Table of Contents
Leaps Trader Commentary
The solid string of gains in the price of oil has done wonders for our portfolio. While not everyone is back into the green we did make significant progress. Unfortunately our OIX hedge against a potential decline in oil prices was severely beaten. Down on one, up on 14, I have no complaints. I checked the volume on the OIX puts and only 5 traded by Wednesday and I was two of them. That means I was nearly alone in that hedge. This time it worked out in your favor!
I outlined the factors pushing oil prices higher in the Option Investor commentary this weekend. Those are Iran, rising gasoline demand and refinery problems. I also outlined the growing danger of increasing inventory levels in crude as we near the mid point in the summer vacation cycle. After July 4th we should see a moderate decline in demand until we near the Labor Day holiday. I believe we will see a sharp correction in oil prices well before that date unless Iran does something stupid or we get a string of hurricanes headed into the gulf.
For this reason I am refraining from adding any further energy plays to the portfolio. We will take any further gains from existing positions and then stop out when the decline begins. We will then reload with 2008 LEAPS on the Aug/Sept dip. I am going to average down on my OIX hedge on any weakness. OIX 626 is strong resistance and the index closed at 618 on Friday.
Oil and gas inventory levels have been postponed until next Friday from their regular Wednesday schedule. I expect a drop in gasoline and refinery utilization due to the oil spill in the Gulf. This should send prices even higher and we will snug up our stops.
Natural gas saw a +66 BCF injection into storage giving us a total of 2,542 BCF in storage. That is 618 BCF or +32.1% above the five-year average and +409 BCF over last years levels. It is so high that storage facilities may put off buying additional gas in hopes of finding cheaper prices at a later date. If storage facilities slow their buying the pressure will build in the pipelines and higher pressure slows injections into the pipeline at the well sites. Some producers faced with falling prices may restrict production in hopes of getting higher prices later in the year. December gas futures are still over $9.50 and producers could hedge into this contract depending on production capacity and prior hedges. This entire scenario is bearish for gas prices and we could see prices well under $6 very soon. The industry is holding their breath hoping for some hot weather to drive up demand. The wet weather in the northeast has slowed demand from that region. Falling gas prices will eventually hurt oil prices since they trade on a BTU equivalency.
I believe gas prices would have already imploded were it not for the fear of another hurricane in the gulf. The damage to gas supplies in 2005 was substantial and gas prices in 2006 are still trading with a fear premium. At present there are no tropical storms on the horizon in the NOAA forecast. For a summer that was slated to produce an abundance of storms the weather in the gulf has been rather tame.
Combine the natural gas glut with the growing inventories of crude oil and it is a clear picture of trouble brewing. We have nine energy positions including 3 coal and we have no gas positions. We will need to manage these positions wisely over the next several weeks.
I am keeping it short this week due to the holiday. Next week should be boring unless oil prices crack or Iran explodes. The Iran problem should escalate on Wednesday if they fail to meet the new deadline with a response. How it will impact oil depends on how many comments Iranian officials make about oil as a weapon. Meanwhile oil prices appear ready to test the old highs. It is amazing how geopolitical conditions can offset short-term fundamentals. Start putting your stops in place so you can sleep peacefully and have a happy 4th!
December Crude Oil Futures Chart - Daily
December Natural Gas Futures
Chart - Daily
Changes in Portfolio
Portfolio Listing & Top Picks
Most Recent Plays
OIX - $617.69 - Oil Index Portfolio Hedge
No Change in play. I am personally going to average down with an OIX print at 610. I do believe we will see a sharp drop in oil prices before the September contract expiration on the OIX.
The CBOE Oil Index consists of 11 energy stocks of primarily integrated oils. The index reacts sharply to changes in the price of oil and gas.
The focus of this play is to hedge our current energy positions against a decline in oil prices as the summer draws to a close. Each reader will have to decide how many contracts needed to hedge their current positions. You do not want to be moving in and out of the OIX position given the relatively wide bid/ask spread.
