TheStreet.com's Jim Cramer says these stocks rise because they're doubly blessed. Integrateds fall because they aren't.
So many people have been puzzled why the major integrateds have not moved with the last $30 rally in oil's spot price. The answer?
They can't take advantage of it.
They either didn't believe, and therefore didn't drill, or they have been so in the crosshairs of sovereign lunacy that they haven't been able to. They didn't have the rigs or they judged that the rigs were so expensive that, like 1980, they would look like dopes when oil came back to $40-$50, where many thought it would. (Go back and check even last year's research for price targets, most of which were from the oil companies' themselves.)
Or maybe it didn't matter anyway. So many of the contracts these companies have signed with governments around the world are either being abrogated or just outright confiscated that you have to ask yourself "Who can invest under those scenarios?" Exxon (NYSE: XOM) (Cramer's Take) in Venezuela. Shell (NYSE: RDS.A) (Cramer's Take) and now BP (NYSE: BP) (Cramer's Take) in Russia. You can't continually invest billions and then write it off because the contracts you wrote don't mean anything.
TheStreet.com's Jim Cramer says as crude goes higher, it makes more and more sense to go for other energy options.
Every day that oil goes up, there is a new set of technologies that had formerly been priced out of the market that comes back to life. Let's take wind. Wind, in itself, just seems so stupid. It needs, well, wind. Much of our country doesn't have enough wind to make this economic. There are only certain regions that can really benefit.
But when oil is at $130, SO WHAT! The parts of the country that have a lot of wind are nuts not to do wind. Wind, when properly integrated into the grid, costs 4 cents a kilowatt. The issue has been shortage of everything that goes into a windmill, because nobody in the chain thought it was worthwhile to mass-produce them. So even though the cost is low, no companies felt it was worth it because the market seemed so niche.
In other words, it was the wind supply chain that was the problem, because we only thought in terms of gigantic plants that created energy. But with nuclear not an option -- never will be in this country, if you ask me -- natural gas falling out of favor post-Katrina as being unreliable, and coal simply intolerable because of the climate problems, wind has become the most natural fuel of all.
TheStreet.com's Jim Cramer says lots of companies now thrive with crude up here.
Oil's not a tax on everything -- it's a tax on the consumer. That's what I come down to when I see the charts this weekend and ponder what's happening in so much of industrial America.
Company after company that I examine -- the new techs, as I call them -- actually benefit from higher oil prices. Or they can pass them on with ease, because of the worldwide demand being so strong.
Take all of the companies involved with making a Boeing (NYSE: BA) (Cramer's Take): Boeing itself, Alcoa (NYSE: AA) (Cramer's Take), Honeywell (NYSE: HON) (Cramer's Take) and Precision Castparts (NYSE: PCP) (Cramer's Take) being good examples. Each of these is necessary because the new Dreamliner burns lots less fuel, and with fuel the biggest airline cost, it stands to reason that higher energy prices make the plane more desirable even at a higher price point.
TheStreet.com's Jim Cramer says it's not a strong-dollar sell -- the story here is still too good.
Why did natural gas go down last week? What was that? Inventories were down. The commodity price was up. The fuel itself is green. It is better than ethanol and it is being used to fuel an increasing numbers of cars and trucks.
The whole move down had to have been triggered by something, right? Yeah, how about the fact that the stocks were up a lot and were due for some profit-taking.
Recall that the real "reason" they went down is that the dollar "got strong," and that was supposed to trigger commodity deflation; natural gas is a commodity and is therefore going to go down. (Barron's made this very case this weekend, oblivious to the facts, but loving the theory.)
This kind of thinking is just so stupid that it shows you can get chance after chance after chance to own the fuel that can take care of the nation if we just let it. Of course, the stocks began to come back later in the week as threats of supply cut-offs of crude -- they came true this weekend -- made natural gas declines virtually impossible, despite the "sense" that it peaked. So the money has came back and I believe will continue to come back.
MOST NOTEWORTHY: Greatbatch and Blue Coat Systems were today's noteworthy initiations:
Piper assumed coverage of Greatbatch (NYSE: GB) with a Neutral rating and $19.50 target as they believe acquisition-related expenses will weigh on near-term bottom-line results.
Collins Stewart believes shares of Blue Coat Systems (NASDAQ: BCSI) are highly attractive at current levels. The firm started shares with a Buy rating and $29 target.
OTHER INITIATIONS:
Ultra Petroleum (NYSE: UPL) was initiated at Credit Suisse with an Outperform rating and $82 target.
Lehman assumed Dana Holding (NYSE: DAN) with an Overweight rating and $15 target.
MOST NOTEWORTHY: Smart Balance, Cascal NV and Ashland were today's noteworthy initiations:
Citigroup initiated Smart Balance (NASDAQ: SMBL) with a Hold rating and $9 target, as they believe success of the company's new products is not a foregone conclusion and prefers to wait for increased visibility before becoming more positive on the name.
