BHP - $44.06 - BHP Billiton Limited ** No Stop **
BHP imploded at Monday's open to touch support of the 100-day at $40 on extreme volatility in the metals markets. Fortunately it rebounded out of the depths and appears to be coiling for a breakout over resistance at $44.
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 - $67.01 - McDermott ** No Stop **
McDermott finally felt the heat and dipped to just under $62 as one of the last holdouts of the energy/commodity slaughter. The rebound was swift and it appears to be readying a breakout over resistance at $67.
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.
I hate to recommend a Jan-2007 LEAP because the time is short but the Jan-2008 LEAPS are very expensive for some investors. I am going to list both for reference.
Position 2007 $70
LEAP Call OYZ-AN @ $8.50
Entry $66.05 (5/18)
TRN - $63.15 - Trinity Industries ** No Stop **
Trinity traded in a $4 range all week. Resistance is $64 and holding. Our other railroad car pick stopped out (RAIL) on the decline in the transportation sector. As long as TRN holds over $60 we should be ok.
Trinity Industries, Inc. is a diversified industrial company that provides a variety of products and services for the transportation, industrial, construction and energy sectors. The Company is engaged in the manufacturing and marketing of railcars, inland barges, concrete and aggregates, highway products, beams and girders used in highway construction, weld pipe fittings, tank containers and structural wind towers. In addition, it leases railcars to customers through a captive leasing business, Trinity Industries Leasing Company. Trinity has five business groups: Rail Group, Railcar Leasing and Management Services Group, Construction Products Group, Inland Barge Group and the Energy Equipment Group.
Entry $64.88 (5/18)
PTR - $109.52 - Petrochina ** No Stop **
Tough week for Petrochina! Monday's open saw it fall from $112 to $101 as the overseas indexes imploded overnight on Sunday. We were triggered on the protective put at nearly the worst possible minute and at more than double the closing ask the night before. I am going to recommend closing the put to preserve premium and we will reinstate if we get another dip on PTR.
Close the insurance put June $105 PUT PTR-RA currently $2.00 if PTR trades over $110 on Tuesday.
Insurance put: Repurchase June $105 PUT PTR-RA ONLY if PTR trades at $107.
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.
I am using the $120 LEAP instead of the higher strikes because the dip reduced the price to a manageable level. The choice is $120 or $130 and there is only a $3.60 difference in price. Amortized over the next 18 months that is nothing. I only wanted round number strikes in case there is a stock split.
Position: 2008 $120 LEAP Call LJC-AD @ $16.20
Position: June $105 PUT PTR-RA, @ $4.20 (5/22)
Entry 5/14 $116.20
GG $30.82 - Goldcorp ** No Stop **
Goldcorp is holding in a $4 range as gold itself bounces around waiting for the commodity buyers to reappear. The dollar has been rising and that makes gold cheaper. I believe it is only temporary. We have a 2008 LEAP and a July insurance put. Plenty of time to make a decision.
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)
FTO - $56.44 - Frontier Oil Corp
FTO rebounded +$6 from its Monday lows and has moved over the resistance at $54.75. The put was entered on the gap down on Monday and now it looks like we won't need it. Expensive insurance but better safe than sorry.
FTO is a strong takeover candidate and should be very profitable since they can refine the cheaper heavy crude.
Earnings: May 8th. FTO beat the street by +20 cents at $1.02
Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) located in Cheyenne, Wyoming, and El Dorado, Kansas, with a total annual average crude oil capacity of 162,000 barrels per day (bpd). Both of the Refineries are complex refineries, capable of processing heavier, less expensive types of crude oil, while producing gasoline, diesel fuel and other high-margin refined products. Frontier purchases crude oil to be refined and markets refined petroleum products, including various grades of gasoline, diesel, jet fuel, asphalt and other by-products. The Company focuses its marketing efforts in the Rocky Mountain region, which includes the states of Colorado, Wyoming, Montana and Utah, and in the Plains States region, which includes the states of Kansas, Oklahoma, Nebraska, Iowa, Missouri, North Dakota and South Dakota.
Position: Oct $60 Call FTO-JL @ $6.50
Cost reduction play April 18th
Entry $56.00 (4/11)
CSX - $67.32 - CSX Corp ** No Stop **
CSX lost traction with the rest of the transports but ended flat for the week. Strong support at $65-$66 and now we have insurance.
CSX is by far the best of the railroads and a rebounding Transport index should give CSX wings. We have a 2008 LEAP so I am not really worried about the dip.
Earnings: April 18th $1.06 vs estimates of 89 cents
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.