A drop to $540 should double the premium paid and a drop to $500 should produce a $50 premium or $5000 per contract. At our entry price of $12.00 or $1200 that represents $3800 profit per contract. That would hedge several of our current positions very easily.
Sept $550 Put OIX-UJ @ $12.00, no stop.
WLT - $57.65 - Walter Industries ** Stop Loss $49.50 **
No change in play other than new stop. Nice gain of nearly +$10 put us up +45% in only a week. Mueller Water Products (MWA), a spinoff of Walter was added to the Russell indexes on Friday after a +20% gain since the announcement.
Walter Industries is a diversified holding company that owns among other things 700 million tons of high quality low sulphur metallurgical coal. The company has a market cap of $2.1 billion, which includes $1.2 billion in stock of MWA a recent spinoff of their water products company. That values the rest of WLT at barely $900 million or less than half of the value of the rest of their enterprises not counting their coal asset. I heard an analyst preaching the merits of WLT in June and after doing some research I have to agree. The company posted a +84% increase in earnings in Q1 and a jump in revenue from $366 million to $753 million. Very few companies can boast of those numbers. They expect to post earnings of $5.65 for the year in 2006. Walter coal is one of the highest quality, low-vol coking coals in the world. It is sold to major buyers in Europe and South America for about $115 per ton FOB Mobile Alabama. Do the math, 700 million tons x $115 = $80 billion. That is very nice insurance of strong income potential for a long time to come.
WLT was hammered by the recent sell off and by a drop caused when Muller Water (MWA) IPOed on May 30th. The spinoff of a business segment always devalues the parent company but coupled with the May correction this dip is overdone. Decent support just below at $45 and very string support at $40.
Walter Industries, Inc. (Walter) is a diversified company with seven operating segments: Mueller, Anvil, Industrial Products, Natural Resources, Homebuilding, Financing and Other. The Company's seven segments are further grouped into Water Products, Natural Resources, Homebuilding and Financing, and Other. The Water Products group, which consists of Mueller (WMA), Anvil and Industrial Products segments, manufactures water infrastructure and flow control products. The Natural Resources segment consists of coal mining and methane gas operations. Walter markets and supervises the construction of detached, single-family residential homes, primarily in the southern United States, through the Homebuilding segment. The Financing segment provides mortgage financing on such homes and purchases mortgages originated by others. The Other segment includes the manufacturing of foundry and furnace coke, slag fiber and specialty chemicals, as well as the Company's land division.
2008 $60 LEAP Call YZG-AL @ $7.30
Entry $48.39 (6/26)
BHI - $81.85 - Baker Hughes Intl ** No stop **
No change in play. The seller in BHI finally ran out of stock and we saw a nice +$6 gain. New resistance is $82.50 and all time high is $89.30. Sure hope we hit it before oil prices crack.
The BHI CEO said he saw strong activity continuing worldwide but weakness in America could appear if the gas bubble did not shrink soon.
With our cost now at $2.60 we will not add any new insurance puts. We could end up doubling our cost without any real benefit. The 100-day average at $75 has been strong support in the past.
Earnings schedule: July 28th
Baker Hughes Incorporated (Baker Hughes) is engaged in the oilfield services industry. The Company supplies wellbore-related products and technology services and systems to the oil and natural gas industry on a worldwide basis, including products and services for drilling, formation evaluation, completion and production of oil and natural gas wells. Baker Hughes operates through subsidiaries, affiliates, ventures and alliances. It operates in three business segments: Drilling and Evaluation, Completion and Production, and WesternGeco. The Drilling and Evaluation segment consists of the Baker Hughes Drilling Fluids, Hughes Christensen, INTEQ and Baker Atlas divisions. The Completion and Production segment consists of the Baker Oil Tools, Baker Petrolite and Centrilift divisions. The WesternGeco segment consists of the Company's 30% equity interest in WesternGeco, a seismic venture with Schlumberger Limited. WesternGeco provides reservoir imaging, monitoring and development services.
