No Hits Yet
Although we got a little dip in oil prices last week we did not fall far enough to trigger our waiting energy plays. Suncore announced blowout earnings and soared +$6 after dropping -$4 on the drop in oil. This should put them out of range temporarily.
Next week is a big week for energy earnings and we could see some volatility in individual issues. I continue to expect some decline in oil prices as the spring demand slump arrives. We need to be patient until that happens.
I am adding Affiliated Computer (ACS) to the watch list in hopes of getting a fill at a number in the middle of their Dutch auction range. I am convinced that there is still a buyer in the wings and the buyback of 45% of existing stock is somehow related.
We are nearing the end of the earnings season and the markets should begin to
weaken even if we do move higher on any Fed news. The economy is simply too weak
to support rising stock values for anything but energy stocks. We will be
patient and wait for them to come to us.
Current Watch List
DO - $80.79 - Diamond Offshore Drilling
Diamond Offshore Drilling Inc. engages principally in the contract drilling of offshore oil and gas wells. As of December 31, 2004, the Company had a fleet of 45 offshore rigs consisting of 30 semisubmersibles, 14 jack-ups and one drillship. Diamond offers a range of services worldwide in various markets, including the deep water, harsh environment, conventional semisubmersible and the jack-up market. Its principal markets for its offshore contract drilling services are the Gulf of Mexico, including the United States and offshore Mexico, Europe, principally the United Kingdom and Norway, South America, Africa and Australia/Southeast Asia. From time to time, its fleet operates in various other markets worldwide. Diamond provides offshore drilling services to a customer base that includes private and independent oil and gas companies and government-owned oil companies.
Breakdown target $72.00
RIG - $79.29 - Transocean Inc
Transocean Inc., formerly known as Sonat Offshore Drilling Inc., is an international provider of offshore contract drilling services for oil and gas wells, related equipment and work crews, primarily on a dayrate basis, to drill oil and gas wells. The Company operates with a particular focus on deepwater and harsh environment drilling services. The Company also provides additional services, including management of third-party well service activities. The Company's transocean drilling segment consists of drillships, semisubmersibles, jackups and other drilling rigs.
Breakdown target $70.00
COP - $65.10 - Conoco Phillips
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.
Breakdown target $60.00
SU - $78.72 - Suncor Energy
Suncor Energy Inc. (Suncor), formerly Suncor Inc., is a Canadian integrated energy company that explores for, acquires, develops, produces and markets crude oil and natural gas, transports and refines crude oil and markets petroleum and petrochemical products. Periodically, the Company also markets third-party petroleum products. Suncor also carries on energy trading activities focused principally on buying and selling futures contracts and other derivative instruments based on the commodities the Company produces. The Company has four principal operating business units: Oil Sands; Natural Gas; Energy Marketing and Refining, Canada, and Refining and Marketing, United States of America.
Breakdown target $68.00
ACS - $63.27 - Affiliated Computer Services
ACS has been the target of buyout talks for several months. Talks were dropped on the 17th and a week later ACS announces it is going to use DEBT to buy back 45% of the companies outstanding stock worth $3.5 billion. The buyback will be handled with a Dutch auction between $56 and $63 and end in early March.
This is too coincidental to be a random occurrence. I believe this is a way to reduce the outstanding shares at a fixed price to make them more attractive for a buyout. Reducing the number of shares allows the buyer to pay more per share for a smaller amount.
Affiliated Computer Services, Inc. provides business process and information technology (IT) outsourcing solutions to commercial and government clients. The Company's business process outsourcing services include administration, human resources and related consulting, finance and accounting, customer care and payment services. IT outsourcing services include mainframe, midrange, desktop, network, consulting and Web-hosting solutions, while systems integration services include application development and implementation, applications outsourcing, technical support and training, as well as network design and installation services. The Company provides technology-based services with a focus on transaction processing and program management services, such as child support payment processing, electronic toll collection, welfare and community services and traffic violations processing. In January 2005, the Company acquired Superior Consultant Holdings Corporation.
It is important to buy only the $60 calls since a buyout offer at say $67 would limit the $65 call to a $2 premium.
Breakdown target $59.00