Tag - NYSE:COP

The tragedy in Japan points to the negative potential impact of living in the nuclear age: dangerous byproducts from energy production, such as radiation. But it's not just a reactor meltdown in Japan that needs to be monitored - there are also many types of routine waste generated today in the U.S. that need to be properly disposed of.

Income investors are frequently looking for high yield investments in the energy sector, and the master limited partnership (MLP) is one of my favorite structures to help investors meet that goal. An MLP is a common organizational structure for oil and natural gas producers and offers investors a way to reap the benefits of higher energy prices, but without a lot of risk. Perhaps the best reason to consider a master limited partnership is the cash distributions, which are similar to stock dividends. But often the yield is better than what a stock can offer.

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.

Stocks are trying to gain footing this afternoon after a larger-than-expected drop in home sales doused investor hopes that the economy was beginning to recover.

At 2:11 pm ET, the Russell 2000 (NYSE:IWM) is down 1.77% at 462.37, while the Dow is down 0.10% at 7,878.76 and the S&P 500 is down 0.06% at 843.04.

Stronger-than-expected earnings from benchmark Apple (Nasdaq:APPL) were unable to outshine the mood set by poor housing data released today. The National Association of Realtors reported this morning that sales of existing homes dropped 3% to an annual rate of 4.57 million last month.

Despite the bad news, certain small caps are still flying high today. Carrols Restaurant Group (Nasdaq:TAST) is up a whopping 35% after the company beat estimates, while another restaurant small-cap, Famous Dave’s of America, Inc. (Nasdaq:DAVE), is up 30% after seeing a Q1 profit jump.

*****As you know, we are watching oil prices as a measure of economic health. Today, it’s reported that March existing home sales fell by a bigger than expected 3%. And new claims for unemployment benefits rose a bit more than expected.

Consequently, oil prices remain below $50 a barrel.

Conoco-Phillips (NYSE:COP) reported an 80% drop in year-over-year profits for the first quarter. The stock is up because the company still managed to beat earnings expectations.

One interesting note from COP: it’s capital expenditure budget has been cut 37%. That means the company is investing less to bring more supply on line. In the current environment, investing in oil supply is not as rewarding as it was a year ago when oil was trading at north of $100 a barrel. But with global CAPEX spending by oil companies down approximately 17% this year, this is an industry-wide trend that has dire consequences going forward.

*****The International Energy Agency (IEA) reports that as much as 2 million barrels a day of expected new oil supply production isn’t being completed due . . .

Small-cap stocks opened higher, briefly slipped into negative territory, then climbed back to flat levels in the first 30 minutes of trading. Some pressure was linked to disappointment over the lack of a big stimulus announcement out of the G-20 meeting, a decline in worldwide stocks overnight, and a mild rise in Libor rates. However, a better than expected result on industrial production helped limit the initial damage. At 9:58 a.m. ET, the Russell 2000 (NYSE:IWM) was up 0.66, or 0.15%, at 457.19.

The market tumbled to the lowest weekly close on Friday in more than five years, and global equities were modestly lower overnight, keeping the bearish frame of mind intact to start today’s action. Japan said that their economy slipped into an official recession, joining a similar designation out of the eurozone from late last week. This marks the first recession for Japan since 2001. Despite the news, Japan’s stock market was actually up overnight, rising by about 0.7%.

Stock index futures bounced off the lows right before the opening when the industrial production report came in at plus 1.3%, which was better than the forecast for a more tame rise of 0.2%. However, there were downward revisions to the history, which took some of the edge off the good news on production. Earlier this morning, the New York Manufacturing Survey also slightly beat the forecast, but was still at the lowest point in seven years. The big economic news now will be Tuesday’s inflation data on producer prices.

Crude oil prices rallied back into positive territory after being down about $1 a barrel earlier this morning. Energy and commodity stocks have been a big drag on the market in recent weeks, but are oversold. On the individual company front on energy, Warren Buffett increased his stake in ConocoPhillips (NYSE:COP), which could be a supportive psychological factor for not just COP, but other energy names if it stirs “copycat” action. So far, the Buffett fans weren’t that moved by the news; COP was down . . .

