"We sense a turn for the better coming in the oil sector," says Peter Way who tracks 'big money' investors for his Block Trader Oil & Gas Report. Here's his look at the "big block" traders.
"When we use the hedging analysis employed in our stock price forecasts, there are significant differences between some adjacent futures expirations. Here's the current picture:
"Front month (November) hedging suggests likely near-term higher prices. But the December contracts are likely to continue the past 3-month price decline – briefly.
"After that we could see crude rise over a few months into the $115-125 area or even higher, providing a bullish backdrop for most energy stocks. We sense a turn for the better coming in this sector.
"Several issues are selling at attractive prices now. Among major integrated producers, the standout prospect among the big oils is Petrochina (NYSE: PTR).
China Petroleum (NYSE: SNP) has already announced that its profits were down 71% in the first half. Now PetroChina (NYSE: PTR) is getting ready to report a drop in its profits.
The culprit is China's energy policy, which is hurting investors in the Chinese oil industry. According to the AP, "While other global oil giants are reporting record profits, Chinese government price controls prevent PetroChina and other domestic refiners from passing on higher costs for crude oil to consumers." It is an excellent reason for investors to avoid these stocks.
The central government control of oil profits is a fine example of why China should not have taken many of its large companies private. China needs to keep gas and diesel prices down to control inflation and offer cheap fuel to maintain transportation costs of exports at low levels.
With oil trading around $120 a barrel, the oil refiners in China could actually swing to losses in the second half. China is driving investors out of its most important corporations. PetroChina already trades near a 52-week low. That is likely to get worse.
Douglas A. McIntyre is an editor at 247wallst.com.
Over the summer, my twelve-year-old son proclaimed that he was going to be the world's first zillionaire! I had to explain to him that if he achieved that lofty goal he would be the only one because that is more capital than exists today; unless he meant Zimbabwean dollars. I suggested that long before he owned the whole planet there might be a few objections here and there.
This got me thinking about my pal Warren, a frequent topic of conversation in business and investment circles, and how he amassed such a great fortune over the past five decades.
He is a long way from owning the world but he has started to expand his horizons to the international scene. He has bought and sold PetroChina (NYSE: PTR) for a tidy $4 billion dollar profit and he has been hedging against the dollar for the last few years with mixed results. He bought an Israeli metal fabricator and he has splashed about in Europe and Asia.
If you read Berkshire Hathaway's (NYSE: BRK.B) annual reports you will find the chairmans letters, where Buffett discusses both his successes and his failures. It is his failures and the fact that he does not make the right call every time that I wish to draw attention today. BloggingStocks promotes much debate, sometimes name calling, and sometimes worse. However, it is important to understand that even the best investors make mistakes.
The stock market was down yesterday and it is down again today. Bearish sentiment is roaming through Wall Street right now, so I thought I would look back on another occasion when the market was going through similar turmoil and I wrote about the following eight stocks, which I thought would be "safe havens" in such a storm.
Six of the eight did well and two did not, and of course one of those two was a disaster. Among the losers, I do not think anyone is fretting about UPS, which is still one of the few triple-A rated companies along with Berkshire Hathaway. It has been well reported that the slowing economy and higher fuel prices have been the major culprits affecting UPS's earnings. In the case of WaMu, it's demise has also been well reported, but at the time I recommended it WaMu had a stellar reputation of growth and high yield for over two decades. There is no hiding, it turned out to be a lousy pick and an ANTI-SAFE Haven
Washington Mutual(NYSE: WM) closed Monday at $4.21 down from $45.50; a 98% loss.
Fortunately the remaining six picks have done very, very well. If you had bought the pool, the average gain over the last two years would have been 7.14%. Adding the dividends over the two years would have raised this to 13.14%.
PetroChina (NYSE: PTR) closed at $132.04 Friday. WTI Crude Futures are recently up 1.03% to $116.39 according to Bloomberg. PTR over all option implied volatility of 40 is below its 26-week average of 46 according to Track Data, suggesting decreasing movement.
CNOOC Ltd (NYSE: CEO) closed at $133.78 Friday. CEO overall option implied volatility of 43 is near its 26-week average according to Track Data, suggesting non-directional risk.
Canadian Natural (NYSE: CNQ), an oil and natural gas production company, closed at $72.72 Friday. CNQ September option implied volatility of 54 is above its 26-week average of 45, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: Georgia Gulf, Sohu.com and I-flow were today's noteworthy downgrades:
Citigroup downgraded Georgia Gulf (NYSE: GGC) to Sell from Hold to reflect the deteriorating fundamentals in North American housing, and their belief that the company is increasingly likely to break its debt covenant ratio.
