by Steve McDonald, Bond Strategist, The Oxford Club
Friday, March 1, 2013
In focus today; an emerging natural gas leader (NYSE:WPX), Blackberry (Nasdaq: BBRY) and the SITFA.
Natural gas is the primary fuel source of the future and it will dominant the energy sector for the next 50 years. The massive reserves here at home guarantee it will replace crude oil and the export potential for liquefied natural gas is limitless.
To get your share of this one you must own exploration and development gas companies. But in an industry that is currently plagued with low prices for their product, and high drilling costs, picking a winner can be a daunting task.
One E&P company, WPX Energy, is showing all the signs of a front-runner and is selling at bargain basement prices compared to its peers.
WPX is a top-10 natural gas producer with properties in three of the biggest natural gas and gas liquids shale areas, and 79% of its production is natural gas. It isn’t a pure gas play, it’s but very close.
But the big story here is cost cutting. In the Marcellus shale area WPX’s costs have already fallen 30% in the September quarter, their Bakken production costs are expected to drop another 16%. Management expects to take out another $117 million in costs this year and $88 million next year.
Margins are expected to rise to 10.6% in 2014 from 4.99% this year. Earnings estimates are calling for a loss of $.58 this year. But, Ryan Todd of Deutsche Bank sees earnings rising $.23 per share this year and $.93 per share in 2014, which equates to a loss of $.51 compared to a street estimate of a negative $.58. Todd’s has a 12 month price target of $19 per share from the current $14.90.
Another catalyst for the stock price would be the sale of two non-core properties that are a drag on profitability; APCO oil and gas and a coalbed methane company. The sale of either could bump up margins even more.
Add up cost reductions on drilling, their reserves and the fact that WPX, based on their proven reserves, is selling at a 40% discount to its peers; it looks like a front runner to me.
Energy is up there with food and medicine as an essential and gas is the energy source of this century. This one is for the patient investor. Get in early and sit tight.
There’s a link below that has information about another big gas play. Take a look at it.
Can Blackberry 10 Save Blackberry?
Next up, Blackberry (Nasdaq: BBRY).
I’m not usually a tech stock person, but this one caught my eye.
Sales of the new Blackberry 10 are reported to be much better than early estimates and the glowing reports about the ease of use, compared to Apple’s touch screen, and size comparisons are making BBRY a hot return player in tech.
While BBRY is not for those consumers who are interested in the trendier apps, it has a solid following that refuses to give it up for another platform and it is finding new converts with this new system.
With the launch of the 10 model BBRY is now selling its top end phones at a profit. They had previously sold them at a small loss to boost sales. The margins are expected to be as high 30% on shipments in 2013.
Sales have been very strong so far in Canada, the UK, and the UAE’s have sold out of their current stock. While this doesn’t mean we will necessarily see a huge shift away from other manufacturers, it is good a sign of a positive shift toward BBRY.
MarketWatch also reported a huge new opportunity for Blackberry with the big three in mobile service; AT&T (NYSE:T), Verizon (NYSE: VZ) and the big Asian player, China Mobile (NYSE: CHL). Apple (Nasdaq: AAPL) and Samsung (OTC: SSNLF) have dominated in this area so far but all three of the mega providers are looking for ways to reduce their dependence on them.
According to Seeking Alpha, one big indication of a possible shift away from Apple and toward Blackberry is Apple’s insistence that the big three pay for their advertising and replacement costs of phones. BBRY could make this work to their advantage in a very big way.
The New 10 model is not scheduled for launch in the U.S. until March, but early indications are it will be a winner and a game changer for BBRY.
Take a look at the link below. It has some great information about the tech sector and an essential product that will be used in all tablets, phones, PC’s and laptops. This crosses the entire tech world and is a must read.
SITFA: Congressional Edition
I had to do this one. I couldn’t help myself.
These may seem obvious at this point but bear with me.
Did you know our congress has:
- Run up a $16.5 trillion debt.
- Is expected to run that up to an impossible $22 trillion in the next four years.
- Has squandered tax dollars through gross mismanagement and run up a trillion dollar a year deficit.
- Shows no signs of changing anything about how they do things…
And this same congress has 56 separate programs that are supposed to teach financial literacy.
This sounds like a joke I know, but it isn’t. 56!
A group that can’t grasp that a trillion-dollars-a-year-in-the-hole is a problem and they’re setting up programs to teach financial literacy.
What does it take to get these guys out of office? If this gets any stupider I may not be able to laugh about it any longer. I guess we’ll see.
For the presentation I discuss about a lucrative play on natural gas, click here.
For more information on the breakthrough in technology I mentioned above, click here.