Saturday, December 26, 2009

Bought 100 MRO at 31.68/Took Tax Loss-BAC Common shares/Zions WPCS SYY/Japanese Yen

1. Bought 100 Marathon Oil at $31.68 Thursday (see Disclaimer) Kurt Wulff calculated the net present value of MRO at $53 recently in a Seeking Alpha article. Cramer referred to MRO as the best oil company in the U.S. now on Wednesday, (12/3/09) -- Seeking Alpha. The analyst reports that I recently viewed are a mixed bag. Morningstar has it rated 4 stars with a $44 fair value. S & P also has MRO rated at 4 stars with a $38 price target. Barclays believes Exxon and Chevron are better values and MRO is rated equal weight with a $33 price target.

The dividend yield for MRO at my cost is around 3%. Looking at a five year price chart, the stock price peaked at close to $62 in May 2007 and bottomed in February near $23. MRO Stock Charts Based on the data at Marketwatch, the consensus estimate for 2010 is $3.47, which would give MRO a forward P/E of 9.11 or so assuming of course that estimate turned into a fact next year. Analyst Estimates for Marathon Oil Corp The data at Reuters has the 2010 number slightly higher at $3.57. There can be huge swings at MRO based on refining margins and the prices realized from oil and natural gas sales. As a result, MRO earned from continuing operations last quarter $.55 compared to $2.82 in the year ago quarter. form10q2009sept30.htm
The current price is near MRO's book value.

Marathon has finished recently an upgrade to its refinery in Garyville Louisiana, making it the fourth largest in the U.S. Part of the recent problems are tied to its refining operations. Garyville Refinery Expansion Production has increased in 2009 for the first three quarters by about 11% compared to last year. Marathon is anticipating 6% production growth in 2010: Marathon to grow production by 6% in 2010 - MarketWatch

A lot of the negativity surrounding Marathon now has to do with its large refining operation. An article in the NYTimes last Wednesday points out the already well known problems in the American refining industry, and I would not want to downplay some of the negative factors. But, I would not be looking primarily in the rear view mirror, as that NYT columnist. Instead, I would tend to be more focused about the future since the negative news seems to be priced into the refining stocks. Several refineries have been shuttered in the U.S. and gasoline demand has been weak due to the recession. If 2010 shapes up a positive one for the economy, distillate demand could perk up, improving margins provided the input costs for refiners do not take off again, meaning the prices for crude. Some of the positive factors are discussed in this video previously linked in my discussion about Valero: Top 2010 Stocks: VLO

2. Goldman Sachs: For the sake of argument and to avoid a charge of engaging in hyperbole, I will postulate the hypothetical existence of an investment banker who is interested in furthering the interests of their client, and who will not place their own personal greed ahead of the client's interest. My only point would be why would anyone trust an investment banker.

The article in Wednesday's edition of NYT is just the last salvo that undermines trust in the Masters of Disaster, who are after all on a singular mission to advance their personal interests to the exclusion of all matters. It should not be surprising that the Masters of Disaster will throw their clients under the train when so many of them even wrecked their own firms in furtherance of their personal greed. I have previously linked some of the articles in The Reckoning series that goes into more detail. I thought that I would just link the article with the firm in this post:

But there are literally thousands of examples over the past decade. Never before in the history of civilization has so many been paid such outrageous sums to do so much harm and perform so miserably.

The most recent disclosure in the NYT was how Goldman and others packaged the toxic CDOs sold to their clients in such a way as to improve Goldman's profits in betting against those securities sold to its customers. One thing that is always fascinating to me is that the customers keep coming back for more, must be some kind of sadistic or masochistic streak, or maybe those customers have a total inability to learn from past experience.

One basic characteristic of a Master of Disaster is the ability to land on their feet after blowing something up, like the world's economic system. You almost have to respect that ability. It must be nice to become filthy rich, never be held accountable for the disasters created by your actions, and to be able to walk away nonchalantly allowing others to pay for the consequences of your actions.

Headknocker is not bitter, really, maybe he sounds a tad weary since a lot of what happened during the 2002 to 2007 period reminds him of the corrupt business practices of the S & L wheeler dealers who precipitated the recession in 1990-1991 and required a massive government bailout. HK has seen this picture many times before, the plots and endings are basically the same, but the names do change. Most of the S & L perpetrators kept their booty, and the taxpayers paid about 130 billion dollars to clean up their messes, with a total cost of one-half trillion according to the G.A.O. In today's dollars, the cost of the S & L bailout would be about 250 billion to the taxpayers. US Banker

LB was just grateful to the Masters of Disaster for giving it an opportunity to work in real time on its trading rules, the ones for a disaster phase of a bear market. Maybe HK is used to cleaning up other people's messes. But, he is becoming weary of Uncle Ben's Jihad against the savers and other responsible persons in the U.S.