Entry $60.50 (4/03)
BTU - $60.86 - Peabody Energy ** No Stop **
BTU continued its plunge on Monday and didn't stop until it had lost -$25 from its post Fed high at $76. It does not get much more ugly than this. After rebounding +$9 for the week BTU is poised to move higher but holding just under resistance at $62. We were nailed on the protective put but at least we are protected against another drop.
Earnings: April 18th, +151% jump on +21% revenue gain.
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
April 8th covered call:
April 24th covered call:
Entry $48.00 (3/07)
XLE - $55.17 - Energy Select SPDR ** No Stop **
Like the rest the XLE rebounded to hold at resistance from the prior week. It is still -$5 under its prior highs but we saw a good support test at the 200-day at $52.50. The worst should be behind us.
The Energy Select Sector SPDR Fund (the Fund) is an index fund that seeks to replicate the total return of the Energy Select Sector Index of the Standard & Poor's 500 Composite Stock Index (S&P 500 Index). During the fiscal year ended September 30, 2004 (fiscal 2004), the Fund had a return of 48.27%, as compared to the Energy Select Sector Index return of 48.91% and the S&P 500 Index return of 13.87%. The Fund invests in industries, such as energy equipment and services, and oil and gas services, among others. In fiscal 2004, its top five holdings were Exxon Mobil Corp., ChevronTexaco Corp., ConocoPhillips Inc., Schlumberger Ltd. and Occidental Petroleum Corp.
Breakdown of components of the XLE:
Position: 2007 $55 LEAP Call OJW-AC @ $4.10
Entry $52.00 (3/07)
RAIL - $63.13 FreightCar America ** Stopped $63 **
Last week I recommended letting RAIL ride and removing the stop at $63. Unfortunately I forgot to remove it from the RAIL headline above. If you read the commentary and followed the instructions you should still be in the play. However, by not removing the headline stop I can't continue with it in the newsletter. Several readers emailed in confusion and I apologize.
For record keeping purposes RAIL is being removed.
You may think RAIL is not an energy play but you would be wrong. 78% of its rail cars are for coal. You may remember in mid 2005 the coal companies saw a period of soft earnings because there was not enough rail capacity to get their coal to market. RAIL saw a +120% increase in orders in Q4 and saw a backlog of nearly 21,000 cars at year-end. That backlog fell to nearly 18,000 cars at the end of Q1 but still substantial. As more energy products are shipped from Canada and into Mexico the demand will continue to grow.
FreightCar America, Inc. is a manufacturer of aluminum-bodied railroad freight cars (railcars) in North America. The Company specializes in the production of coal-carrying railcars, which represented 78% of its deliveries of railcars, during the year ended December 31, 2004, while the balance of its production consisted of a broad spectrum of railcar types, including aluminum-bodied and steel-bodied railcars. It also refurbishes and rebuilds railcars and sells forged, cast and fabricated parts for all of the railcars that the Company produces, as well as those manufactured by others. Prior to April 1, 2005, the Company was named FCA Acquisition Corp. On April 1, 2005, a former parent company, also named FreightCar America, Inc., merged with and into FCA Acquisition Corp., with FCA Acquisition Corp. being the surviving corporation. In connection with the merger, FCA Acquisition Corp. changed its name to FreightCar America, Inc.
Currently the longest option you can buy is the September series.
Position: Sept $80 Call RQN-IP @ $4.00, exit on stop @ 1.40
Entry $67.00 (3/07)
CCJ - $41.89 - Cameco ** No stop **
Cameco was one of the best performing stocks last week. After dipping to $35.19 at Monday's capitulation open it rebounded to close just under $42 on Friday. That was a +19% rebound! It is only -$3.50 from a new historic high. Finally life has returned.
Earnings: April 30th. 32 cents vs .07 cents in prior qtr.
Original Play Description:
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
Position: 2008 $40 LEAP LTA-AH @ $9.00 on 2/25.
HAL - $73.59 - Halliburton ** No Stop **
HAL tested support at $68.50 three times over the last week and held every time. This is just above the 200-day average. Resistance at $74 is also holding as we await the split in late June. There is no word on the timing of the KBR IPO but I have a call into investor relations. There is no new news that I can find. I suspect other investors are getting bored waiting for something to happen.
2:1 split scheduled for June 23rd.
PAR on HAL is $100 after the spin off.
Earnings: April 21st, 91 cents
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.
2:1 Split scheduled for June 23rd.
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
Our adjusted cost in the 2007 $80 LEAPS is now $11.25
VLO - $61.37 Valero ** No Stop **
VLO ended the week with a $3 gain but not before taking a -$4 drop to trigger the insurance put from last week. We got a nice test of the 200-day average and a nice rebound. We should be good to go as long as gasoline demand over the holidays remains strong.
Earnings: April 25th, +60%
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 @ $6.60
Entry $52.30 (12/16)