Deutsche Bank downgraded shares of Sohu.com (NASDAQ: SOHU) to Hold from Buy on valuation and expects 2009 growth to be modest.
Piper cut I-Flow (NASDAQ: IFLO) to Sell from Neutral following the weak Q1 report and guidance.
OTHER DOWNGRADES:
Morgan Stanley downgraded Coca-Cola Femsa (NYSE: KOF) to Equal Weight from Overweight.
Goldman removed Teva Pharma (NASDAQ: TEVA) from its Conviction Buy List.
Aqua America (NYSE: WTR) was cut to Market Perform from Outperform at Wachovia.
JP Morgan lowered PetroChina (NYSE: PTR) to Underweight from Neutral.
MOST NOTEWORTHY: Sunoco, Ryanair and HSBC Holdings were today's noteworthy downgrades:
JP Morgan downgraded Sunoco (NYSE: SUN) to Underweight from Neutral citing expected margin pressure due to high leverage to sweet crude. Goldman also downgraded shares of Sunoco to Neutral from Buy.
Deutsche Bank downgraded shares of Ryanair (NASDAQ: RYAAY) to Sell from Hold as they believe the European airlines sector will trade well below book value until the companies deal with higher oil prices.
UBS cut HSBC (NYSE: HBC) to Neutral from Buy to reflect the potential for higher losses at the company's household unit and weak performance at its U.S. bank.
OTHER DOWNGRADES:
Broadpoint lowered MTS Medication (NYSE: MPP) to Neutral from Strong Buy.
HSBC cut Southern Peru Copper (NYSE: PCU) to Neutral from Overweight.
Goldman downgraded CNH Global (NYSE: CNH) to Neutral from Buy and PetroChina (PTR) to Sell from Buy.
While the difference between the two companies remains slim, Exxon Mobil can now claim its position at the top thanks to a market cap of an amazing $455.8 billion, compared to PetroChina's market cap of "only" $453.1 billion. Since going public last November, shares of PetroChina have been in free fall, giving back 58% of its value.
The fall from grace for PetroChina is being linked to record high oil prices which put a squeeze on profit margins for the eight year old Chinese company. It has been a tough year for all Chinese stocks, which on average have dropped 25% so far in 2008. The recent run up in oil prices has also led to a slight drop in Exxon Mobil stock, but only a 3% pullback since the time of PetroChina's listing in November.
Director and producer Steven Spielberg resigned his non-paying artistic director advisory role for the 2008 Summer Olympics Games in Beijing because he has become disenchanted with China's lack of effort to use its influence in Sudan to end violence in the Darfur region.
The Chinese want to be players on the world stage without accepting the responsibility that goes along with it, and that was not acceptable to Spielberg. There has been growing pressure around the world on the Chinese, who purchase most of Sudan's oil and sell them weapons, to exert political and economic pressure on the government of Sudan. While Spielberg is only one more voice in a long list condemning Chinese actions and the lack there of, he is a very prominent voice.
Governments, Olympic athletes, religious leaders and shareholders have been complaining that China was not doing enough, if anything to curb the violence. This was an issue with Berkshire Hathaway (NYSE: BRK.A) shareholders at their 2007 annual meeting. While stating that he sold off BRK's interest in PetroChina (NYSE: PTR) based on valuation, Warren Buffett was completely divested in a matter of months and the stock has fallen almost 40% from its highs.
Happy Thanksgiving from the BloggingStocks staff and contributors! Here are some leading financial stories around the world today:
Stocks plunge in China China's Shanghai Composite Index sank 4.41 percent Thursday to fall below 5,000 -- 18.2 percent off its peak of 6,092 in mid-October -- adding evidence of an end to the China bubble. Shares of PetroChina (NYSE: PTR), the world's largest oil company, fell 4.6 percent to 35.11 yuan.
ArcelorMittal takes charge in China ArcelorMittal (NYSE: MT), the world's leading steelmaker, is taking a controlling 73 percent stake in China Oriental Group Co. Earlier this month, ArcelorMittal bought a 28% stake in the iron and steel maker for $647 million. The Luxembourg-based company also disclosed plans for steel plants in India's Jharkhand and Orissa states.
Air France-KLM's Q2 profits soar Air France-KLM (NYSE: AKH) on Thursday posted second-quarter profit of $1.1 billion, nearly double the $539.7 million reported in the same period last year. The top European airline also said it had not dismissed the possibility of offers for Italy's Alitalia or Spain's Iberia airlines.
Last week was an interesting week for Chinese stocks. While I wrote about PetroChina's debut and its subsequent record-setting $1 trillion market cap, my colleague and fellow-BloggingStocks blogger, Aaron Katsman, wrote about the potential bursting of the Chinese bubble.
