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Virtual Portfolio Review / Jan 28th 2007 / EOG – INTC

EOG (2/1) – This one is bad!  While trading at 3x early ’04s level ($22),

They are projected to earn .98 for Q4, down 50% from last year but the year should come out at $4.83, down "just" 10% from ’05 when they peaked out at $80.  It’s all about how much they hedged gas production and how much they had to cut that production along with the CHK cartel to stop the price of gas from slipping back below $5.

While the GS/MS "interest" in Dominion’s $5Bcf reserve and 217Kb of oil is purported to be $15Bn (highly unlikely), EOG has a $16Bn cap with 5.5Bcf and 106Mb of crude.  Sounds like they are just about maxed out on value then doesn’t it?

Clearly EOG’s best quarters seem to be behind it with Q1 at $424M in net on $1.1B in sales but Q3 netted just $297M in profits on $968M in sales.  Against a revenue reduction of $116M cost of revenue rose $6M while SG&A climbed $7M and the dreaded "Other Expenses" jumped $39M while A/P went up a massive $180M against flat recievables and (funny story) inventory climbed $41M to $117M – more than double last year’s level! 

At least they bought back $370M worth of stock so far this year, that’s roughly 10% of all trades to keep the stock flat this year – well, down $10 but who’s counting?  All this has been very painful and Net Cash Flow is actually negative for the year (-$48M but who’s counting).

I may have been premature with my call but these guys are going down so I’ll be repositioning these to March and hope for an early spring!

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FDX (3/21)-  This is turning into a terrible spread!  We have the July $120s that are down 20% and the April $100 puts that are down 18% and the earnings aren’t until 3/21 so I think I simply forgot to sell Febs as there is no reason not to have….  The good news is we can sell the March optons as they expire on the 16th but you still get overpaid for earnings by people who don’t realize they expire before the end of the month (sad but true).

If I had to guess, I’d say I played it right on the whole, they’ve gone down since we bought them (12/18) and should bottom out right about the right time for us to cash out the Aprils and DD on the Julys (if we’re felling that brave).  I wrote a whole thing on FDX I’ll dig up one day but, suffice to say they should be at $150 by the end of the year, hopefully over $120 by July but it all depends on oil the economy etc…

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FHCO (???) (regular stock) – these guys are up 46% from 11/13 and I’m about done with them.  These small caps scare me!

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GLW (.28, was -.02) – Oh why did I sell those calls?  I did nothing but tell people how great they are and then I wimped out and hedged…    Oh well, I will be called away from the straight stock unless I decide to roll it forward (always an option for .70 a month on a $18.60 basis).  The May $20s are trickier but we’ll just have to see what happens next week. 

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GOOG ( 1/31) – your guess is as good as mine, who can even tell where they’re going to be the next hour, yet alone a week later! 

They already beat last year’s earnings by 32% and they haven’t even had a 4th quarter yet.  If they hit the crazy high estimates of $2.90 (vs the $1.54 they posted this time last year) that puts them up 80% for the year – remember last year when everyone said they were running into "the law of large numbers"?  I guess it was more of a guidline…

Having just set up the public site with ads I can tell you that there are no realistic alternatives to Adsense, strange as that may seem.  We’ll see what Panama can do but so far, not much and there is no way they bothered Google this quarter.  Google only needs to keep up a 25% growth rate to be worth $550 right now (assuming a p/e of 30) but the HUGE expectations do make me a little nervous (and others too it seems) still I sold my puts and I think I’ll take my chances with spreads.

I’m happy with my Mar $520s at $16.30, even though my basis is underwater at the moment against the Feb $510s, currently  at $14.70.  I will certinly consider another spread into the earnings.

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GRMN (2/14) – I do not get this sell-off.  The company is strong all around, sales are great and earnings are up 50% from last year but it’s not enough to fight the sentiment that IPhone and other cell GPS systems will render them irrelevant.  I took the $50s to make back the money I lost on the $55s and now they are down a dime too, I can’t afford to have much tolerance for them not firming up at $49 even though the 200 dma is down at $47.50.

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HES (1/31) - They were given a boost in November when they shot up from $46 to $52 in late November when Barrons named them as a possible LBO target but no one has stepped up to the plate as yet and it’s time to go to the earnings confessional and try to spin a substantial drop in earnings (was $1.39, projected $1.13) to the 19 out of 21 analysts who have them at buy or hold.  BSC just upgraded them to outperform on Friday and it’s highly unlikely they’ll see $45 again so I need to decide what to do with these ahead of earnings.

As is typical with all these integrateds, they’re hard to pin down - costs are climbing and they are spending A LOT on CapEx which will go down next year.  They don’t buy back shares, they spend money to grow so I should love and I will not try to wish them down at this point – I just need to pick an exit and get out, hopefully a sell of before Wednesday!

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HMC (1/31) – Gosh is 1/31 going to be a busy day!  This is a $72Bn compnany that goes up and down $1.5Bn a day.  I’m expecting a beat, plain and simple here as the sales numbers have been way up and the expectations are pretty low.

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HRB (2/22) – got away from me.  They usually spike up in March when everyone starts hearing their name every 5 minutes (hopefully not followed by the words "being investigated" or "charged with fraud" this year!).  They shot up early and I had to buy out the Jan $22.50 caller for $1.90, a nice .85 profit for him!

Although expectations are low I don’t have the protection I was hoping for into earnings so I may have to just kill this trade into earnings as I had never intended to be risking $2.40 at this point!

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IBN (42% rise in earnings) – another ADR that is hard to track but it looks to me like they are going to put up better than 30% growth for the year on top and bottom lines.  Still, they need the BSE ot rise or they will get pulled down with it!

