Ok all, time to practice some groupthink. Over the last few months i’ve gotten myself out of a few positions that I should have done quite a while ago but now I’m sitting at ~30% cash.
I’m not looking for portfolio advice so much as what looks attractive (stocks) to you guys at the moment?
I’m not looking for portfolio advice so much as what looks attractive (stocks) to you guys at the moment? - Z
As luck (?) would have it, I just posted a few thoughts over at the Hounds:
It might come as a shock to some, but my largest holding, at present, is Freeport-McMoRan (FCX) - a miner/oil E&P (paying a 6.6% divvie).
I tend to look for value and FCX exceeds my criteria. It’s selling below book. It’s been beset with all manner of woes over the course of the past year. It’s rare to see a major company fall that low, but it has. I suggest anyone interested spend a bit o’ time digging into the fundamentals.
As for other ideas? ENPH is a big favorite, as is INFN. They’ve been performing well and offer a promise of significant upside.
I wish you well in your investing endeavors!
Looking at the last quarter they paid about 1.3 billion in dividends for the last 9 months so that about 430 million a quarter and they are cash flow negative with about 658 million in cash. Do you think they can keep paying that dividend?
Good question, Andy. Something I’ve been asking myself plenty in recent months.
At this point, I think FCX can maintain its dividend. There’s a corporate commitment to do so. The company may have to borrow some to do so (but a whole lotta S&P corps have done exactly that in recent years).
FCX is deep in Wall Street’s dog house. So much so, that positive developments are rarely reported/acknowledged. First and foremost, FCX’s oil/gas plays are finally bearing fruit. The company has gone from lotsa exploration to actual production. Granted, the prices to be received for the product suck hippo weenie at present but, given time enough, that’ll change.
FCX is a behemoth of a metals producer (mostly copper but 6% gold). It has faced all manner of hurdles on its way toward increased production. The worst is now in the rearview mirror. Granted, the prices to be received for the product suck hippo weenie at present but, given time enough, that’ll change.
Morningstar reports a P/E of 9.85. At $18.85 it’s selling below its book value of $20.78. Morningstar further suggests an “Outperform” rating with a target price of $32.40.
Given FCX’s size and history, an interested investor can find all sorts of useful information/analyses. I found good reason to make this company my largest holding.
Oh, by the way, there’s been some gob-smacking insider buying within FCX (these are open market buys, not option grants/executes): In December, the Chief Accounting Officer bought 50,000 shares for $1.1M; and, the Vice Chairman bought 500,000 shares for $11.8M (yeah…that blew my mind, too!). Don’t see such insider buying all that often…
Nice reply putnid and thanks. That is really interesting.
So your post got me interested in FCX, and I’m not a strong financial analyst - I freely admit it’s a weakness for me. I tend to look at the actual business.
From what I can see, there’s nothing terribly unique about FCX that gives them a particular competitive advantage. They’re a big company ($19.6B market cap) in a cyclical commodity business with lots of other big companies as competitors. To me this translates as pricing drives everything on the revenue side because they have no power to set prices much outside the going market rate, they have no advantage here. Therefor profits are subject to their cost structure.
They have negative earnings - OK, stung by the recent rapid fall in both oil and copper. That will pass, but when? They also carry $19B debt and under $.5B cash. OUCH! You suggest they will borrow to keep the dividend flowing, I’m not so sure that’s a good thing.
Maybe there’s a future here, but I’ll look elsewhere.
But seriously, thanks for the input. It’s what makes this board so vibrant.
I gave you a rec, brittlerock, because you raised very valid points. In fact, mungofitch on the Berkshire Board recently posted a well-argued position explaining why he’s not interested in investing in “extraction” enterprises (i.e., miners). By and large I agree.
Throughout most of my investing “career” (spanning 40 years), I wasn’t particularly interested in oil companies or miners. I was heavily invested in tech, and that paid me handsomely during the go-go Dotcom Era, such that I was able to walk away from the corporate world at age 50. That was 14 years ago, and I’ve been living on the proceeds from my investments ever since (my pension and social security haven’t kicked in yet). Since I no longer rely on “fresh” money to deploy for stock purchases, I have to shepherd my investments carefully. That means I seek to diversify and seek dividends.
True enough, oilers and miners can only profit based on the going rates paid for the commodities. Sure, they can maximize their internal cost controls, make wise choices in buying additional reserves, and seek to deploy the best engineering solutions. The good companies all do that. So why invest in a miner or oil producer at all? For the dividends. And when is the best time to invest in an extraction industry? When the commodity is selling for a low price (as is happening today with oil and metals prices), the shares sell cheap and the dividend yield increases. When the share price is near bludgeoned to death, but the dividend remains intact, one gets cash flow and pretty good capital appreciation potential. I doubt I’ll hang on to my commodity plays once the underlying commodities become high(er) priced again. And they will because economies all over the globe continue to grow, and the underlying commodities grow ever more valuable.
