why is FDG dropping???????

blendedsuit · #1 10-27-2005, 11:26 AM

This coal stock issued a huge dividend. Nowits trading down everyday, from 44 to 34 in 2 weeks. Not a fun drive so far. Any ideas of the cause?

DesertCat · #2 10-27-2005, 12:55 PM

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This coal stock issued a huge dividend. Nowits trading down everyday, from 44 to 34 in 2 weeks. Not a fun drive so far. Any ideas of the cause?

[/ QUOTE ]

What is it really worth, i.e. what would you estimate it's intrinsic value is?

lastsamurai · #3 10-27-2005, 02:03 PM

William oneil always said a company going from their growth stage to their cyclical always starts issueing dividends and could be a warning sign. Microsoft from its IPO until it issued their first dividend when over 10000 Fold before they issued the dividend. Instead of looking for dividends a smart investor should look at earnings and if they meet the analyst expectations. Earnings (income minus expenses) drive the stock market not dividends!

Last

midas · #4 10-27-2005, 02:34 PM

FYI-

FDG is a Canadian Income Trust and is designed to pay out dividends like a REIT. The whole coal market has sold off recently. Also, FDG sells primarily to steel companies for coking - another peaking industry.

blendedsuit · #5 10-27-2005, 03:43 PM

[ QUOTE ]
FYI-

FDG is a Canadian Income Trust and is designed to pay out dividends like a REIT. The whole coal market has sold off recently. Also, FDG sells primarily to steel companies for coking - another peaking industry.

[/ QUOTE ]

How is this peaking with the industrial revolution in China? The rebuilding needed for the hurricanes? I see growth there. Down another 3 points now. =[

DesertCat · #6 10-27-2005, 04:51 PM

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How is this peaking with the industrial revolution in China? The rebuilding needed for the hurricanes? I see growth there. Down another 3 points now. =[

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Isn't the entire Chinese economy today a midget smaller than Italy's? Are you basing any investment thesis's around the Italian economy as well?

And you didn't answer my question. What is it really worth? The last couple years it's been averaged $1 per share earnings. These year earnings are way up because of two reasons. First, higher coal prices, second, a huge tax credit in the last quarter.

So the question you need ask is, what is the true earning power of this company? Is it going to be $5+ per share every year for a long time, or is this just a fluke (the tax credit is very likely a one time only event) and earnings are destined to fall back closer to the $1 per share level over time.

Coal pricing would seem to be the most important driver here. And based on the stock's price action, it looks like many market participants have decided that coal pricing isn't going to hold up.

You need to figure out for yourself what the future might hold for coal prices. Paying $30+ for a stock that's future earning power is $1 a year isn't likely to turn out well. Paying $30+ for one whose future earnings power is $5+, offers a much clearer value.

laserboy · #7 11-01-2005, 06:40 PM

Commodity stocks are basically an extended math problem.

Figure out how much the company has in proven reserves.

Figure out how much money it will take to bring their commodity to market. What is their cash cost per ton? What is the return on equity for their mines?

Then do a discounted cash flow analysis over the life of the mine.

Now do the same for probably reserves and additional properties. Do they own any other profitable properties and is it feasible to bring these to market?

You should also consider management. Are they good about reinvesting their profits and returning value to shareholders? This is not as much of a concern with income trusts since they disctibute most of their profits as dividends.

From a cursory glance with FDG at its current stock price, you are bascially paying $5 billion for $60 billion in met coal reserves. Is that good? If you don't know the answer, you probably shouldn't be invested in it.

With commodity stocks, by the way, you are not looking for stocks that are merely undervalued. You are looking to pay pennies on the dollar for their assets. That is how you hit ten baggers.

You also want to look at the macroeconomic picture for steel and met coal. China is the primary driver behind the steel market. They consume 2 and half times more steel than any other country in the world, and account for practically all the growth. But is that growth sustainable? There is a huge construction bubble in the country, 40% of GDP is spent on capital and a large percentage of the homes on the cost are unoccupied investment properties.