With growth and excitement like this, we shouldn't be surprised to read today that China published inflation numbers that matched its own decade-long record high of 6.5%. This will put additional pressure on the Chinese Central Bank to raise interest rates, something it has already done 5 times this year alone.
The Bank blamed rising food prices in general for the inflation run-up and said that prices for pork, in particular, had skyrocketed 55%. October's record $27 billion trade surplus injected even more cash into the economy, stoking inflation that's twice the 3% pace that is the central bank target. Chinese trade surplus reached an all-time high this month -- in spite of the Central Bank's pledge to rein in export growth. BloggingStocks reported yesterday that Henry Paulson, Secretary of the US Treasury, is expected to continue lobbying the Chinese to relax restrictions on the Chinese yuan to allow for faster appreciation of the Chinese currency.
MOST NOTEWORTHY: FreeSeas, Nektar, Altus Pharmaceuticals and AbitibiBowater were today's noteworthy initiations:
Cantor initiated shares of FreeSeas (NASDAQ: FREE) with a Buy rating and $10 target, as they expect the company to benefit from the continued strength in the dry bulk market.
JP Morgan resumed coverage of Nektar (NASDAQ: NKTR) with an Overweight rating, as they view weakness from the discontinuation of Exubera as a buying opportunity given the company's base royalty business and pipeline opportunities.
Altus Pharmaceuticals (NASDAQ: ALTU) was initiated with a Buy rating and $19 target at Jefferies. The firm expects news flow from the company's two lead products over the next 6-12 months that should act as catalysts.
AbitibiBowater (NYSE: ABH) was initiated with a Sell rating and $18 target at Banc of America, as they are cautious on newsprint trends; the firm recommends reducing existing positions.
OTHER INITIATIONS:
Caris initiated Collective Brands (NYSE: PSS) with an Average rating and $18 target and Under Armour (NYSE: UA) with an Above Average rating.
Stifel started shares of Patriot Coal (NYSE: PCX) with a Hold rating.
PetroChina (NYSE: PTR) was initiated with a Sell rating at Goldman.
MOST NOTEWORTHY: Momenta Pharmaceuticals, Interpublic Group, Lionbridge, PetroChina and Collagenex were today's noteworthy downgrades:
Deutsche Bank downgraded shares of Momenta Pharmaceuticals Inc (NASDAQ: MNTA) to Hold from Buy and lowered their target to $6 following the FDA's non-approvable letter for M-Enox.
Banc of America downgraded shares of The Interpublic Group of Companies Inc (NYSE: IPG) to Neutral from Buy to reflect the economic uncertainty and concerns regarding the company's relative revenue growth.
Lionbridge Technologies Inc (NASDAQ: LIOX) was downgraded to Sell from Neutral at Goldman Sachs following disappointing Q3 results and guidance.
Credit Suisse downgraded PetroChina Company Limited (NYSE: PTR) to Underperform from Neutral based on lack of catalysts.
Jefferies lowered its rating on Collagenex Pharmaceuticals Inc (NASDAQ: CGPI) to Hold from Buy to reflect a lack of near-term catalysts given the company's thin pipeline.
In a Bloomberg article this morning, Chinese investors got their first chance to own PetroChina (NYSE: PTR)'s Class-A shares, as the shares began trading in their Shanghai debut today. As the trading day ended in Shanghai, Chinese investors bid up the Beijing-based state-owned oil company to value the firm at $1.1 trillion, more than Exxon Mobil (NYSE: XOM) and General Electric (NYSE: GE) combined.
The stock is now so big that Bloomberg reports, "The rally makes PetroChina shares four times more expensive relative to earnings than those of Exxon, whose sales are almost four times higher. China's entire stock market was valued at less than $1.1 trillion before tripling this year and giving the communist nation five of the world's 10 biggest companies."
BloggingStocks' own Michael Fowlkes had a post last week portending to Exxon's fall from the perch of world's largest company. A-shares, which PetroChina listed today, are traded in Shanghai and Shenzhen stock exchanges and are open to domestic investors and qualified foreign institutional investors. Their popularity has soared recently as China has made provisions to allow more open investing in the A-share market to strategic overseas investors.
Over the summer, my twelve-year-old son proclaimed that he was going to be the world's first zillionaire! I had to explain to him that if he achieved that lofty goal he would be the only one because that is more capital than exists today; unless he meant Zimbabwean dollars. I suggested that long before he owned the whole planet there might be a few objections here and there.
The stock market was down yesterday and it is down again today. Bearish sentiment is roaming through Wall Street right now, so I thought I would look back on another occasion when the market was going through similar turmoil and I wrote about the following eight stocks, which I thought would be "safe havens" in such a storm.
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