SLB - $65.11 - Schlumberger Ltd ** Stop Loss $61.00 **
SLB continues to move higher with a nice +$6 gain for the week. The insurance put was stopped out at $61 for a whopping 65 cents but considering the continued run in SLB it was money well saved. SLB has reached strong resistance at $66 and we need an external event to break that resistance. Obstinance by Iran could do it.
Statoil awarded contracts to SLB and HAL on June-30th worth more than $1.12 billion. Halliburton was the biggest winner but SLB garnered its share.
Earnings schedule: July 21st, 6:AM, conference call 9:AM
Schlumberger Limited (Schlumberger) is an oilfield services company, supplying technology, project management and information solutions. Schlumberger consists of two business segments: Schlumberger Oilfield Services and WesternGeco. Schlumberger Oilfield Services is an oilfield services company supplying a range of technology services and solutions to the international oil and gas industry. WesternGeco, 70% owned by Schlumberger and 30% owned by Baker Hughes, is an advanced surface seismic company.
Position: Jan $70 Call VWY-AN (SLB-AN) currently $6.10
Insurance put: Entry 6/12
Insurance put: (Closed 6/8)
Entry $66.25 (6/04)
ACI - $42.37 - Arch Coal Inc ** Stop Loss $39.00 **
Arch is slowly climbing out of its coal pit and trying to break resistance at $43. The gain for the week was around $3. Until hotter weather causes a slowing of gas injection into inventory the coal stocks are going to be dormant. There is no rationality to the connection since the coal is contracted many months in advance. It is just a measure of trader sentiment.
The CEO said in an interview on June 28th that a lot of legacy contracts were expiring soon and that had great implications for their bottom line. Arch saw profits jump 10-fold in the first quarter as new contracts took effect. He said coal would be so short that users would want to secure future contracts to guarantee supply. Coal prices have risen sharply since 2004 doubling in most US basins and tripling in some. Because Arch sells its coal under long-term contracts it has yet to see these prices. Customers of Arch had been locked in at 2003 prices. He said over the next three years the vast majority of their contracts would expire. He said Arch would be selective on which they would renew at current prices. With a strong balance sheet they can take a different view of sales. He said it was the best environment seen in over 20 years for coal. The US currently has 310 gigawatts of electric power and 50% is fired by coal. The US is adding 90 gigawatts with 20 GW being completed by 2010. This will consume another 65 million tons of coal or an increase of roughly 6.5% over current production not counting increases in other areas.
With a cost of only $1.05 in the call we will not be adding any further insurance or cost reduction strategies.
Arch Coal, Inc. operates as a coal producer in the United States. The Company's primary business is the production of steam and metallurgical coal from surface and underground mines throughout the United States, for sale to utility, industrial and export markets. Its mines are located in southern West Virginia, eastern Kentucky, Virginia, southern Wyoming, Colorado and Utah. As of December 31, 2005, it operated 21 mines, and controlled approximately 3.1 billion tons of proven and probable coal reserves. During the year ended December 31, 2005, the Company sold approximately 140.2 million tons of coal. The Company has three business segments, which are based on the low-sulfur coal producing regions in the United States, in which the Company has operations. These segments are the Central Appalachia region, the Powder River Basin and the Western Bituminous region. On December 31, 2005, the Company sold its 100% interest in Hobet Mining, Inc., Apogee Coal Company and Catenary Coal Company.
Insurance put: (closed 6/8)
FTI - $67.43 - FMC Technologies ** Stop Loss $63 **
Back to back weeks with $5 gains is outstanding. FTI is nearing resistance at $70 and its all time high at just under $72. No complaints here.
On June-28th Calyon Securities issued a buy rating on FTI.
FTI announced on June-20th a $130 million contract from Chevron for undersea pipeline equipment and production systems.
The July $55 insurance put is nearly worthless but we will continue to hold it as disaster insurance.
Earnings schedule: July 25th after the close.
