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Latest Comments23 Comments
Atlas Pipeline: Call Option on Oil
I should have listened to my own good advice. And, I am holding as you get paid a very big yield and it looks like they won't go bust.
Did you look at the GP (AHD)? I think you can get a bigger bang on dividend increases owning that rather than the LP. But again, it is difficult to analyze.
On Nov 26 01:03 PM Tim Plaehn wrote:
> Skip in CA, I do think your analysis is correct. APL is a complicated
> company that has a lot of moving parts. I still believe that increasing
> energy prices will bail them out. The stock price has a lot of upside
> if the scenario works out. If energy prices stay low I think they
> will struggle.
Atlas Pipeline: Call Option on Oil
I think you have missed a key point. I spoke with the company a week ago to try to understand how they do, in fact, generate revenues. It is more complex than it looks. You are right, they do make most of their GP on the sale of NGL's.
However, the key point is that the correlation between the price of NGL's and the price of oil has broken down. The company got in trouble a few months ago as a result. They hedged their NGL's using crude oil as a proxy. However, oil went up (remember?) and NGL's did not so the company was underwater, had to break the hedges right at the peak oil price and raise $200M to pay off the hedges.
As I understand it, NGL prices remain low as a result of 2 things: 1) the hurricanes badly damaged several gulf coast refineries so they are unable take NGL's. This has driven down the price substantially. 2) there has been a general drop in the demand for the refinery products made with NGL's due to the economy. So even when the refineries get fixed there is no guaranty that demand for NGL's will pick up.
The next point is that one should understand that NGL's are hard to hedge out much past 6-9 months. So the company remains exposed to price fluctuations on NGL's gong forward.
My final point is that I have to admit I screwed up here big time buying this company. I bought the stock (not a big position) and I did not fully understand how the company generates its GPM or revenues and what the risks were. My Bad! It is VERY complicated to figure that out with APL. You have to know how much NGL's they generate from the gas they buy and/or transport. You have to know the price of NG as they have to buy NG in some contracts to offset the amount of NGL's they strip out. You have to know how much volume they transport for each of the 3 types of contracts they use. You have to know the price of NGL's. Lastly, you have to know how much they have hedged, at what price and what contracts they apply to. It is a very complex algorithm.
In conclusion, APL is not a proxy for oil price increases at all. It is a proxy for NGL's. It is also a proxy for NG pricing as they make more money when NG prices are high. They get a % of the proceeds. And, it is a proxy for how well they have hedged. If I were doing it again, I would buy Energy Transfer, a big pipeline that makes its money from tolls fees, not the sale of NGL's or I would buy E&P MLP's that produce oil, gas and to a lesser extent NGL's and just sell them. No complex stripping out NGL's and replacing with NG.
Has GE Capital Stopped Lending Entirely?
Is American Express Worth the Risk?
Hope this explanation helps
On Nov 13 07:48 PM tshk1221 wrote:
> Well, the interesting point is that the Oracle has been keeping this
> company very long time. Probably, his long-term holding of this company
> is because he knows that this company has proven survival skills
> accumulated for the last 50 years or more. Even if this financial
> crisis is directly hitting this company right now, I don't see this
> company will die soon. Price is very ok. However, fundamentally,
> there is a big issue for this company. Retained earnings are shrinking
> every year from 2005 to 2007. It is depleting retained earnings due
> to hefty interest rate costs it relies on for credit card lending.
> A real bad sign..ExxonMobil and Chevron's retained earnings are growing
> 15% - 20% every year. One thing this company must achieve to attract
> strong attention from real, long-term value investors..Investment
> in this company now could be very risky in consideration of its risky
> business nature, uncertain future as bank holding company and shrinking
> retained earnings, but, as you know, greatest return comes from greatest
> uncertainty.
AmEx Taps the TARP; Not the Same AmEx Buffett Bought
- how bad can the write off rate go? It went to 10% (now roughly 6.5%) in '91. That is the big known that can really affect value. I doubt it will go to 100%. There most recent vintages of receivables have the lowest credit scores so that is where the problems are likely to arise.
- yes, rich people spending will go down, likely more than most people project but it won't go to 0.
- securitization gains will go down as well
BUT:
- the company's liquidity problems seem to be addressed with TARP and becoming a bank holding company
- it is still a fantastic franchise head and shoulders better than dealing with MC/V bank people and the rewards are far better.
- times will return to normal and the company will earn and grow at normalized levels
- it is selling at historical lows.
CONCLUSION
Watch the write off situation carefully. Wait for normalacy to return to the credit markets. You may miss the bottom, but there is a lot of upside here.
Linn Energy: Walk the Line
A Stock the Average Joe Can Understand: The St. Joe Co.
Corporate Bond Market Grinding to a Halt
I also assume they are having trouble issuing commercial paper. What is the effect of that.
