Thursday, October 28, 2010
Energy Earnings
With Chevron (CVX) trading at basically a 52-week high going into its earnings release (tomorrow 29-Oct), I would recommend to keep an eye on ConocoPhillips (COP). The share price for COP has fallen off a bit from its 52-week high, hit late last week. I have seen before where they announce earnings, pay their dividend, and the stock pulls back 5% - 10%. COP shares are down about 3% from their pre-earnings price, I will be looking to see if the pull back brings the stock down below $55 a share. I think that if this pullback (without a broader market move) drops the shares down to $55 it would be a good entry point into COP.
Monday, October 18, 2010
Citigroup Inc.
Citigroup Inc.
Watch out for the earnings trap… It is not just Citigroup, but as a holder of Citigroup (C) stock it is the one that caught my attention. Today Citigroup beat earnings estimates, and the stock is up almost 6%.
So if the company beat earnings estimates what “trap” am I talking about? The “trap” I’m referring to is the practice of using cash reserves to cover bad loans. As one analyst put it “Reducing loan loss reserves is not something you can do indefinitely”.
If you look at just the top line and bottom line you can see where the problem is. While they beat on the bottom line, the top line (revenue) is lower than their second quarter. So they have actually beat expectations in the near-term (likely why the stock is up today), but their revenue dipping does not inspire confidence for their long-term prospects. Further to that, they used cash reserves to cover bad loans. As mentioned above, this is not sustainable for the long-term.
I currently hold Citigroup (C), and do not plan to sell (I have a small loss) on this spike. What this spike does is that it raises concerns about when they might be back to real profitable. I would fully expect that this stock can break the $5 barrier when the economy starts to make a recovery, but caution those who think it will go up three-fold from here.
The chance to make a 20%-25% gain is there in the medium to long-term, but I do not see the 300% gain many are hoping for. The biggest risk is getting in at these prices and expecting something to happen in the very near-term. For a medium-term play I think $5 is a real target, perhaps $6 if the housing and credit markets recover quicker than expected. Just don’t look at today’s “beat” of earnings as a strong sign of their health.
Watch out for the earnings trap… It is not just Citigroup, but as a holder of Citigroup (C) stock it is the one that caught my attention. Today Citigroup beat earnings estimates, and the stock is up almost 6%.
So if the company beat earnings estimates what “trap” am I talking about? The “trap” I’m referring to is the practice of using cash reserves to cover bad loans. As one analyst put it “Reducing loan loss reserves is not something you can do indefinitely”.
If you look at just the top line and bottom line you can see where the problem is. While they beat on the bottom line, the top line (revenue) is lower than their second quarter. So they have actually beat expectations in the near-term (likely why the stock is up today), but their revenue dipping does not inspire confidence for their long-term prospects. Further to that, they used cash reserves to cover bad loans. As mentioned above, this is not sustainable for the long-term.
I currently hold Citigroup (C), and do not plan to sell (I have a small loss) on this spike. What this spike does is that it raises concerns about when they might be back to real profitable. I would fully expect that this stock can break the $5 barrier when the economy starts to make a recovery, but caution those who think it will go up three-fold from here.
The chance to make a 20%-25% gain is there in the medium to long-term, but I do not see the 300% gain many are hoping for. The biggest risk is getting in at these prices and expecting something to happen in the very near-term. For a medium-term play I think $5 is a real target, perhaps $6 if the housing and credit markets recover quicker than expected. Just don’t look at today’s “beat” of earnings as a strong sign of their health.
Monday, October 11, 2010
Updates
Updates to previous posts:
On July 29th I recommended Oasis Petroleum Inc. (OAS) at $16.29 a share. It has never been back to that price and sits at $22.65 (well above my $20 end of year price target). This represents a gain of just under 35%, I have a 3% trailing stop-loss on the stock and will let it continue to run for now.
On June 14th I posted about a simple covered call play on oil futures (USO), the plan was to sell October calls at $36 a share, the purchase price was ~$34 share at the time. I netted a 6.5% premium for my October options (selling them for $2.25). This means my actual sale price is $38.25 a share. So should this stock close above $36 on Friday and below $38.25 I will have come out ahead and turned an 11.7% profit. Currently USO is at $35.60, and November calls would net another 3.75% premium.
On April 23rd I recommended Vale (VALE) a Brazilian mining company. This stock has turned out to be very up and down since that purchase, and at times I have been down quite a lot. I stand by this pick, and fully expect that in the mid-term this stock will show solid returns. So far I am only up 2.77% on this stock.
On July 29th I recommended Oasis Petroleum Inc. (OAS) at $16.29 a share. It has never been back to that price and sits at $22.65 (well above my $20 end of year price target). This represents a gain of just under 35%, I have a 3% trailing stop-loss on the stock and will let it continue to run for now.
On June 14th I posted about a simple covered call play on oil futures (USO), the plan was to sell October calls at $36 a share, the purchase price was ~$34 share at the time. I netted a 6.5% premium for my October options (selling them for $2.25). This means my actual sale price is $38.25 a share. So should this stock close above $36 on Friday and below $38.25 I will have come out ahead and turned an 11.7% profit. Currently USO is at $35.60, and November calls would net another 3.75% premium.
On April 23rd I recommended Vale (VALE) a Brazilian mining company. This stock has turned out to be very up and down since that purchase, and at times I have been down quite a lot. I stand by this pick, and fully expect that in the mid-term this stock will show solid returns. So far I am only up 2.77% on this stock.
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