FMC Technologies, Inc. provides mission-critical solutions for the energy, food processing and air transportation industries. The Company designs, manufactures and services machinery and systems for its customers through four business segments: Energy Production Systems, Energy Processing Systems, FoodTech and Airport Systems. Energy Production Systems segment designs and manufactures systems, and provides services used by oil and gas companies involved in land and offshore, including deepwater, exploration and production of crude oil and gas. Energy Processing Systems segment designs, manufactures and supplies high-pressure valves and fittings for oilfield service customers. FoodTech segment designs, manufactures and services food processing and handling systems to the food industry. Airport Systems segment is a global supplier of passenger boarding bridges, cargo loaders, and other ground support products and services.
Earnings update on May 9th
Breakout trigger $63.50 Hit 5/23
Insurance put: (closed 6/8)
Entry $63.50 (5/23)
TIE - $34.38 - Titanium Metals
TIE closed at a new three week high on Friday but it was far from a bullish event. TIE is struggling from (3)2:1 splits over the last nine months. We just need to be patient until the consolidation is over.
Maintain a profit stop: Long July $30 Put @ $28.00
Analyst Chris Olin of FTN Midwest Securities said this week that demand for TIE products will continue to surge through 2012. TIE is already at 88% capacity and has a backlog of $860 million in orders. Despite additional capacity plans by both TIE and ATI the market is expected to be undersupplied through at least 2010. Chairman Harold Simmons personally owned 2.6% of TIE shares as of March 31st but a holding company he controls owns 37.1% and SEC documents show that he and the company are aggressively increasing their positions. Boeing has orders for 393 of its 787 jumbo jet, which contains a high percentage of titanium components to keep the weight under control. Flight tests of the 7E7 Dreamliner showed it was still too heavy and suggests even more components will be switched over to titanium in the production fleet.
Titanium Metals Corporation (TIMET) is a producer of titanium sponge, melted products and a variety of mill products for aerospace, industrial and other applications. For the commercial aerospace industry, the Company supplies titanium products to manufacturers of commercial airframes. Outside of aerospace markets, the Company manufactures a range of products for customers in the chemical process, oil and gas, consumer, sporting goods, automotive, power generation and armor/armament industries. Approximately 15% of the Company's sales revenue, during the year ended December 31, 2005, was generated by sales into industrial and emerging markets. TIMET markets and sells its products in the United States, the United Kingdom, France and Italy.
Position: December $45 Call TIE-LI @ $5.70 (no LEAPS)
BHP - $43.07 - BHP Billiton Limited ** No Stop **
BHP finally found some traction as overseas indexes started adding some gains. The resistance at $41 broke and the next resistance is $44 then new highs ahead. The current August insurance put is rapidly fading out of range with barely a bid but it served its function well. If BHP continues its current move we will never look back.
BHP is the second largest global producer of copper, 3rd largest producer of nickel, 4th in uranium, 5th in aluminum and zinc. BHP is also the number one sea borne supplier of coking coal and manganese. BHP also produces oil and gas.
Maintain a profit stop on the long $35 Put BHP-TG @ $31.
BHP Billiton Limited is a diversified resources group. The Company is an exporter of metallurgical coal for the steel industry; an exporter of energy coal; a producer of iron ore, copper, nickel metal, manganese ore, primary aluminium and manganese and chrome ferroalloys. It also has substantial interests in oil, gas, liquefied natural gas (LNG), diamonds, silver and titanium minerals. BHP Billiton operates in seven segments: Petroleum (oil, natural gas and LNG), Aluminium (aluminium and alumina), Base Metals (copper, silver, zinc and lead), Carbon Steel Materials (metallurgical coal, iron ore and manganese), Diamonds and Specialty Products (diamonds, titanium minerals and metals distribution), Energy Coal (energy coal) and Stainless Steel Materials (nickel metal, and chrome and nickel ferroalloys).
