HW - $36.56 - Headwaters ** No Stop **
HW had a decent week moving to a new six week high and shrugging off the weakness that hit the other energy stocks early in the week. A reader emailed me this week and suggested that HW could be a takeover target by Peabody (BTU) since all of their products had to do with coal. While neither of us have any hard news to base this on I do believe HW at only $1.4B in market cap could easily be gobbled up by someone as the future coal picture becomes clearer. Maybe HW will be a longer term hold than I had anticipated.
Headwaters (HW) has a compound annual growth rate of more than +120% mainly because it deals with the ash left over from burned coal. Coal generates a lot of ash and it is a problem the electric generating plants have to deal with when these cold fronts really suck up their coal supplies. Headwaters has three separate businesses from that ash. They have a business that buys and sells it for various purposes. Second they have produced a bonding agent to that makes it easy to transport without blowing out of the rail cars. They sell this to others for profit. Third they have a patented process for converting this ash into a synthetic fuel, which is licensed to plants that actually do the conversion.
They also make building materials and a cement substitute that uses this ash to make concrete more durable. Considering the thousands of tons of ash generated each week this appears to be a gold mine for Headwaters. When electric plants fight the tons of daily ash Headwaters is there to help and converts that ash back to dollars. This sounds too good to be true and I think that was the real problem with the decline from $46 in August to the $30 level in October. The ramp from IPO in April from $30 to $46 and decline back to $30 is complete. Those that got in on the good IPO story took their profits as energy prices declined. Now may be the time to jump back on the coal train with Headwaters rather than Peabody.
Headwaters Incorporated is a diversified company providing products, technologies and services to the energy, construction and home improvement industries. Headwaters conduct its business primarily through four business units, including Headwaters Resources, Headwaters Technology Innovation Group (HTI), Headwaters Construction Materials and Headwaters Technology Innovation Group. In September 2004, the Company acquired Tapco Holdings Inc., a manufacturer of building products and professional tools used in residential remodeling and construction. In June 2004, the Company acquired Eldorado Stone, LLC, a manufacturer of architectural manufactured stone based in San Marcos, California. Eldorado Stone is being purchased from Graham Partners, a middle-market private equity firm. Eldorado Stone will be integrated into Headwaters' coal-based construction materials operations.
2007 $40 LEAP Call ZPP-AH @ $4.30
Entry $35.50 (11/22)
BP - $68.11 - BP Plc. ** No Stop **
BP gave me a lot of grief early in the week as the Monday massacre stretched into Wednesday but it finally recovered to close back at last weeks two month high. BP became the sole owner of the Olympic Pipeline in Western Washington state after buying shares previously held by Shell. The Olympic pipeline moves 12 million gallons of gasoline, diesel and jet fuel through Washington every day.
BP also signed its transitional agreement with Venezuela this week along with Shell. Negotiation at gunpoint.
BP is a very strong U.S. producer although many people have never heard of them. Prudential started them at overweight and they are rending up off their lows. Options are cheap relative to some of the highly volatile favorites.
BP p.l.c. is an oil company trying to remake itself into an energy company. The operating business segments were Exploration and Production; Refining and Marketing; Petrochemicals, and Gas, Power and Renewables. Exploration and Production's activities include oil and natural gas exploration and field development and production, together with pipeline transportation and natural gas processing. The activities of Refining and Marketing include oil supply and trading, as well as refining and marketing. The Petrochemicals segment ceased to operate separately as of January 1, 2005. Gas, Power and Renewables activities include marketing and trading of natural gas, natural gas liquids , new market development and liquefied natural gas (LNG), and solar and renewables. The Company formed the TNK-BP joint venture between the Company and the Alfa Group and Access-Renova (ARR). In addition, it plans to incorporate AAR's 50% interest in OAO Slavneft, a Russian oil company, into TNK-BP.
Buy 2007 $70 LEAP Call VAO-AN currently $5.20
Put Insurance: April $60 Put BP-PL currently $1.30
Entry $66.43 (11/20)
VLO - $101.80 Valero ** Stopped $96 **
Valero was doing so well the prior week rising to a new two week high but the Monday massacre knocked it back to $96 taking us out of the position. Once we were out VLO rallied back to set another new three week high on Friday. After the split I would consider getting back in for the long term at the $50 level with a long term put.
Valero will split 2:1 on Dec-16th.
Valero Energy Corporation (Valero) owns and operates 15 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 2.5 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 gasolines, 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.
January $110 Call VLO-AB @ $5.50
LEAPS are far too expensive and I would expect to be out of the trade by Christmas at the latest.
Entry $100 (11/09)
CHK - $30.52 Chesapeake Energy ** No Stop **
CHK finally caught fire as gas prices began to rise. The close on Friday was a four week high. Our patience has been rewarded but we still have an insurance put four months away. Volatility is not an issue here only cold weather and hopefully a return to something over $35 before year-end. The all time high is just over $40. If gas moves much over $15 it should be an easy reach.
Chesapeake Energy Corporation is an oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of crude oil and natural gas from underground reservoirs and the marketing of natural gas and oil for other working interest owners in properties that it operates. The Company's properties are located in Oklahoma, Texas, Arkansas, Louisiana, Kansas, Montana, Colorado, North Dakota and New Mexico. The proved oil and natural gas reserves as of December 31, 2004 were approximately 4.9 trillion cubic feet of gas equivalent (tcfe). At December 31, 2004, approximately 89% of the Company's proved reserves (by volume) were natural gas, and approximately 70% of its proved oil and natural gas reserves were located in the primary operating area, the Mid-Continent region of the United States, which includes Oklahoma, western Arkansas, southwestern Kansas and the Texas Panhandle.
