Friday, November 7, 2008


GM and Ford are just basket cases. They are already meeting with Pelosi, requesting yet another 25 billion loan to pay healthcare costs after just receiving a twenty five billion low interest loan from the government to retrofit their plants to make more fuel efficient vehicles. GM reported a loss of $7.35 a share excluding items and further emphasized that it had burned through another 6.9 billion in cash during the quarter. Reuters FORD (F) burned through 7.7 billion in its cash and had a loss of close to 3 billion from its operations.  It is currently trading at $1.88 and I have no interest in it.   The entire company, including the wholly owned Ford Motor Credit which was profitable until this year, has about a 4 billion dollar market capitalization.   It is fortunate for both of these companies, their suppliers and all of their current employees and retirees that the Congress and the Presidency will be controlled by the Democrats next year.  Another raid on the U.S. treasury is probably already in the works. 

S & P did downgrade the ratings of GMAC to CCC, further into junk Reuters. GMAC went big into mortgages with its subsidiary Residential Capital, a horrible mistake, and S & P downgraded that subsidiary to CCC-. GM did unload about half of GMAC on Cereberus Capital, a hedge fund, that also had the brilliance to buy Chrysler. Cerberus Capital Management. One bright spot for Ford is that Ford Motor Credit did not go into the mortgage business. 

My only comment on Citigroup is that it is trading at 11.7, around its level in mid 1996. Why does anyone have even a slight degree of confidence in these banks. If there is a deep hole in the ground, they will find a way to jump head first into it. Then, again, why does anyone put money in these hedge funds, like Cereberus or the ones that put 7 billion into Washington Mutual last April, just to see it go poof in a few months. DealBook - New York Times

In addition to Alon and Valero, I previously mentioned that I had owned Delek. I was impressed with the last quarters earnings report summarized in today's Tennessean. In addition to owning a refinery in Tyler, Texas,  Delek owns the Mapco chain of convenience stores with about five hundred gas stations in the southeast, with about a 20% market share in the Nashville area.  I also read the transcript of the earnings call which I thought was upbeat. Seeking Alpha I would highlight a couple of points. The margins from the refining operation improved as a result of the fall in crude prices. Secondly, the margins from gasoline sales improved  due to the fall in wholesale gas prices and a widening spread between wholesale and retail prices. Delek also said in the conference call that they expected a pick up in demand due to the dramatic fall in the price, notwithstanding the economic slowdown, a point that I believe is a sensible prediction: see 3rd paragraph of my post from October 16th, Refiners: ALJ and VLO  So I just bought 50 shares of Delek as a trade, with a limit order filled at 5, looking and hoping for a double by sometime next year. My last sale was near 11 in mid September, so it was not that long ago that it was selling at my hope for target price now.  The dividend yield at my cost is about 2.5%.  The limit order was placed when the stock was trading at around 5.2 and it looked like it would be trading down today under selling pressure. 

Earnings are estimated at $.9 for 2009. DK: Analyst Estimates Book value is over 9. The P.E.G. ratio over the next five years is estimated at .6 and price to sales is just .06. DK: Key Statistics During the heyday of refiners, the stock peaked at 30 or so  in July 2007 and has been a slide since then, with the fall accelerating from over 10 in mid September to less than 4 a few days ago.  Unlike Alon, it has not rallied on better than expected earnings.  I also read one brokerage report on Delek, and that is from Barclays which rates it as an equal weight with a $10 price target.  The crude price assumptions made in that report, which is critical for a refinery, appears to be high to me.  Delek has not gone into buying refineries like Alon and is more dependent on its retail operations than ALJ.  Like ALJ, most of the stock of Delek is held by its corporate parent, an Israeli company, holding about 75% of the stock, which leaves a float of only 13.26 million shares.   

I did not buy more of Delek due to the market's negative view of the refining business and the fact that I already have exposure to this business by owning Alon and Valero bought just recently. Alon has increased about 50% over my purchase cost.  I also have a list of about 20 small caps that I would like to own, and my recent buys of ALJ, DK and SNTA are just the first three, so I need to leave some room to buy others in different industry sectors. 

 I am not a financial advisor but an individual investor trying to navigate my way through a mind field. In these posts, I am acting as an unpaid financial journalist and an occasional ornery political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.    

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