Breakdown trigger $46.75 hit 5/15
Entry $46.75 (5/15)
MDR - $45.46 - McDermott ** No Stop **
Step by step, a nickel at a time but MDR is moving higher. The post split depression could finally be over and the seller at $44 appears to have run out of stock. The challenge is going to be $47. MDR said on June 28th that it had been awarded a contract in Qatar to build facilities for Qatargas. The value of the contract was around $100 million.
Buy August $40 Put MHH-TH if MDR trades at $41.
J. Ray McDermott is a leading provider of engineering, procurement, construction, and installation services for offshore oil and gas field developments worldwide. McDermott International, Inc. is a leading worldwide energy services company. McDermott's subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy.
3:2 split on June 1st reduced the strike price by 1/3 and increased the contract size to 150 shares.
2007 $70 LEAP Call OYZ-AN @ $8.50
PTR - $107.97 - Petrochina ** No Stop **
A +$7 gain last week and a +18 rebound from the June lows. My confidence in PTR has been renewed. Petrochina is China's largest company and with oil demand growing +10% per month year over year that is a lot of growth to fuel. Car sales in China surged +24.1% in May and China is expected to have more cars than the US by 2020.
PTR has a resistance band between $108-$110 then resistance highs just over $120. One step at a time, we have a long time until expiration.
We have a 2008 LEAP and PTR could be $200 before expiration. As long as we maintain the positive trend the long-term price of oil should be our salvation.
Petrochina is the fourth largest energy company in the world. It is a government monopoly but it acts like an independent. PTR is aggressively acquiring leases and rapidly expanding its drilling program. It currently has over 10.9 billion bbls of proven reserves and more than 44 TCF of gas. Warren Buffet owns $2.3 billion of PTR stock. It trades at less than $12 per BOE and has a 3.5% dividend yield. PTR owns 14,000 service stations and has 2,900 franchised stations. It is majority owned by China and has unlimited capital for expansion if China likes the deal. I expect several acquisitions by PTR over the next couple years but with a $208 billion market cap and China as the owner it will not be a target itself. China would never give up control of those oil assets. PTR saw its output rise +6.3% in Q1 to 267.7 million bbls when most companies were posting declines in reserves and production. Gas output rose +35.6%. PTR owns 75% of the oil and gas reserves in China and supplies 40% of its needs. This is as close to a permanent lock on a profit as we can get given the rapid growth of China's economy.
Cramer was pounding the table on PTR on Friday saying it was not afraid to drill in communist countries, places torn apart by strife or run by two-bit dictators like Chavez or Morales. With the Chinese government and military behind it there is little chance of somebody trying to confiscate PTR assets.
PetroChina Company Limited operates a range of petroleum and related activities through four primary business segments: Exploration and Production Segment, Refining and Marketing Segment, Chemicals and Marketing Segment, and Natural Gas and Pipeline Segment. The activities include the exploration, development, production and sales of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of basic petrochemical products, derivative chemical products and other chemical products, and the transmission of natural gas, crude oil and refined products, and the sales of natural gas.
Position: 2008 $120 LEAP Call LJC-AD @ $16.20
Insurance combo: Closed
Entry 5/14 $116.20
GG $30.21 - Goldcorp ** No Stop **
The spike in gold helped push Goldcorp over resistance at $28.50 with the next hurdle at $32. The +$2 gain may not seem like much but it was a +7% move. We are at the mercy of the gold market and the falling dollar will push gold higher if it continues. Be patient.
Goldcorp declared its 6th monthly dividend for 2006 payable on June 30th. Goldcorp received $450 million in exchange for early execution of some outstanding warrants. The money will be used to pay down the debt incurred on the purchase of some Placer Dome assets from Barrick Gold.
Goldcorp expects to produce 2 million ounces of gold in 2006 at an average cost of $125 an ounce. Goldcorp does not hedge its gold production. This will represent nearly $1 billion in profits at the current price of gold.
