NEW YORK – In late December 2000, one-month natural gas futures spiked to a ten-year high of $10 per million btu. But, as the familiar oil patch story goes, the boom times led to bust as production surged and demand tapered off. April gas futures now trade at $3.26 per million btu.
Still, that’s an improvement from a 52-week low of $1.83. “We think prices will trend up for the remainder of the year,” says Martin King, energy commodities research analyst with Calgary, Alberta-based brokerage FirstEnergy Capital. “But they’re certainly not going to explode.” King expects prices to firm from an average $2.74 in the second quarter to $3.11 by the end of this year.
King suggests the price improvement is primarily a function of contraction in supply. On the other hand, Christopher Ellinghaus, energy analyst with New York’s Williams Capital Group, thinks increasing demand, driven by an economic recovery, will spur prices. He estimates that mild weather and a recession-induced slowdown in industrial activity depressed demand for natural gas by up to 2 trillion cubic feet in 2001.
Whether driven by supply or demand, rising prices will benefit companies such as Western Gas Resources (nyse: WGR – news – people ). The Denver-headquartered company produces, processes and transports natural gas through operations in the Rocky Mountain, Southwest and Gulf Coast regions.
Full story at Forbes.com
Posted by Gillies on March 20, 2002
One theory of corporate finance says that the whole point of owning stock is to collect dividends on it. Yet this doesn’t do justice to companies that generate healthy cash from their businesses but choose to pay no or meager dividends. To capture these, we screened for companies that generate cash above and beyond dividend payments. Specifically, our metric of excess cash flow is cash from operations less capital expenditures and dividends paid.
Example: DST Systems (nyse: DST – news – people ), a developer of statement- and billing-processing systems for financial services and communications firms, has enjoyed 27%-a-year growth in excess cash flow per share over the past three years.
Thornburg Value Fund has 700,000 DST shares. Fund manager William V. Fries notes that DST’s model calls for spending heavily up front to develop technology, but the company collects revenues for each mutual fund or billing account it processes. Over its past eight reported quarters, DST Systems has averaged excess cash flow equal to 11% of sales. DST has used its cash to reduce shares outstanding. Other ways shareholders can be enriched: A company pays down its debt or expands its business.
Full story at Forbes.com (reg. required)
Posted by Gillies on March 18, 2002
NEW YORK – Some short-sellers predicted trouble for Enron, and they may have been the only people to walk away from that debacle with their pockets full and reputations untarnished. Still, the presence of short-selling–the practice of betting on a stock’s decline by selling borrowed shares in the hope of purchasing them cheaper at a later date–doesn’t always spell doom for a stock.
Take Marriott International (nyse: MAR – news – people ), for example. The Bethesda, Md.-based hospitality concern has seen its short interest (the amount of shares sold short but not yet repurchased) rise 43% from January to February. Short interest now equals 3% of Marriott’s float, or the 196 million shares available to the public.
Marriott has had a good run in the market lately–perhaps too good for the shorts’ taste. The stock has bounced 59% from a 52-week low and has outpaced the S&P 500′s performance by 17 percentage points over the past year. It has advanced 11% since mid-February.
While short-sellers often target stocks in which they think the market is overexuberant, Todd Salomone, director of research at Schaeffer’s Investment Research, a Cincinnati-based firm specializing in information for options trading and sentiment analysis, thinks that Marriott’s scenario is potentially bullish.
Salomone deems it a positive when a stock manages to rally despite short-selling. If the stock continues to climb, the shorts could be forced to cover their positions by buying back the shares they’ve sold. Such a “short squeeze” could push the stock even higher.
As the example suggests, Salomone thinks upticks in short interest are a positive when they take place in the context of a bullish price trend. Salomone looks for signals such as a recent 52-week high, strong performance relative to the market or a share price above a 200-day moving average. Marriott satisfies the latter two conditions.
Full story at Forbes.com
Posted by Gillies on March 15, 2002
NEW YORK – The market has knocked the stuffing out of Avici Systems, a North Billerica, Mass.-based maker of fiber-optic products. From a 52-week high, the stock has fallen 88% to $2.19. But with cash and equivalents of $129 million and not much long-term debt, Avici has $2.62 per share in cash.
Sound interesting? It does to John Buckingham, co-editor of the Prudent Speculator investment newsletter and manager of the value-oriented Al Frank Fund, a mutual fund with $60 million in assets. Buckingham suggests that companies in situations such as that of Avici (nasdaq: AVCI – news – people ) are often candidates for buyouts.
“We’re not the only ones who see all that cash,” he says, “and if you like the business, why not buy the company when you can basically get it for free?”
Of course, a downtrodden company such as Avici could confirm the market’s fears and go bust. Public since July 2000, Avici has yet to turn a profit, and given the oversupply in fiber-optic cable and equipment, it’s not surprising that the firm shows discouraging consensus forecasts for 2002 and 2003.
Analysts expect Avici to post a loss of $1.25 per share this year, narrowing to a loss of 92 cents in 2003. Over the next several quarters, Avici will probably have to tap into its cash hoard to pay for day-to-day operating expenses.
Still, at just over half book value, shares of Avici might be worth a flier, particularly if one has faith that there’s still enormous untapped demand for broadband communications. Another positive: Over the past six months insiders have bought 50,000 shares, while refraining from selling.
Full story at Forbes.com
Posted by Gillies on March 8, 2002