Small-cap stocks are expected to open lower, pulled down by reports that Japan has officially entered into a recession for the first time in seven years and by disappointment that the G-20 meeting this weekend didn’t appear to serve up an exciting stimulus package. The world stock index slipped down 0.7%, powered by losses in Europe overnight. Stock index futures were off about 1% ahead of the opening, which would suggest a Russell 2000 (NYSE:IWM) open near 452.50.

Libor rates edged slightly higher overnight and have been correcting up slightly after going down every day for a month. The New York Manufacturing Survey came in at minus 25.4, which was slightly better than the forecast for a loss of 26.1. Still, the number was the worst showing on record (the data series began in July 2001).

On the corporate news front, Citigroup Inc. (NYSE:C) was off about 2% in pre-market trading on media reports that the giant bank plans to slash some 50,000 jobs. Also, tech bellwether Dell Inc. (Nasdaq:DELL) tumbled some 3% in European trading following analyst downgrades. Stocks with potentially bullish tilts include Charles Schwab Corp. (Nasdaq:SCHW) and Amercian Express Co. (NYSE:AXP) which could benefit from a bullish note in Barron’s. Colgate Palmolive Co. (NYSE:CL) received a bullish comment from analysts at Morningstar and ConocoPhillips (NYSE:COP) might get a rise from . . .

Small-cap stocks remained solidly lower into midday trading, pressured by concerns that the latest batch of quarterly earnings were painting a difficult canvass moving toward 2009. Even the bullish earnings surprises seem tainted by worries that a prolonged recession will pull down corporate profitability for some time. At 12:47 p.m. ET, the Russell 2000 (NYSE:IWM) was down 12.71, or 2.39%, at 518.10.

At the lows today, the Russell was testing minor trendline support drawn off the recent lows. That line also forms the bottom edge of a pennant pattern, and a breakdown through today’s lows would suggest further downside probing toward that major low. Below today’s low at 514.42, there is very little chart support until we get close to the “figure” point at 500, which stands as another important test for any bulls who want to find value at the depressed levels.

As for the latest batch of earnings today, there were red flags from nearly every sector, with pharmaceutical firm Merck & Co. (NYSE:MRK) projecting a very cautious outlook. ConocoPhillips (NYSE:COP) was down about 6%, warning that exploration and output would slide and airplane maker The Boeing Co. (NYSE:BA) was down about 6.5% as a strike hurt profits.

The biggest declining sectors this morning came from coal, motorcycle manufacturers, metal and mining stocks, oil and gas drillers, aluminum, gold stocks and casinos. For the second day in a row, commodities were getting nailed as the prospect of global slowing takes a toll on physical markets and the companies that deal in those products. The Commodity Research Bureau Index of 19 physical markets . . .

Stocks managed to climb higher midday after seeing a sell off earlier in the session, as investors digested a slew of economic data and mixed earnings reports.

At 12:45 p.m. ET, the Russell 2000 (NYSE:IWM) had gained 8.44, or 1.19%, at 716.55, while the Dow surged 135.07, or 1.06%, to 12,898.29.

At 10 a.m. ET, the Census Bureau reported new homes sales in March plummeted to an annual rate of 526,000, the lowest level in 16.5 years, sending stocks cascading lower this morning. Sales were below the 585,000 that economists were forecasting and represented a 36.6% plunge from the March 2007 level of 830,000, and a 8.5% slide below the revised February rate of 575,000.

In keeping with the downbeat economic news, durable goods orders for the month of March declined for the third consecutive month, decreasing $0.7 billion or 0.3% to $212.2 billion, the U.S. Census Bureau said this morning. This is the longest succession of decreases since the last recession in 2001.

In contrast, applications for unemployment benefits fell by 33,000 to 342,000 for the week ended April 19, the Census Bureau also reported this morning. It should be noted that the weekly claims figures are often volatile, and even though today’s headline number was better than the forecast, the claims numbers still point to extensive layoffs and a rise in the unemployment rate.

Investors are often blinded by growth, forgetting that intrinsic value is determined by the present value of future cash flows. Some investors consider EBIDTA a reasonable proxy for cash flow, others consider cash flow from operations, and some just use earnings. But why use a proxy, when you can use dividends? After all, your cash flow, not the company's, is what matters.

We think we've found a reliable dividend source in Great Northern Iron Ore Properties (NYSE:GNI), a non-voting trust that owns interests in both mineral and non-mineral lands on the Mesabi Iron Range in northeastern Minnesota.