Goldcorp Inc. (Goldcorp) is a North American-based gold producer engaged in exploration, extraction and processing of gold. The Company's primary asset is its Red Lake Mine, a gold mine in Canada. It's other operations include the Bajo de la Alumbrera gold-copper mine (the Alumbrera Mine) in Argentina; a 100% interest in each of the San Dimas gold-silver mine (the San Dimas Mine); the San Martin gold-silver mine (the San Martin Mine); the Nukay gold-silver mine (the Nukay Mine) in Mexico, and a 100% interest in the Peak gold mine (the Peak Mine) in Australia. Goldcorp also has 100% interests in the Los Filos gold development stage project (the Los Filos Project) in Mexico and the Amapari gold project (the Amapari Project) in Brazil. Goldcorp also owns approximately 59% of Silver Wheaton Corp. (Silver Wheaton), a mining company with 100% of its revenue from silver production.
Breakout trigger $36.00 hit on 5/01
Entry $36.00 (5/01)
CSX - $70.40 - CSX Corp ** No Stop **
CSX may be a railroad but it grew wings and took flight last week posting a $5 gain. Strong resistance at $69 was broken and the next stop could be the all time high at $74.65.
The insurance put is out of range but we will leave the profit stop on it just in case the market rolls over.
Maintain a profit stop on the Aug $55 Put CSX-TK @ CSX $52
Earnings schedule: July 18th after the close
CSX Corporation (CSX) based in Jacksonville, Florida, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form transportation companies, connecting more than 70 ocean, river and lake ports. CSX's principal operating company, CSX Transportation Inc. (CSXT), operates the railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (Intermodal) is a coast-to-coast intermodal transportation provider, an integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.
Insurance Put: (closed 6/08)
Entry $60.50 (4/03)
BTU - $55.94 - Peabody Energy ** No Stop **
BTU finally broke over resistance at $52.50 and $55. The spring higher may end quickly if gas prices begin to implode. The insurance put was stopped out at $55 on Friday and we are naked on the position. With earnings on the 20th I am hoping we see a continued rise into those earnings before gas prices crack.
We have been unbelievably unlucky on our insurance puts on BTU. Every one was filled near the highs for the day, low for BTU, and was followed promptly by a strong jump in BTU rendering our put worthless. I am hesitant to buy another one and I plan on selling an in the money call if gas prices begin to fall. That collapse could last more than a month so we should be safe. I just want to get past the earnings before making any new moves.
Earnings schedule: July 20th
Peabody Energy Corporation (Peabody) is the largest private-sector coal company in the world. During the year ended December 31, 2004, the Company sold 227.2 million tons of coal. It sells coal to over 300 electricity generating and industrial plants in 16 countries. The Company owns, through its subsidiaries, majority interests in 32 coal operations located throughout all the United States coal producing regions and in Australia. Most of the production in the western United States is low-sulfur coal from the Powder River Basin. In the West, it owns and operates mines in Arizona, Colorado, New Mexico and Wyoming. In the East, it owns and operates mines in Illinois, Indiana, Kentucky and West Virginia. The Company owns four mines in Queensland, Australia. Most of the Australian production is low-sulfur, metallurgical coal. In addition to the mining operations, the Company markets, brokers and trades coal.
Position: 2008 $55 LEAP Call LLW-AK @ $9.50
Insurance Put: (closed 6/30)
Insurance put: (closed 6/9)
April 8th covered call:
April 24th covered call:
Entry $48.00 (3/07)
CCJ - $40.04 - Cameco ** No stop **
Volatility in CCJ continues but it did close at a new three week high on Friday. This is only $5 from a new all time high. CCJ is the number one uranium miner and prices for uranium continue to rise almost daily. There is a disconnect between the 60 or so plants on the drawing board or under construction and the shortage of uranium. More uranium is consumed each year than is produced. Were it not for the fuel from decommissioned nuclear weapons the shortage would be extreme. It is only a matter of time until CCJ comes back into favor and we will be waiting.