2007 $35 LEAP VEC-AG @ $4.00
Entry $29 (11/04)
UPL - $57.10 Ultra Petroleum ** Stop loss $52 **
UPL broke resistance at $56 and has a good possibility to hit a new high over $60 before the week is out. UPL is a highly leveraged gas play and higher gas prices will build a fire under it. I would double up on any dip.
A reader asked me my target on UPL. That is a tough one to call. $60 is its historic high but a continued run on gas prices could see that broken easily. I would love to see $65 but I have no justification for that level. The key here is the price of gas. If it hits $15 again UPL should break $60 on a dead run. After that we just need to watch the demand cycle and the weather.
I raised the stop to $52.
Ultra Petroleum Corp. is an oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and gas properties. The Company's operations are focused in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. During the year ended December 31, 2004, it owns interests in approximately 166,974 gross (92,997 net) acres in Wyoming covering approximately 260 square miles. The Company owns working interests in approximately 241 gross productive wells in this area and is operator of 41.5% of the 241 gross wells. Through Pendaries Petroleum Ltd., it is active in oil and gas exploration and development in Bohai Bay, China. The Company also owns interests in 15,518 gross (14,652 net) acres in Pennsylvania, as well as interest in approximately 720 gross (320 net) acres and interests in three productive wells in Texas.
MARCH $60 Call UPL-CL @ $5.20
Insurance Put: Dec $45 Put UPL-XI (cancelled not triggered)
Entry $55 (11/02)
STR - $75.77 Questar Corp ** Stopped $74 **
Questar took a massive hit on Monday with a drop from just over $78 to just over $74. I erred last Sunday when I posted the update on our put insurance being triggered. I changed the stop price on the chart to $70 due to being covered by the put but I forgot to change the header on this play description. Unfortunately that is the one that rules. Using the $74 stop we were hit on Tuesday morning and the play closed despite our put insurance. In hindsight given the lackluster rebound this week it may have been a mercy killing.
Questar Corporation (Questar) is a natural gas focused energy company with three principal lines of business gas and oil exploration and production, interstate gas transmission, and retail gas distribution. Questar conducts most of its operations through its subsidiaries Questar Market Resources (Market Resources), Questar Pipeline Company and Questar Gas Company (Questar Gas). Market Resources is a sub-holding company that owns Questar Exploration and Production Company (Questar E&P), Wexpro Company (Wexpro), Questar Gas Management Company (Gas Management) and Questar Energy Trading Company (Energy Trading). Questar Pipeline provides interstate natural gas transmission, storage and gas processing and treating services. Questar Gas conducts retail natural gas distribution.
April $85 Call STR-DQ @ $5.60, exit 11/29 @ $2.50, -3.10
Entry $78.76 (10/31)
COP - $62.36 Conoco Phillips ** Stop Loss $57 **
Conoco failed to return to resistance at $65 despite a lack of negative news. COP did say it was going to budget an additional $1.4 billion to upgrade the German refinery it was buying to be capable of more complex operations. COP has been weaker than some of the other major oils in November. This is probably due to the continuing outage of its Gulf refinery and fears that profits could be weakened. I like the COP story but when price does not follow you have to wonder if there is something you are not seeing. I am going to stick with COP over $60 and the 200-day average. Under $60 we will reevaluate.
COP is the most aggressive big oil in attempting to acquire reserves. Their exploration budget for 2006 increased by +127%.
Earnings were Oct-27th
ConocoPhillips is an integrated energy company. The Company's business is organized into six operating segments. The Exploration and Production segment primarily explores for, produces and markets crude oil, natural gas, and natural gas liquids on a worldwide basis. The Midstream segment gathers and processes natural gas produced by ConocoPhillips and others, and fractionates and markets natural gas liquids. The Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products. The LUKOIL Investment segment consists of the Company's equity investment in LUKOIL, an international, integrated oil and gas company. The Chemicals segment manufactures and markets petrochemicals and plastics on a worldwide basis. The Emerging Businesses segment encompasses the development of new businesses, including new technologies related to natural gas conversion into clean fuels and related products, technology solutions, power generation and emerging technologies.
2007 $70 LEAP Call OJP-AN @ $6.40
Insurance Put: Cancelled - no entry
Entry $63.25 (10/31)
UNH - $61.97 Unitedhealth Group ** Stop Loss $57 **
UNH was the poster child for volatility this week with a plunge to $58.41 to cap a week of selling. The rebound was swift after UBS issued a buy on UNH and the stock closed at a new all time high.
UnitedHealth is the leader in the managed heathcare sector. Earnings are soaring, +31% in Q3 to $2.43 billion and the outlook is only up. With health care costs rising more and more companies will turn to UNH to lessen their benefit expenses. We are also expecting a seasonal bounce now that October is behind us. There were two strong sell cycles in October as funds took profits from a long period of gains. Historically health care companies have done very well over the next three months as funds look for safe havens for year-end cash. UNH gained +37% from the October lows for the same period in 2004. Buyers appear on every dip to the 100-day average currently at $53.
UnitedHealth Group Incorporated is a diversified health and well-being company, serving approximately 55 million Americans. The Company provides individuals with access to healthcare services and resources through more than 460,000 physicians and other care providers, and 4,200 hospitals across the United States. It manages approximately $60 billion in aggregate annual healthcare spending on behalf of more than 250,000 employer-customers and the consumers it serves. The Company conducts its business primarily through four operating divisions: Uniprise, Health Care Services, Specialized Care Services and Ingenix. On July 29, 2004, the Health Care Services business segment acquired Oxford Health Plans, Inc. (Oxford). Oxford provides healthcare and benefit services for individuals and employers, principally in New York City, northern New Jersey and southern Connecticut.
2007 $60 LEAP Call VUH-AL @ $6.40
Insurance put: CANCELLED NO ENTRY
Entry $56.75 (10/31)