Great Northern pays virtually all its net income as dividends, a requisite practice among publicly traded trusts. The income is derived form royalties on taconite — an iron-bearing, high-silica flint-like rock that's ground into a fine powder so that the iron ore can be separated by strong magnets. 

Great Northern's royalty income depends on the number of tons of taconite shipped from its properties by its lessees, which include some of the sector's biggest movers and shakers: United States Steel Corporation (NYSE:X), Arcelor-Mittal (NYSE:MT), Cleveland-Cliffs Inc. (NYSE:CLF) and Essar Steel Holdings.

Great Northern is about as pure as a commodity play gets in the steel sector. The company undertakes no value-adding activities and is wholly dependent on the fortunes of its steel-producing customers and their demand for iron ore.

And those fortunes have been in a secular upswing. According to the International Iron and Steel Institute (IISI), world crude steel output reached 1,343.5 million metric tons in 2007, a 7.5% increase over 2006, marking the fifth consecutive . . .

As American consumers continue to feel pain every time they pull up to a gasoline pump, renewable energy remains a popular talking point. The question is when will there be more action than talk, and when will investors in companies making such alternative fuels as ethanol reap a bumper crop of benefits in share price.

Ethanol obviously has grown beyond a fad as an energy source, and Aventine Renewable Energy Holdings Inc. (NYSE: AVR) is one of the biggest producers and marketers in the United States. The company was established in 1981, giving it a marketing strength absent from many of its recently arriving competitors. Little goes to waste at Aventine: while its strength is ethanol, the company also produces and markets biodiesel and such byproducts as corn gluten feed and meal, distillers products, carbon dioxide and brewers’ yeast.  

With plants in its hometown of Pekin, Ill., and another in Aurora, Neb., the company’s annual production capacity is around 207 million gallons. Planning for another plant in Indiana, along the Ohio River, is under way, and will bring the eastern Corn Belt into the company’s domain in late 2008 or early 2009.

Including its marketing alliances, the company marketed and distributed 697 million gallons of ethanol in 2006, or nearly 13% of the total volume sold last year in the United States. Customers include Royal Dutch Shell plc (NYSE: RDS.A), Marathon Oil Corporation’s (NYSE: MRO) Marathon Petroleum, BP plc (NYSE: BP), ConocoPhillips NYSE: COP), Valero Energy Corp. (NYSE: VLO), Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX).

Since its July 2006 initial public stock offering, Aventine Renewable Energy’s shares have fluctuated substantially, following the ebb and flow of negative and positive news reports about alternative fuels. Other than for a few days after its IPO priced at $43, investors haven’t seen the stock trading anywhere near that level, with shares most recently idling in the $13-$16 range. During its first quarter as a public company, Aventine’s board authorized a $50 million share-repurchase plan.

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.

A recent U.S. Supreme Court ruling giving the Environmental Protection Agency authority to regulate green house gases will likely spur further advances in so-called “clean coal” technologies – that is, technologies that remove harmful greenhouse gases created during coal combustion. Two of the most popular clean coal technologies are 1) coal gasification, which involves converting coal to gas using a combination of heat, steam and pressure and stripping carbon from the gas before it is burned, and 2) supercritical technology, which uses extremely high temperatures to burn coal more efficiently and create more power using less coal.

The U.S. Department of Energy hopes to spur large-scale implementation of clean coal technologies by offering companies tax credits to help drive down development and implementation costs. The Bush Administration has authorized more than $1.65 billion in tax credits to support clean coal projects.

Despite the fact that coal-fired power plants are a major source of air pollution in the United States, coal would be a difficult energy source to replace. About 50% of this nation’s electricity is generated by burning coal. Electricity demand, according to the US Department of Energy, is forecast to rise 39% by 2030; coal expected to provide 57% of this electricity.

Coal is a favored energy source because it is both cheap and plentiful. The United States has more than 267 billion tons of coal reserves, about 27% of the world’s total reserves, and produces approximately 1.0 billion tons of coal each year which is used to generate electricity. Without coal to meet its energy needs, the United States would be required to import the equivalent of an additional ten million barrels of oil per day.

Most of the companies working on clean coal technologies are large utilities and integrated energy producers. These include Duke Energy, ConocoPhillips and Royal Dutch Shell. However, there are a handful of smaller energy companies developing clean coal technologies that are poised to reap the benefits of growing demand.