Tuesday, February 7, 2012
Corporate Profit Margins Eroding Significantly
There is an interesting chart from Brown Brothers Harriman posted on the Marketbeat blog at the WSJ. It shows quite a dramatic slowdown in corporate profit margins thus far this quarter; indeed the worst since Q1 2010 (by a hair). I am not sure exactly what the reason for this would be as commodity prices have dropped substantially from “QE2 highs” of about a year ago, and wage pressure is almost non existent. (perversely a stronger economy could at first hurt profit margins, especially if there is a resurgent labor market – however we are nowhere near that point)
That leaves pricing power which apparently must not be as strong as assumed. These type of things don’t really matter in the midst of a “rip off your face” rally but something to keep an eye on for the future. [Keep in mind this quarter has been unusually lackluster in earnings 'beats' as well]
- S&P 500 profit margins enjoyed a strong rally from the first quarter of 2009 through mid 2011. But margins declined in the third quarter and the current reporting period is showing further erosion.
- The firm said profit margins stand at 8.23% midway through earnings season, down from the previous two quarters. Ford, Exxon Mobil and GE have all registered disappointing margins this quarter. “It is becoming clear that the S&P 500 firms are failing to maintain the profit margins reported in the recent quarters,” Thaker said.
- Unit labor costs rose by 1.2% in the final quarter of 2011 after dropping 2.1% a quarter earlier. Overall, labor costs grew in 2011 after falling during the previous two years, which could play an additional role in weighing on margins.
- “As profit margins are a mean reverting statistic, this bears watching closely,” Boockvar says.
Is Ultra Petroleum Still Capable of Ultra Performance?
Ongoing U.S. oversupply combined with mild winter weather has weighed heavily on U.S. natural gas prices over the past few months. Nymex Henry Hub is currently at $2.50 per thousand cubic feet, 50% below this time last year, with gas prices down 30% since November alone. Not surprisingly, the stock prices of dry gas producers such as Ultra Petroleum(UPL), Range Resources(RRC), and Chesapeake Energy(CHK) are all down 20% or more in the past few months.Uncertainty about the extent of oversupply over the next few years is adding to the current bearish sentiment on natural gas. Unknowns include exploration and production efficiency (getting more production from less investment), gas associated with liquids production, well inventory waiting on completion, weather (always a wild card), and the potential uptick in demand to absorb excess supply. Oversupply may end up being less bad than the futures market predicts over the next several quarters, thanks to marginal gas producers pulling back on drilling activity (in part because of hedge books that have rolled off) and E&Ps achieving held-by-production status in regions like the Haynesville.
While there's no question current natural gas prices are below most everyone's expectations, we think the market is assuming unreasonably low long-term gas prices. By our math, Ultra's current stock price assumes gas prices of $4.00-$4.25 per mcf in perpetuity. The Nymex Henry Hub futures curve hits $4.50 beginning in mid-2014 and only increases from there, however, which would imply much more bullish expectations about the long-term picture for natural gas.
We arrive at our $60 fair value estimate for Ultra primarily through a five-year discounted cash flow analysis, supplemented by an assessment of longer-term resource potential, trading multiples, and comparable transactions. Near-term gas price weakness represents a challenge, but Ultra's balance sheet, hedge book, and low maintenance capital expenditure requirements should help the company get through the next several quarters relatively unscathed. We think Ultra's current trading price represents a reasonable entry point for longer-term investors, with a handful of near-term catalysts that could lead the market to revalue the stock this year.
Ultra is a small, independent E&P that holds some of the best assets in North America in the Pinedale Field of Wyoming and Marcellus Shale of Pennsylvania. Almost all its production is dry natural gas. Ultra's acreage should support a decade or more of double-digit production growth, given the tight spacing required for full development in the Pinedale and the emerging nature of the Marcellus. Low development and production costs and improved pricing should support strong cash flows and outstanding returns over the full cycle. We estimate Ultra's fully loaded cash break-even point to be $2.70 per mcf, which compares favorably with average 2012 and 2013 Nymex Henry Hub strip prices of $3.28 and $3.97, respectively. (more)
Smart Ways to Manage Student Debt
Since graduating from pharmacy school last May, Caitlin has been attempting a balancing act familiar to many recent graduates. She is staring down $120,000 in student debt while also gearing up to buy a house and save for retirement. Fortunately, as a pharmacist for a major retail chain, she’s well compensated, with a salary of more than $100,000.