I’ve been leery of the overall Market for all of 2014, and grow more concerned as the Market continues to rise. There are sectors that trade well above historical norms. It wouldn’t take all that much to trigger a correction. There are so many spinning wheels in the global financial industry, that it wouldn’t take much to spook the Market.
My portfolio is that of a conservative investor. To young buckaroos and buckarettes facing a long future, I say go for it. Time is your friend. Mistakes can be overcome (I’ve recovered from a few whoppers). For a retiree, preservation of capital becomes a greater concern.
That’s what makes a Market.
putnid, This morning posted from SA Wall Street Breakfast"
The recent surge in oil prices is just a “head fake” and West Texas crude as cheap as $20/bbl may soon be on the way, warned Citigroup (NYSE:C), lowering its crude oil forecast again. Despite declines in spending that have helped oil prices rebound in recent weeks, U.S. oil production is still rising, Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia, said Edward Morse, Citi’s global head of commodity research.
Anything related to the oil patch just keeps getting beaten up.
The recent surge in oil prices is just a “head fake” and West Texas crude as cheap as $20/bbl may soon be on the way, warned Citigroup (NYSE:C), lowering its crude oil forecast again.
Illusionists pull rabbits out of hats. I wonder where Citigroup pulled a $20 hat from.
Well, I ended up putting some of the money in the following.
FB, Earning have been good, the company is on a roll and they continue to strengthen their moat.
INFN, in the beginning of an upgrade cycle with a technologicaly superior product. Razerblade model, so at the moment they are selling the shavers and over the next few years margins should be increasing as they start selling the razers…
Elli, well performing on the business front, their software automates the mortgage process which has gotten increasingly complicated since the financial collapse. They performed well despite a drop in mortgage applications nationwide. Various sources predict slightly negative to slightly positive growth of mortgage applications for 2015. Basically my thesis if they did well during a 30% drop in mortgage applications then they should do even better when the tide is rising.
Hi, brittlerock -
Yes, I saw that blurb and read a similar article from Bloomberg:
Wall-Streeters and oil speculators have been running around waving their arms wildly and flapping their lips. I’m amazed by the sheer volume of misinformation and disinformation. Yes, it’s possible that crude may fall to $20 barrel, but that would assume that global oil storage capacity is completely maxed such that no one has a place to store the stuff so that they have to practically give it away. We are nowhere near that sort of storage shortage. In fact, there was more oil in storage in the US in 2013 when oil was selling at >$100/bbl.
Strip away all the malarkey and several key points remain: Globally, we consume roughly 90/M bbl/day. We currently produce approximately 1-2M bbl more than that per day. The oversupply resulted from an oil production boom that allowed producers to exploit oil at production costs >$75/bbl. After the 60% drop in crude prices it’s no longer economical to produce those high cost marginal barrels. Hence, the decreasing rig counts and reduced capex plans.
The bottom line is that oil producers need oil to sell in a range from $60-$70/bbl to remain financially viable. Oil will rebound to that range soon enough. In fact, the Bloomberg article summarizes Citi’s report thus:
Citi reduced its annual forecast for Brent crude for the second time in 2015. Prices in the $45-$55 range are unsustainable and will trigger “disinvestment from oil” and a fourth-quarter rebound to $75 a barrel, according to the report. Prices this year will likely average $54 a barrel.
Here’s a rather entertaining overview of price prognostications offered by the "experts’:
Somewhere Between $20 and $200 a Barrel
The outlook on oil prices is clear: Oil will crash. Unless prices surge. Definitely one or the other.
Crude just had the biggest two-week gain in 17 years, but it’s still about 50 percent cheaper than it was in June. The situation is volatile, and forecasts are all over the place — from as low as $20 a barrel forecast by Citigroup to as high as $200 a barrel seen by the head of OPEC.
putnid - we most definitely agree on the reliability of “expert opinion.” There are some jobs that are just gravy. I don’t know how someone becomes a mutual fund manager, but that’s an incredible job. You get paid handsomely for guaranteeing mediocre (at best) performance. A chimpanzee with a dart board of ticker symbols will do as well and work for peanuts and bananas.
Just the same, in my inexpert opinion, FCX doesn’t seem like the best investment choice for now.
I would love to be a mutual fund manager, paid millions.
All you have to do is closet index 95% of your money and try to pick a few winners with the rest. You will never lag the benchmark by much, occasionally you will get lucky and outperform.