Wells Fargo Sham Revealed
Thanks for you comments. According to my calculations, the increase in dividend of $.03 per quater cost the company about $397million per year in additional capital. That is about 0.8% of their total capital. That does not sound like much to me. $397 is about 20% of the $2.0B sub debt they just raised. Therefore, I think the author has a point that they are paying from one pocket and putting it back into another. But if I were running the bank and knew for certain my loan and investment portfolio was in good share I would keep up with the long history of dividend increases. It is not like this was a special dividend or out of line. If you take a look at the 2Q08 cash flow statement you will see that they cut back share repurchases to $500M from $2B in the first 6 mos. That had the effect of leaving $1.5B in equity in the company. So all in all, I just don't see this as being a big deal let alone a sham.
On to another point. I have to admit that I sold WFC a while back at $31. I still hold USB. I just got nervous about WFC having such a big position in home equity loans, car loans and credit cards. I don't think we have seen the end of home price declines in CA nor the bottom of consumer pain. Your comments on the loan quality?
15 Value Hedge Funds - Portfolio Update
You should do some further research on whether Buffett sold COP. I saw another post that he, in fact, got an expemption from the SEC to not report is position in that stock. Therefore, it simply droppped from the list and not sold. Given that COP is pretty cheap compared to the rest and that he and Gates were up in Canada looking at oil sands, it seems unlikely that he just punched out of this position in one quarter
The Long Case for American Express
AXP is the largest card issuer in the world based on total billed business. It billed $181B in 2Q08. The next largest was Citi at $106B (1Q08). That is 71% more than its closest competitor. They have about 24% of total US purchase volume. Discount revenue was up in 2Q08 by 8.7% YOY and their average discount rate was 2.56%. I am pretty sure that is significantly higher than V or MC. (Let me know if you have that stat) You did not mention their superior rewards program that they can afford through their higher rate that locks in customers. Also, Basic cards in force grew 11% (7% US, 17% non US). Their average FICO at acquisition in 1Q08 was 733 charge, 750 credit. This company produces a great ROE of 35% in normal times and they expect to grow EPS 12-15% per year again in normal times. Their earnings declined 36% this quarter. But all in all, this is a great world wide franchise producing great returns with shareholder oriented management and is not going to go away.
The big issue right now is increasing credit losses on their LOAN portfolio. As you point out their CC receivables are showing higher wirte offs but it is not that bad. It is their loan portfolio of $49.7B ($77B including their OBS securitization) that has blown their credit models and incured a 141% increase in 2Q08 YOY. And the company has said they can't predict where it will stop.
So how bad can it get? Looking at a historical chart provieded in their 2/08 presentation, Net Write Offs went as high as 10% in '91 and dropped to around 7% the following year. It reached 7% 2 more times in '98 and '02. It looks like it averages around 4.1%. AXP would make the case that they are better at credit evaluation now. Who knows? Their charge off rate in 2Q08 was 6.7% on a managed basis or $827M on a loan portfolio of $49.7B. This write off rate and the related provisioning caused them to lose money in their US card business for the quarter. So if their write off rate increased to 10% over the next 12 months, that would be an additional $416M in expense per quarter on top of the $827M. I assume the loss provisioning ultimately equals the write offs. While not good at all, the company would still make money. Pretax earnings for this depressed quarter were $766M.
Bottom line - this is a well run company with a very powerful worldwide brand that produces great returns on capital. It is going through a significantly difficult time. Like with all financial companies you never know how bad it will be until its over. But 12-18 months of below target performance does not kill the company. The stock is trading at depressed levels. At $36 per share it is around 15-16x depressed earnings. If you look out 3-5 years and assume the company will be earning what it did in '07 it is trading at 10.6x. Their model is not broken. The stock is cheap.
Winners and Losers from the Mortgage Mess
Wells Fargo Lays Bear Trap on Wall Street
Investing in Dividend Paying Companies
1. Mr Okie - I believe your math is a little off this morining. Generating a 430% gain over ten years is NOT equal to 4% annually. If you got 4% annually on $100 for 10 years you would have $40, assuming no compounding. Using a HP17B calculator to compute the future value of $100 compounding annually at 4% you would have a future value of $148. (n=10, i=4%,pv=-100, pmt=0).
To get a FV of 430% of your initial investment, your IRR would be 15.7%, not 4%. That is a very good return, especially considering that it is exclusive of dividend reinvestment. (n=10, pv=-100, pmt=0, fv=430)
2. GM should be deleted from the list. They just announced a suspension of their dividend.
It is getting bad out there!
Are American Companies Now Up For Grabs?
Come On!!!! The US has spent away a lot of its capital for years. So what if a beer company is bought by a European company? It will work itself out