Caitlin knows this income gives her options most of her contemporaries don’t enjoy. But that doesn’t make managing life a breeze. “I just don’t know what to do with my paychecks,” Caitlin says. “Should I pay off all my loans right away? Or invest some of the money that I have?” Aside from student loans, Caitlin has no debt and has $20,000 in the bank. She’d like a new car, and hopes to move to Hawaii, where her mother lives, and buy a house there in five to ten years.
Those goals require cash. Caitlin’s first step should be to build up her savings and to set aside a rainy-day fund, just in case. Because she has a secure job in a growing field, a six-month reserve fund should be sufficient. Certificates of deposit are her best bet because CDs aren’t easy to spend on a whim. “Having an emergency fund locked up in a CD makes it harder to nibble away at it for items that aren’t really emergencies,” says Andy Tilp, of Trillium Valley Financial Planning, in Sherwood, Ore.
Caitlin would also do well to buy long-term disability insurance. “Right now, her ability to earn a living is her best asset, and it’s important to insure that asset,” says William Stewart, of Rehmann Financial, in Troy, Mich. The cost to guarantee 60% of her salary if she were permanently disabled should be in the range of $300 a month—or less, if she can get a discount through her employer.
About those loans. Because Caitlin has other financial goals, her student loans aren’t a priority. She’s currently paying $1,400 a month on a ten-year repayment plan. If she temporarily extends the term of the debt to 25 years, she’ll lower her monthly payment by as much as 50% and be able to put aside the difference for other purposes.
At her salary, Caitlin should aim to save as much as 25% to 30% of her take-home pay, advises Paul Baumbach, of Mallard Advisors, in Newark, Del. He also advises that she rejigger her student-debt repayment schedule while she saves for a down payment on a house in Hawaii, where real estate is expensive. In addition, Baumbach says, she should contribute the full $17,000 permitted in 2012 to her 401(k) once she is eligible for matching contributions. That will save about $6,300 in state and federal taxes.
Still, the longer the payment period on her student loans, the more interest Caitlin will pay overall. So if she can afford at some point to return to the ten-year schedule, she should try.
The principle remains the same even for young people who earn less than Caitlin: Set up a loan-repayment schedule you can live with so that you maximize your cash flow for living expenses and other purposes. Discipline works for everyone.
Monday, February 6, 2012
Lindsey Williams warns of a bank Holiday by February or march 2012
Exactly like Gerald Celente Pastor Lindsey Williams in his very latest interview (02 Feb 2012) warns of a bank Holiday by February or March 2012 , he also warns that after the bank holiday the US dollar will devalued by 40 percent , the quality of the interview is not that good but it is always enjoyable listening to Pastor Lindsey Williams (at least it was for me )
Ty Andros Says the Dollar is Facing an Extinction Event
Ty Andros of www.Traderview.com, a speaker at FreedomFest’s Global Financial Summit, believes the economic system and the Dollar, as it presently exists, are facing an extinction event. Currency shifts have taken place many times before and will continue to occur; they simply are part of human existence. No matter how hard we try, we cannot change this reality.
The solution is to understand where you are in the cycle and invest your resources accordingly. Precious metals are certainly an insurance policy against the resulting chaos, and Ty believes Silver is your greatest ally in protecting and building wealth. As a believer in the Austrian School of Economists, Ty says that the current crisis was long ago foreseen, and it was unavoidable. Better to be prepared than to be surprised.
Please send your questions/comments to KL@KerryLutz.com or call us at 347-460-LUTZ.
CELG to Break Triple Digits Celgene has flashed two buy signals in the past week
Celgene Corp. (NASDAQ:CELG) – This company is considered by S&P to have the “brightest growth prospects among large-cap biotech companies.” Its impressive performance was led by its cancer products Revlimid and Vidaza. The company also has a number of other products in the pipeline awaiting FDA approval and is considered by many analysts to be a leader in anti-cancer treatments.
Earnings for 2011 met estimates of $3.43, and S&P estimates earnings of $4.44 in 2012, and $5.11 in 2013. Gross margins are expected to maintain 93%. And Street analysts predict a fundamental price target of $93 within 12 months.
The Trade of the Day first recommended CELG on July 29, 2011, at $60, and then again on Oct. 13, at $65.
Technically CELG broke from a compound top on Sept. 20 on heavy volume, and then again from a double-top at $69. These breaks are called “step-up patterns” and mostly occur on stocks in an aggressive bull market.
A bullish signal from our internal indicator, the Collins-Bollinger Reversal (CBR) occurred on Jan. 27, 2012, and a new stochastic buy was flashed yesterday.
The technical target for CELG is $80 within 30 days and $100-plus longer term.