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IGW (ETF) – it would take a miracle to save the $65s, need to take whatever break we get off the table unless there’s a huge rally.

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IMAX (???) – purely bought on buyout speculation that apperars dead but we have until June and may as well give it some time.

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INTC (4/17, last Q was a 4% beat) – last year was a rebuilding/retooling year for them but 2007 should net them a good 20% growth with another 20% for 2008, hardly the kind of earnings that deserve a p/e in the low 20s, especially when that growth is in a company with a virtual monopoly with $1.5Bn a quarter in profits.

They spent $6Bn on R&D this year, that’s more than AMD had in total sales!  That means Intel can throttle back and coast and extra $1-2Bn a year any time they want to and it would still take AMD a few years (if ever) to catch up.  The 45-nanometer chips will usher in a whole new wave of smart devices and I have no fear of this stock over the long haul – the Feb $22.50s though, may have been jumping the gun but that and the Apri’s were placeholders for the evenrual leap (once it settles down in a channel).


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  1. EOG will you be looking at Mar 60 or Mar 55 puts?


  2. Monday
    Economic: NA
    Earnings: Mattel (MAT), Phelps Dodge (PD), USG Corp (USG), Verizon (VZ), Schering (SGP), Atheros (ATHR), Gol Air (GOL), Zimmer (ZMH)

    Tuesday
    Economic: Consumer Confidence (109.5)
    Earnings: 3M (MMM), Black & Decker (BDK), Illinois Tool (ITW), JetBlue (JBLU), Merck (MRK), UPS (UPS), Cymer (CYMI), Flextronics (FLEX), SanDisk (SNDK), US Steel (X), Websense (WBSN)

    Wednesday
    Economic: GDP Advance (3.0%), Chain Deflator (1.7%), Employment Cost Index (1.0%), Chicago PMI (52), Construction Spending (0.0%), Weekly Crude, FOMC Policy (5.25%)
    Earnings: Altria (MO), Boeing (BA), Kodak (EK), CBOT (BOT), Hilton (HLT), OptionsXpress (OXPS), NYMEX (NMX), Eagle Matls (EXP), Gilead (GILD), Google (GOOG), Armor Hldg (AH), JDS Uniphase (JDSU), Starbucks (SBUX), Sunoco (SUN), Pulte (PHM)

    Thursday
    Economic: Inc & Spend (.5%, .7%), Weekly Claims (318K), ISM Index (51.5), Auto / Truck Sales (5.4M, 7.4M)
    Earnings: Archer Dan (ADM), Comcast (CMCSA), CVS (CVS), Exxon (XOM), Celgene (CELG), Monster (MNST), Under Armour (UA), Valero (VLO), Amazon (AMZN), Dolby (DLB), Electronic Arts (ERTS), Intuitive Surgical (ISRG), Rackable Systems (RACK), Silicon Motion (SIMO), Vertex (VRTX)

    Friday
    Economic: Nonfarm Pay (150K), Unemployment (4.5%), Hourly Earnings (.3%), Factory Orders (1.5%), Michigan (97.8)
    Earnings: Arch Coal (ACI), Chevron (CVX), NYSE Group (NYX), Oshkosh (OSK), Ventana Med (VMSI), Wendy’s (WEN)


  3. EOG – not sure, need to see how oil shakes out

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    Oh Kustomz that is so kick ass! You saved me so much bother this morning!

    Thanks,

    - Phil


  4. Kustomz,

    Nice summary for earnings/economic data this week. ATHR always has been on my watch list, but I never have pulled the trigger on Calls.


  5. Just saw some news on my streamer, probably nothing big but wanted to post it for EXPE. Stock might get a little pop today.

    DOW JONES NEWSWIRES

    Expedia Inc.’s (EXPE) Expedia.com Monday said it inked a deal to serve as the exclusive travel partner of Wal-Mart Stores Inc.’s (WMT) Sam’s Club division.

    The online travel company said Sam’s Club’s more than 47 million members will be able to access Expedia-powered booking tools, travel content, vacation packages, flights, hotels, rental cars, cruises, and in-destination activities, attractions and services.


  6. Phil,
    Bear Stearns upgraded Wynn and raised price target to $124. Very bullish. Are you considering this one?
    Thanks!


  7. I’ve always said WYNN is the good casino to own but we didn’t play it as the price is getting a bit high. Don’t forget $124 is a year-end target, not very thrilling for a stock already at $110. If I bought it during the first 11 months of 2006 for $70 or less and it’s at $110 and you tell me if I wait the rest of the year I should get $124 – I’d be lightening up, not taking more.

    On a dip, I love it though!

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    EXPE story is great!


  8. TSO reports @ 12:00 noon today

    BAB listed as “proposed” at 7:00 am

    N


  9. NFLX (Netflix)

    Downgraded from Hold to Sell – Maybe some calls if it hits 20? Pretty good support there. What’s your thought on the online rental sector? Probably not worthing touching with a ten foot pole. .


  10. Update:

    BAB “confirmed” reporting @ 2:00 am Feb 2.

    EOG MRO MUR VLO XOM all at 12 pm Feb 1

    ACI CVX before market open Feb 2


  11. TSO in already, they are spending $1.6Bn on a refinery, thats a nice break because they would be way up otherwise on those earnings.

    I’m not sure about those 12 pm times, doesn’t make sense…

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    NFLX – as I said last week, 20-30 foot pole minimum! ;-)


  12. Juliet, what streamer are you using (if I may ask)?


  13. Crap, I meant John. JOHN! Not Juliet.


  14. Phil, thanks, missed the comments last week on NFLX. .

    Kwan, TD Ameritrade streamer.

    John