3. Sold BAC common for a TAX Loss (see disclaimer): At least our new HT obeyed the Headknocker and sold a position to take a tax loss which will offset some of the gains realized in 2009. I may buy back some of the BAC shares after waiting more than 30 days to avoid the wash sale rule. I have previously discussed that I view holding BAC throughout 2008 to be my worse mistake on an individual security for that year. /Bank of America BAC Raising Capital & Another Way the Past Finds a Way to Live in the Present-MJH Purchase and Baggage from the Past Once I made the mistake on the common, I was not inclined to buy other securities issued by BAC when they became attractively priced, such as MJH. As explained in that last linked post, I only bought 50 shares of MJH at $7.51, rather than say 200 shares, because I did not want more exposure to, or losses from Bank of America. So, I lost the opportunity of gaining more with MJH, which subsequently rose to $21.8 as of Thursday's close, and is paying me almost 25% per year until 2026. Buy of 50 MJH at $7.51 So I lost some of that opportunity due to the baggage that I was carrying from the past that day and I still have my loss in the BAC common. Best to move on, since this is depressing to even remember. I did extract some value from the common by selling some shares and thereby reduced my 2009 tax bill. I do not have any carry forward losses, and I had book already a lot of short term gains in 2009.

4. Zions and ZBPRA: Zions announced the other day the results for its offer to exchange common stock for ZBPRA: Zions Bancorporation Announces Preliminary Results of Its Series A Preferred Stock Exchange Offer This was Zions second attempt in 2009 to "redeem" the ZBPRA on the cheap. Zions reported that 51.29% of the ZBPRA was tendered for exchange into the common. Zions issued 2,816,834 shares of common stock for this floating rate equity preferred stock, representing about 1.96% of its common stock outstanding as of 11/30. I still own my 100 shares of ZBPRA bought at $7.8. This will result in an approximate 70 million bump in Zions tangible common equity. Zions In that last linked article, David George, an analyst at Robert W. Baird Company, commented that Zions still needed to raise 450 to 650 million in capital. I have seen several estimates in that range. So far, Zions has resisted selling a large amount of common stock at one time, preferring to do it in dribbles. Of the original 240 million face value of ZBPRA outstanding, only 70 million remains as Zions successfully reduced the amount outstanding on the cheap. I recently did an analysis of ZBPRA compared to ZBPRC, another equity preferred issue from Zions: Analysis of Prior Question: ZBPRA vs. ZBPRC OR ZBPRB/

5. Drinking Water: I was not exactly reassured by a NYT article about the safety of tap water in the U.S. The article points out that the EPA only regulates 91 potential contaminants in drinking water. There are hundreds of contaminants which are not regulated that could potentially be hazardous, especially when consumed over long periods of time. I personally do not trust the government to act in the best interests of its citizens. I would look at W's claims justifying the Iraq invasion in the same skeptical manner as I would view the EPA's assertions about the safety of tap water. So, for water, I will filter tap water used for drinking, hoping to remove some contaminants and have for years. HK is too cheap to buy bottled water. And since the LB does not permit the consumption of alcohol, and HK is too cheap to drink many soft drinks, about 98% of the liquid refreshments consumed consists of tap water.

6. WPCS International (WPCS)( owned Lottery Ticket category): This one has not done well since I bought it at $3.53: Bought 50 WPCS as LT/Bought 50 PSEC/ Sold 100 VIMC at $3.53/Bought 50 of the Floaters USBPRH & BMLPRH/ Sold 100 GJK at $24.6/Sold a Mutual Fund in IRA WPCS reported earnings for its fiscal 2010 2nd quarter of five cents and revenues of 24.3 million. The company reaffirmed 2010 earnings guidance in a range of $.31 to $.34. The backlog at the end of the quarter was 28 million, and its bids for contracts "increased substantially to $245 million which is an indication" of a more robust level of activity according to the WPCS CEO. WPCS Reports FY2010 Second Quarter At the end of October, the company had 8.511 million in cash and no debt. WPCS is a mini micro cap with a market cap at the current price of $2.76 of about 19 million. Price to book is .32 and price to sales is .18. WPCS: Key Statistics for WPCS International Incorporated WPCS' fiscal year ends in April. The one analyst who covers the firm estimates FY 2011 earnings at .49, WPCS: Analyst Estimates for WPCS It probably did not help that Merriman downgraded WPCS from buy to neutral after this earnings release. StreetInsider

7. Sysco (SYY) (owned): Morningstar has a favorable article about Sysco after attending an analyst day. The focus is on how SYY has improved efficiency and lowered operating costs during the recession. I am in a long term holding pattern with the shares bought at $19.46 in March. Buys of CPB LQD SYY XKK This stock has historically had excellent dividend growth: Item # 4 Sysco

8. Japanese Yen: I can at least understand why the Australian and Canadian dollars have increased in value against the U.S. dollar since March. I simply scratch my head when looking at the strength of the Yen and the Euro. I thought that this article made an interesting bearish case for the Yen. Japan's Titanic The currency ETF for the Japanese Yen, FXY, rose from around $100 in early March to $115 on 11/30: CRNCYSHRS JPN YEN TR ETF Chart To an untrained eye, and I certainly have no training in technical analysis, this chart looks like a double top formation, with the 115 level previously providing resistance in mid-December 2008 (closed at 114.61 0n 12/17/08 FXY) Once FXY hit 115.40 intraday on 11/30/09 (FXY: Historical Prices), it quickly retreated to its closing price last Thursday of $108.32. I currently do not have a position in the Yen, though I did consider buying the double short ETF for the Yen when FXY approached 115.

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