JP Morgan believes Cascal NV (NYSE: HOO) will leverage its global scale and expertise in water infrastructure markets to drive 25% annual EPS growth through 2010. The firm has an Overweight rating on the stock.
Ashland (NYSE: ASH) was started with a Positive rating as Susquehanna, as they are positive on ASH's earnings power. The firm views shares as a compelling risk/reward opportunity.
OTHER INITIATIONS:
Broadpoint assumed SuccessFactors (NASDAQ: SFSF) with a Strong Buy rating and $12 target.
Morgan Stanley initiated Fastenal (NASDAQ: FAST) with an Equal Weight rating and $40 target.
RBC Capital started Ultra Petroleum (NYSE: UPL) with a Sector Perform rating and $80 target.
The Associated Press reports that Asian markets are down between 3% and 4% today and European markets have opened down about 1%. Already this year, the S&P 500 is down 10%. Yet I am convinced investors can make money in this down market.
I have not been that surprised about how bad the economic and stock market news has been this year. I believed that it was coming – in fact I was way too early about it. I remember back in 2005 being quoted about how a housing bubble was building and that it would eventually pop.
I did not know back then about subprime mortgages or how they had been packaged into securities with odd names like Collateralized Debt Obligations (CDOs). It appears to me that this housing bubble burst is different from the one in the early 1990s thanks to those CDOs.
Murphy Oil (NYSE: MUR), a global oil and gas exploration and production company with refining and marketing operations, will report Q4 EPS on January 31. MUR overall option implied volatility of 40 is above its 26-week average of 33 according to Track Data, suggesting larger price fluctuations.
Ultra Petroleum (NYSE: UPL) is an independent, exploration and production company with gas operations focused in the Green River Basin of southwest Wyoming. Natural Gas Futures are down 2.35% to 7.805 according to Bloomberg. UPL overall option implied volatility of 39 is above its 26-week average of 35 according to Track Data, suggesting larger price risk.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Readers of this space know that one argument forwarded here is that in the era of elevated energy prices, oil and natural gas companies are likely to remain promising plays for the foreseeable future, barring the discovery of a cheap, widely available, alternative energy. And among oil/natural gas companies, Ultra Petroleum is worth an evaluation.
Ultra Petroleum (AMEX: UPL) is in independent oil/natural gas company with core properties in the Green River Basin of southwest Wyoming
Analysts like UPL's proven reserves of 2.4 trillion cubic feet of natural gas equivalent, modest cost structure, adequate-to-good pricing power and likely production increases. The latter stems from the start of operations at the Rocky Express Pipeline in 2008, among other efforts. Further, look for UPL to attract increased attention from investors as the value and benefits of natural gas rise amid continued high oil prices. The Reuters F2007/F2008 EPS consensus estimates for UPL are $1.29/$2.37.
In his Block Trader Oil & Gas, Peter Way follows the big hedge funds and market makers to find out what they are doing. Here's a look at his top oil plays.
He observes, "The hedgers at the NYMEX are protecting their crude oil positions in ways that indicate they see continuing upward pressure on prices."
Based on this hedging activity, he states, "The outlook for the next 12 expiration months that the by major players at the crude oil table suggest little lasting price weakness, and a general level prevailing above $70 over the remainder of the year."
What are the best stocks to buy to bet on the trend for firm oil prices? To decide, Peter Way looks at the buying patterns of market makers -- the big boys on the trading floor.
In addition, he notes positive market maker activity among oil exploration & production stocks. He explains, "With significant quantities of low-cost reserves already found, and prospects for additional finds tied up, these companies inevitably will get acquired by bigger producers whose customer demands exceed their yearly reserve findings."
MOST NOTEWORTHY: Petrohawk Energy Corp (HAWK), Time Warner Cable Inc (TWC) and GameStop Corp (GME) were today's notable initiations:
Jefferies initiated Petrohawk Energy Corp (NASDAQ: HAWK) with a Buy rating and $14.50 target, as the firm believes Petrohawk has the right assets to pursue the "acquire-exploit-self" strategy well.
Bear Stearns started Time Warner Cable (NYSE: TWC) with a Peer Perform rating.
GameStop Corp (NYSE: GME) was initiated with a Buy rating and $67 target at Nollenberger.
OTHER INITIATIONS:
AG Edwards initiated Venoco, Inc (NYSE: VQ) with a Buy rating on valuation.
Credit Suisse started CarMax, Inc (NYSE: KMX) with a Neutral rating and $55 target.
Jefferies considers Ultra Petroleum Corp (AMEX: UPL) the most dominant company in the Pinedale Anticline, the nation's second largest natural gas field and they expect 2007 to be a pivotal year. The firm initiated Ultra Petroleum with a Buy rating and $64 target.
TheStreet.com's Jim Cramer says these stocks rise because they're doubly blessed. Integrateds fall because they aren't.
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