BHI - $76.33 - Baker Hughes Intl
BHI slipped lower as the week progressed without any apparent reason. Somebody appears to be leaning on BHI with size but the pattern suggests the 100-day average at $75 is going to hold. We are in the position cheap and we just need that seller to run out of stock.
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.
Position: Jan $95 Call
BHI-AS @ $6.20
Additions 6/08 (closed 6/13)
Entry $85.24 (6/6)
SLB - $58.93 - Schlumberger Ltd
SLB rebound nicely from the Tuesday dip to the 200-day on an upgrade from Calyon Securities to a buy with a price target of $75. SLB is picking up business around the world with Russian services an expanding profit center.
Maintain the stop and let's hope the 200-day holds.
Maintain profit stop on July $55 put SLB-SK @ $52.50
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 - $39.69 - Arch Coal Inc
Arch has a really ugly chart but support appears to be holding at the $37.50 level. 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.
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.
Position: Jan $55 Call ACI-AK @ $4.50
Insurance put: (closed 6/8)
Entry $48.36 (5/31)
FTI - $62.47 - FMC Technologies
Nice recovery by FTI with a strong bounce off the Tuesday retest of $57. The +$5 bounce is probably going to put our insurance put out of range but that is not a problem as long as FTI continues to post gains. FTI should not be impacted as much by the price of oil as the exploration companies but there is always an impact. Hopefully funds will want to add this quality company during their end of quarter window dressing.
FTI announced on Tuesday a $130 million contract from Chevron for undersea pipeline equipment and production systems.
I am canceling the stop loss on the July put at $64. The bid is currently 30 cents and I would rather maintain the insurance as a catastrophe shield than collect what would probably amount to $15 at the $64 stop.
Maintain a profit
stop on the long July $55 put FTI-SK @ $51.
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 - $32.42 - Titanium Metals
TIE flatlined just above $32 as the market wandered in its range. No change in the play other than a raised stop on the current insurance put. 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.
TIE was the poster child for runaway stock prices with (3) 2:1 splits in the past year. Hopefully that momentum will return but without a positive market it could be a long road.
Maintain a profit stop: Long July $30 Put @ $28.00
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)
Entry $38.22 (5/28)
BHP - $40.55 - BHP Billiton Limited ** No Stop **
Nice bounce from the lows for the week and the +19% jump in prices for iron ore announced early this week should continue to keep a floor under the stock. BHP has found resistance at $41 but end of quarter buying could finally push it higher.
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
MDR - $44.10 - McDermott ** No Stop **
McDermott spiked a buck on Friday but somebody is still leaning on the stock with a solid top at $44.50 all day. Eventually that seller will run out of shares but it is really frustrated waiting for it to happen. I am going to close the $36 put which resulted from the split before the premium declines even further. We will go naked unless our trigger is reached on any drop and then pickup a standard put for insurance.
Close August $36 put MHH-TV currently.60 cents
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
Position: June $60 Put MDR-RL @ $1.25 (5/22)
PTR - $100.65 - Petrochina ** No Stop **
Looks like PTR has finally begun to trend higher with Friday's close a three-week high. This has been a painful drop but the current gains are encouraging. Because of the fill prices on the last drop we may never return to breakeven in 2006 but the prospects are promising. 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. Both insurance positions were stopped when PTR hit $101 on Friday.
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.
2008 $120 LEAP Call LJC-AD @ $16.20
Insurance combo: Closed
GG $28.17 - Goldcorp ** No Stop **
A continued rebound in GG from the Monday low and gold has failed to rally. The gold bugs are still promising higher highs and we have a 2008 LEAP. Keep the faith!
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.
Maintain a profit stop on July $27.50 put GG-SY to GG @ $24.
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 - $54.29 - Frontier Oil Corp ** Call Closed **
I am closing the FTO position ahead of its 2:1 split on Monday after the close. FTO has shown too much weakness and I am afraid the combination of post split depression and weakening oil prices in July could push us deeper into a negative position.
Close the Oct $60 Call FTO-JL on Monday.
Maintain a profit stop on the July $22.50 PUT FTO-SI @ FTO $21
Stock split: 2:1 scheduled for June 26th
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 @
Cost reduction play April 18th
Insurance put: (closed 6/8)
Entry $56.00 (4/11)
CSX - $65.53 - CSX Corp ** No Stop **
The FDX outlook and the rising transport index helped to push CSX higher but the pre crash fire has yet to return. Current resistance at $66 will be followed by $68 and then it should start getting exciting again. 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
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.
Breakout trigger $60.50 hit Apr-3rd
Insurance Put: (closed 6/08)
Entry $60.50 (4/03)
BTU - $50.78 - Peabody Energy ** No Stop **
BTU can't seem to get over the resistance at $52 due to falling gas prices. It is holding at the current consolidation level while we wait for summer electric demand to increase.
The July $45 put still has value at 85 cents but I am reluctant to close it with BTU hovering in the $48-$51 range. We might still see another dump and I would rather have the insurance than the 85 cents. Unfortunately with time expiring we may only get our premium back if the dump to $44 appears.
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 6/9)
April 8th covered call:
April 24th covered call:
Entry $48.00 (3/07)
CCJ - $39.25 - Cameco ** No stop **
CCJ continued to rise and a new trend appears to be developing. We have plenty of time and the demand for uranium is larger than current production. There is no reason for CCJ not to continue higher if the market weakness is behind us.
I am not going to put 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 6/18)
Monday Mar-20TH cost reduction strategy:
HAL - $71.81 - Halliburton ** No Stop **
HAL took a turn for the worse on Monday with a sharp drop to $71 where it struggled for the rest of the week. There was no news and I have to think this was simply more funds unloading on the weak oil prices. I finally received some news from HAL on the KBR spinoff. Unfortunately there is still no schedule.
No definitive dates have been set for the KBR IPO. We are currently in the SEC review process. We have filed an amendment to the Form S-1 Registration statement. However, we still do not know exactly how long the SEC review process will take. Once it is complete, it is managements priority to complete the transaction as quickly as possible. Please continue to monitor our website for updates on the KBR IPO.
Rob Kukla, Jr.
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
Our adjusted cost in the 2007 $80 LEAPS is now $11.25
Entry $79.00 (2/06)
VLO - $62.15 Valero ** No Stop **
VLO broke over resistance at $61 and has gained more than $8 since the June-14th low. Morgan Stanley reiterated a buy on VLO saying refining margins would remain high as demand outstrips supply. No change in the play.
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 @ $6.60