The world markets are on a tear this morning so who are we to rock the boat (I hope).
The Dax is at a 3 year high, the Nikkei is through the roof with a 2.5% increase (like 300 dow pts) and gold is holding steady at $534 and change. The Nikkei is on it’s way to 15,000 after being exactly even with the DOW in 2003!
http://finance.yahoo.com/q/bc?s=%5EN225&t=2y&l=on&z=m&q=l&c=%5Edji
Holiday shopping looks good overseas with oil up a bit but mid-level oil and gas companies getting a boost from the announcement that COP is going to offer over $30Bn for Burlington Industries (BR).
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As a Conoco optionholder, I am less than thrilled with a company that has a p/e of 7 buying out a company with a p/e of 13 for a premium. On the other hand, ever since taking over in 2002, CEO Jim Mulva hasn’t made a bad move, tripling the stock price in a virtual straight line (except for the aberration coinciding with my option position!).
http://finance.yahoo.com/q/bc?s=COP&t=5y
So, if my man Mulva wants to buy a gas company, then I would have to say that the price of natural gas is no spike and we want to hold or increase our positions in CHK and ECA, at least for this week as speculation mounts. At current nat gas prices BR’s p/e will actually come down below 11 so you can infer that the company is underpriced by 20% anyway so, if I’m very lucky, COP may actually get a boost from the acquisition. Do not expect competing bids for the American gas producer as the foreigners won’t want to get involved and the US companies (don’t say collude) tend not to bid against each other on these deals.
Conoco also announce on Friday that it is upping its capital spending by 45% next year to $10Bn, a move most oil companies will make to appease congress. With a good amount of that money earmarked towards increasing refining capacity, this move will not help and may concern VLO shareholders. As for the rest of that money, anyone who reads this column more than once knows HAL and SLB are unstoppable!
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The fabulous Fed meets again on Tuesday and is unlikely to shock us by not raising rates or even signaling an end in sight but, unless they are particularly hawkish in their comments, look for the dollar to drop this week as the world banks look to ratchet up their rates to compete for world dollars. This will cause increases in commodities for us, especially oil, but that will also be driven by this week’s OPEC meeting.
With the majors being pressured by Haliburton, oops, I meant to say the government – to step up exploration and production, do not expect OPEC to be very anxious to bring the price down since increased non-OPEC capacity in 2 or 3 years will end that party anyway. I stand by my Tuesday prediction that there will be a market moving statement by an oil minister today or tomorrow to the upside.
A lot of our favorite oil plays will be on this week, (as long as we stick to the Valero Rule!) but we need to wait for a clear sign that oil can hold onto $60. I would guess that any pullback on XOM, CVX or SUN would be mostly option expiration related and will present a great buy opportunity on the Jan calls but it is far too risky to commit ahead of OPEC and inventories on Wednesday. Stick with the gas plays we know are working.
MOT chairman Ed Zander has picked this week to talk up his company, maybe because I’ve been bitching about the stock weakening of late. I hate to recommend things I already own but I love this stock and I will really love it for an entry if it hits $22.
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I apologize for the long link but this is a very good article to give you some perspective. CBS MarketWatch has a monthly contest among 40 top economic forecasters to see who comes closest to hitting the numbers for the month. A quick glance at the results of the winners picks vs. the actual results have to make you really wonder how far off the losers were!
Remember this when you are listening to these people pontificating on television.
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Time Warner could go either way with all the talk about a breakup but $17.50 looks like a pretty safe entry point. I like the Jan ’07 $15 for $3.70 (a $1.04 premium) as you have a year to watch this drama play out. The stock has not moved since 2002 so I don’t see it going down and I would get out if nothing happens by June before the premium starts wearing out.
Good day to get a chocolate fix with HSY getting a well-deserved upgrade from Morgan Stanley. The company is holding an analyst meeting tomorrow and is currently out of favor and off its high of $66 by 18%. This is definitely a Q1 stock so the May $50 calls for $7.10 (a $1.43 premium) look like a nice place to go. There will be a lot of resistance at $60 so I would be taking $9 for the option and getting out with a 30% gain if it goes that way.
SHFL is a great rebound buy today. The company is moving from a leasing model to a sales model that is panicking analysts but I think it is the right long-term play for the company, which dominates the burgeoning casino market. I wish I would have caught this thing at its $25 open on Friday but the Jan $25 calls for $1.45 look very attractive.
CVCO is in the right place at the right time but has been lumped in with ordinary homebuilders and is suffering with the group. I am looking for an entry on this one as it has had a nice run and is still far above its 200 dma of $32 but Friday may have been a turn signal already at $37.
My INTC Jan $25s are just $1.25, come play with me on this one!
FRK is looking like a nice deal but may be held down at this level until option expiration on Friday. This is a great long term play with high volatility so I like this stock if it comes back to the 200 dma of $49.50.
If Google recovers then look for the CME to follow suit. The only connection between these two companies is a similarity in IPO timing and price but that has been enough for them to track almost neck and neck all year.
http://finance.yahoo.com/q/bc?s=GOOG&t=1y&l=on&z=m&q=l&c=cme
The CME is now resting along the same line I predicted Google would hit on a pullback at $360. I am still waiting for Google but I think CME is nicely oversold at this level with earnings and sales looking to be up 25% this year. There is no CME mania as with GOOG so most of this movement is based on sound fundamentals.
YELL is getting closer and closer to TOTD status.
No Kirk for GM’s board, not sure what the reaction to that will be.
PWER looks very good but we might be a little late. This stocked peaked early last Dec at $10 so I am wary of this entry point but the Jan $7.50 seems like a fun side bet if I can pick it up for .20.
