk to you tomorrow.

Ian Wyatt

P.S. You’ll recall from Friday’s issue we start sharing charting analysis from TradeMaster’s technical analyst, Jason Cimpl. If you didn’t have a chance to catch, here’s the link. You’ll get his take on this week’s market direction. Since this is a new feature for Daily Profit I’d greatly appreciate receiving any feedback from you on it.

With a high strength-to-weight ratio, titanium may be the element investors need to up the robustness of their holdings.

Rising demand has caused titanium prices to more than double over the past three years and shares of titanium producers have flourished, especially in the case of Dynamic Materials Corporation (Nasdaq:BOOM) and Brush Engineered Materials Inc. (NYSE:BW). These companies meld titanium with less expensive metals to create so-called clad metals offering titanium’s strength and corrosion-resistance at a more affordable price. 

Once thought exotic, titanium is now frequently sought by engineers in the energy, chemical, industrial and electronics industries because stricter emissions standards have forced industry players to raise processing temperatures and use corrosion-resistant metals in equipment designs. In addition to being corrosion-resistant, titanium is as strong as steel, about 45% lighter and offers superior thermal and conductive qualities. Clad metals also allow manufacturers to maintain delivery schedules when titanium is in short supply since less prime metal is used.

Dynamic Materials is the world’s leading provider of explosion-clad metal plating. This process uses an explosive charge to bond metals that can not be joined by welding. Clad metal plates consist of a thin layer of corrosion-resistant metal (such as titanium) bonded with a thicker, less expensive base metal such as carbon steel. Rising capital investment and equipment demand in the energy, refining, mineral processing . . .

Clearly the wind is at the back of alternative energy shares. With electricity prices rising, crude oil soaring and the threat of global warming a near daily headline, the climate is right for companies in the solar business. And why not? Solar energy is inexhaustible, pollution free and helps create local energy independence.

Congress and state governments have become believers; a bill passed by the House this August requires electric utilities to increase the percentage of electricity they produce from renewable resources to 15% by 2020 from 2.75% in 2010. Solar is expected to be a big beneficiary.

In August 2006, California signed into law the "Million Roofs Solar Bill" with the objective of having one million California homes heated and lighted by solar within a decade. By offering economic incentives for installation, the bill aims to increase the use of solar power 30-fold and cut the cost of solar power to consumers in half. By 2011, builders must also make solar panels as accessible of an option for new home buyers as if they were high-end countertops.

With this type of legislative backdrop, the future for solar companies is bright. One of the likely beneficiaries is Ascent Solar Technologies, Inc. (Nasdaq: ASTI).

Ascent was spun-off from ITN Energy Systems in July 2004 and had its IPO in July 2006. ITN, which was founded in 1994 by Dr. Mohar Mistra, a former research whiz at defense contractor Martin Marietta, was created to commercialize innovative technology. Ascent is ITN's forth spin-off.

If you've ever filled up your gas tank, ordered a meal at a fast-food drive-through or even bought a vehicle from an automotive dealership, chances are you have unwittingly contributed to the success of a little-known small cap.
 
The reason: LSI Industries Inc. (Nasdaq: LYTS), based in Cincinnati, Ohio, supplies indoor and outdoor lighting fixtures, signage, menu boards, LED displays, digital billboards and sports screens to the petroleum/convenience store, multi-site retail (including automobile dealerships, restaurants and national chain stores) and the commercial and industrial lighting markets.

LSI's client list reads like a veritable Who's Who in big business: Ford Motor Company (NYSE: F), General Motors Corporation (NYSE: GM), DaimlerChrysler AG (NYSE: DAI), Exxon Mobil Corporation (NYSE: XOM), BP plc (NYSE: BP), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), McDonalds Corp. (NYSE: MCD), Burger King Corporation (NYSE: BKC), Wal-Mart Stores, Inc. (NYSE: WMT), Best Buy Co. Inc. (NYSE: BBY), CVS Pharmacies, Inc. (NYSE: CVS), Target Stores (NYSE: TGT)...the list goes on.

LSI's creations do the seldom-thought-of, but highly important job of providing essential illumination for businesses and strategic visibility for their products and services. Some of the company's more popular specialty designs are custom backlit menu boards, indoor and outdoor signs and graphics, decorative light fixtures, solid-state LED displays, and most recently, digital billboards.
 
Since having its stock downgraded to "sell" from "hold" by Matric USA analyst Daniel Scalzi on June 22 (after which the stock tumbled from more than $18 a share to $16.40), the visual image-solutions company has been lighting up far more than the usual. In late June, following news that the rollout of re-imaging programs by several large clients would boost the company's fourth-quarter and fiscal year results beyond expectations, LSI began grabbing attention, in a good way.

The stock price of Retalix Ltd. (Nasdaq: RTLX), which supplies software for retailers, fuel stations and foodservice organizations, has been rising like the price of gasoline at the beginning of a warm summer season.

Since the beginning of the year, its stock has risen 37%, from about $16 at the end of December to around $22 today. On May 21, Retalix announced earnings that handily beat analysts’ expectations, and the stock was pushed up nearly 8% in two days, from $20.80 to $22.40.

But don’t get too excited yet. Those numbers reflect a partial recovery from a dismal 2006. And a closer look at its most recent earnings statement suggests that it still isn’t fully back in the express lane.

Retalix started out as a supplier of software for point-of-sale (POS) systems for retailers. Its software is used in POS platforms from companies such as International Business Machines Corp. (NYSE: IBM) and NCR Corp. (NYSE: NCR), although those companies also compete with Retalix with their own software. The Israel-based company sells products in more than 50 countries, and is operating in over 16,000 grocery stores in the United States and 42,000 worldwide. Its customers include The Kroger Co. (NYSE: KR), Costco Wholesale Corp. (Nasdaq: COST), Super-Sol Ltd. (Israel’s largest grocery retailer) and BP plc’s (NYSE: BP) chain of gas-and-convenience stores.

A couple years ago, Retalix started expanding into other software solutions for its niche markets. It made a couple acquisitions to move into back-office software to help manage inventories, customer relationships and supplier relationships, among other things. A warehouse management system, for example, is more efficient if it can easily synch up inventory numbers as POS terminals record a new sale.

The company is also helping to bring grocers into the Internet age. A Retalix subsidiary, StoreNext Retail Technologies, provides hosted electronic payment systems to independent grocers. In early May, StoreNext announced a collaboration with Earthlink, Inc. (Nasdaq: ELNK) subsidiary New Edge Networks, allowing StoreNext to resell New Edge’s broadband networking and internet services to North American grocery stores. 

Although much attention has focused on the strong performance of the major oil companies, far less has been reported about a related sector benefiting from rising energy demand - oilfield services providers. These companies provide technologies for drilling wells and boosting production. Demand for their services is cyclically linked to oil industry capital spending, which tends to be less volatile than oil prices.  

Energy prices remain near historic highs in 2007 as a result of global economic growth, rising demand from China and India, supply disruptions and political tensions in parts of Africa and the Middle East and a shortage of refinery capacity. 

High energy prices are fueling record levels of exploration and production spending. British Petroleum will increase capital spending to $18 billion in 2007 and targets annual production growth through 2012.  ExxonMobil increased spending to $20 billion in 2006 and plans to maintain capital spending in that range for several years. Chevron increased capital spending 50% in 2006 to $16.6 billion and plans to increase 2007 spending to $19.6 billion.