I am not going to buy another insurance put yet. Strong support at $35 should last unless the market implodes again. Hopefully the correction is past and only aftershocks remain.
We were triggered on the breakout at $72.50 on Monday and again on the $67 breakdown target on Wednesday. Each trigger was for a 1/2 position giving us a full position with an average cost of $9.80 each. That turned out to be the closing price on Friday so if you missed either opportunity you did not miss anything. We are going to add another full position after CCJ splits on Feb-23rd.
This is my best single play in the list. Cameco just announced record earnings and raised their forecast for 2006 and beyond. They projected a +40% rise in revenue and a rise in margin from 23% to 28% for 2006. At the same time they announced a 2:1 split for Feb-23rd on the NYSE. They also raised the dividend to 32 cents from 24 cents payable on April 13th.
They also announced they were buying Zircatec for $108 million. Zircatec is a maker of nuclear fuel bundles for Canadian designed heavy water reactors. They said the acquisition would moderately boost 2006 earnings assuming no material changes in operations.
The combination of events including the purchase of Zircatec caused the stock to plunge from its all time high of $82.15 on Feb-1st to close at $69.97 on Friday Feb-3rd. That level remained support for the entire week through Feb-10th.
Cameco Corporation is engaged in exploring, developing, mining and milling uranium ore to produce uranium concentrates. The Company is also a commercial converter of uranium concentrates (U3O8) to UF6 (uranium hexafluoride), as well as a supplier of services to convert uranium concentrates to UO2 (uranium dioxide). Cameco, through its subsidiaries, has a 31.6% limited partnership interest in Bruce Power Limited Partnership, which operates six nuclear reactors in Ontario, Canada. Cameco also owns 53% of Centerra Gold Inc. (TSX: CG), a growth-oriented gold mining and exploration company engaged in the acquisition, exploration, development and operation of gold properties in Central Asia, the former Soviet Union and other emerging markets.
Breakdown target $67.00 hit
Pre-split average cost: $9.80
Additional Position: 2008 $40 LEAP LTA-AH @ $9.00 on 2/25.
Put insurance: (expired
Monday Mar-20TH cost reduction strategy:
HAL - $74.21 - Halliburton ** No Stop **
HAL is trying to breakout of its recent range with resistance at $74. A failure to report any dates on the KBR IPO is a major hindrance. Last week I received an email from HAL investor relations saying they did not know when it would occur due to a lengthy SEC review process. Nothing appears to have changed over the last week.
Halliburton was awarded a two-year contract with Statoil worth $193 million for cementing, drilling and completion fluid. Statoil said they were the largest contracts of their type awarded in 2006. In addition to the initial term there are three two-year extensions, which should bring the final value to somewhere in the $1 billion range allowing for adjustments.
Maintain a profit stop at $61 on the July $65 put and hope like heck we don't need it.
Earnings schedule: July 21st before the open
Halliburton is planning on spinning off KBR, its construction and engineering unit. This should produce a significant bounce in HAL stock. (KBR stands for Kellogg, Brown and Root) HAL is a very strong service company and should soar when it is no longer held in check by the sins of KBR.
Stock split: 2:1
Earnings schedule: July 21st
PAR on HAL is $100 after the spin off.
Halliburton Company is an oilfield services company, and a provider of engineering and construction services. The Company provides services, products, maintenance, engineering and construction to energy, industrial and governmental customers. Its six business segments are Production Optimization, Fluid Systems, Drilling and Formation Evaluation, Digital and Consulting Solutions, collectively the Energy Services Group, and Government and Infrastructure, and Energy and Chemicals, collectively known as KBR. In August 2004, the Company sold its surface well testing and sub-sea test tree operations to Power Well Service Holdings, LLC. In January 2005, the Company emerged out of the chapter 11 proceedings and can operate the businesses without Bankruptcy Court supervision.
Current position: 2007 $80 LEAP Call VHW-AP @ 11.25
Original Position: 2007 $85 LEAP Call VHW-AQ @ $9.80
adjusted cost in the 2007 $80 LEAPS is now $11.25
VLO - $66.53 Valero ** No Stop **
VLO continues to sprint higher as the price of gasoline rises. VLO is approaching resistance at $67.50 and that is the last speed bump before testing the historic highs at $70.75. No complaints here!
Valero posted a company update on their website this week. As part of the presentation they project higher earnings than the First Call consensus. Gasoline margins ytd in 2006 are up significantly over 2005. They expect strong year over year comparisons for Q2. According to Valero the US supply of on-road diesel is shrinking and Valero's margins are expanding. Valero estimates crude supplies will have to grow by +1.3 mbpd annually through 2010 just to stay even with demand. They see increased demand for light sweet crude and limited supply. Because Valero refines mostly sour crude their margins are significantly higher than other refiners.
The complete presentation can be viewed here:
Merrill upped VLO to a buy on June 29th.
Commentary from 6/18
Petrie Parkman analyst Chi Chow produced a 20-page report on Valero explaining why VLO trades at a discount to its peers. He blames it on the Valero spending spree that put Valero on the top in the United States. Despite very strong profits it left little cash to return to shareholders in the form of stock buybacks so prevalent recently. Valero also had a change in management with founding CEO Bill Greehey passing the baton to Bill Klesse. Chow thinks this is a very positive shareholder development. Chow suggested Valero sell five refineries currently processing the expensive light sweet crude and running on tight margins. Chow said Valero could get up to $5.8 billion in after tax proceeds. He also said Valero could generate $550 million from selling its retail gas stations and focus only on the refining business. He said Klesse is a shareholder friendly CEO and total share repurchases as a result of those actions above could amount to as much as $11 billion or up to 22% of outstanding shares.
This would be huge news and rumor has it that Valero is considering dumping some refinery assets in order to concentrate on the more profitable sour crude operations. This would be a windfall for shareholders and I hope it comes soon!
Valero Energy Corporation (Valero) owns and operates 18 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 3.3 million barrels per day. Valero produces environmentally clean refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasoline, distillates, jet fuel, asphalt and petrochemicals. Valero markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of more than 4,700 retail and wholesale branded outlets in the United States, Canada and Aruba. Valero's retail operations include approximately 1,500 company-operated sites that sell transportation fuels and convenience store merchandise.
Position: 2007 $60 LEAP Call VHB-AL
Entry $52.30 (12/16)
Leaps Trader Watch List
Don't Buy the Top
I know it is tempting to add new positions with the oil sector sprinting higher on a daily basis. However, most stocks are either nearing their historic highs or significant resistance ranges. The easy money is always the first breakout and that has passed. There is too much risk in the sector from the gas bubble and rising oil inventories to add new positions. It could take several days or several weeks for the bubble to burst but without hurricanes through the gulf oil fields it will burst.
I considered puts on gas producers UPL, CHK or ECA in anticipation of the bubble bursting but the timing is not quite right. All are at resistance but challenges exist. UPL and ECA are moving higher on new wells, acreage, agreements, etc. It is not just about current gas prices but future potential and they definitely have potential. Encana is just below a nine-month resistance high and would make a good target but it is getting ready to release data on a new field in Nova Scotia and the numbers could be strong. Earnings are July 25th.
UPL is bumping resistance at $60 at what looks like a very nice entry but they just announced new production coming online. They also announced an increase in acreage in Pennsylvania from 27,000 acres to 246,000 acres under lease. Production at an exploration well in the acreage has stabilized at 3 mcfpd. UPL is also a potential acquisition target.
Aggressive traders might want to target UPL or ECA for puts but I am not ready to pull the trigger. We have waited too long for a bull run to return in energy and it may have a couple weeks left before it tires.
We are going on a summer position diet with a target of 7-8 positions total before late July in anticipation of a late August price dip in oil. If we get some hurricane activity it should push prices higher for one last rally before the demand drop in August. That will be buying time again for energy.
Current Watch List
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