Some stuff I bought last week

[KaneKungFu123]

i understand it enough. barely was bad wording. i understand why the stock will go up, and why it will go down. but still, i think this is +EV. these guys are professionals, and i am only investing a portion of my money.

[Sniper]

Just to clarify, following advice is fine; but there is no excuse for not understanding it!

[DesertCat]

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Just curious, desert, how much value do you put into standard and poor and other such reports. they have a chart showing how the correlation between how many stars they rate a stock and how well it does, and they seem to do a damn good job.

i wrote none of this, and i barely understand it. i guess i am gambling sort of by investing here, but these guys are pretty well documents as winners.

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Valueline does the same type of ratings, and claim that highly rated companies outperform lower rated ones over time. I'm skeptical about the utility of their "outperformance", esp. since the fund that uses their rankings has been getting pwnd over the last ten years. And in your case, you aren't buying all of the "highly rated" companies, just ones you find interesting. So you might get the dogs of the bunch, or the stars, or a representative sample, I think it's just luck that will determine that.

I prefer to take another route. If someone rates a stock very highly, I use that as a starting point for research. I only buy it if it meets my value criteria. You are probably making so much money from high stakes NL that spending significant time on stock research might be -EV for you today. But you should definitely consider having a goal of minimizing your portfolio risk. Since your day job has so much volatility associated with it, why double up with your porfolio?

[DesertCat]

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XTO:
XTO recently presented at an FBR conference. In not so many words, they said to expect natural gas companies to have blow-out earnings in Q4 2005.

They also pointed out that XTO's production costs are one-half of the industry average, and that their decline rate is one-half of industry average. This powerful combination generates tremendous free cash flow.
Management expects production to grow by at least 10% organically next year, while the company generates 1 to 1.5 billion in cash for accretive acquisitions or failing that, share buybacks.

I am very impressed by this disciplined, focused, and enthusiastic team.

Earlier I wrote:
This is a well-managed, growth oriented natural gas play. XTO's management usually low-balls per share production growth figures. While they are predicting 10% growth for next year, they will likely come in at their more typical 15 to 20%.

XTO’s superior finding and development cost performance and low rate of decline lead to a relatively low level of capital necessary to hold production flat (maintenance capital). As a result, the company generates a high level of free cash flow relative to its stock price.


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Acccording to MSN, XTO's free cash flow from 2002-2004 was a negative $1.3B (B as in Billion)! In Q3, it had cash from operating activities of $1.4B, but invested $1.3B in property acquisitions and $909M in development/exploration. That doesn't seem like free cash flow to me. But I can't figure out how much of that $2.2B in investment is required, and how much is discretionary. I'm not sure the company wants me to figure it out, either.


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Long term debt to capital of 38% is somewhat higher than peers, but manageable.


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It has $3.2B in long term debt! And it's entire shareholder equity is only $3.5B. I don't understand how the analyst got 38% from the Sept. 30 balance sheet. And while they have $9B in assets, but only $12M is cash. Their current assets are mostly accounts recievable.

Strictly land-based production, significant insider ownership, only 1% hedged for 2006, good reserve growth, extensive drilling inventory, exceptionally high NatGas prices, and a forward PE of 11 make XTO an excellent choice for one's portfolio. I've got it in mine!


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Two big red flags here. First is "exceptionally high NatGas prices". What happens if prices decline? I think it's going to hurt real bad.

Secondly, when an analyst starts talking about "forward PE", I immediately regard them as a retarted moran. They are putting a ratio on something that hasn't happened yet. It's because the analyst doesn't want to tell you that it's real PE is 22.

This is my thirty second evaluation. It looks like a leveraged, fast growing company that should do pretty good if natural gas prices continue to stay strong. If prices drop, it may be faced with a big cash crunch, and the stock could get killed.

[Uglyowl]

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how much value do you put into standard and poor and other such reports. they have a chart showing how the correlation between how many stars they rate a stock and how well it does, and they seem to do a damn good job.


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I have used these guys as my primary starting point for the past 6-7 years and these guys do a great job.

EDIT: Or take an idea I heard elsewhere and see what S&P writes about it. There is a significant amount of info in each report.

I shorted AA based on the chart.

[xtravistx]

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Secondly, when an analyst starts talking about "forward PE", I immediately regard them as a retarted moran. They are putting a ratio on something that hasn't happened yet.

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This isn't always applicable with stocks that are so heavily dependent on commodity prices, especially ones with a defined forward curve such as natural gas. It doesn't make sense to value XTO (or CHK for that matter) on what they did last year (when gas prices were 1/2 to 1/3rd of what they are now). You buy/value stocks based on their future earnings potential, not their past earnings. In this case, the forward curve it the BEST indicator of their future earnings potential. If you don't agree with how natural gas prices are priced in currently in the future, then play the natural gas futures speculative game and don't invest in this stock, but if you believe the market has priced in the future expectations of natural gas prices, then the forward P/E makes sense (even though P/06E CF and EV/06E Cash flow are the main metrics used valuing E&P companies right now other than Firm value/reserves).

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But I can't figure out how much of that $2.2B in investment is required, and how much is discretionary. I'm not sure the company wants me to figure it out, either.


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You aren't even trying to value an E&P company which are different from other companies you might be looking at. Asset intensity is a measure of the % of capex used to maintain FLAT production, and is mentioned by some analysts, and XTO ranks well there. A quick and dirty way to figure out how much they spend on maintenance capex is to take the 3-year avg (or the last year, but less sampling data) all-in F&D costs (how much it costs to find and develop reserves) and multiply this by their production last year to get a mainentance capex cost.

[KaneKungFu123]

what chart?

[adios]

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Secondly, when an analyst starts talking about "forward PE", I immediately regard them as a retarted moran.

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Since the value of a share of stock is at the very least highly dependent on future earnings why is an analyst that discusses "forward PE" (i.e. future earnings) a moron?



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This is my thirty second evaluation. It looks like a leveraged, fast growing company that should do pretty good if natural gas prices continue to stay strong.

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One question is what future price of natural gas is currently priced into the stock i.e. what is the estimate of future earnings thus forward looking PE of the stock.


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If prices drop, it may be faced with a big cash crunch, and the stock could get killed.

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This could be said about alot of companies and their products.

[KaneKungFu123]

Thanks for your analyzation. One thing, these arent analyst picks that are being punched out to meet a weekly quota of selections. these are actual stocks they are invested in. you pay only for the message board. no one owes anything to anyone, so you dont have to worry about someone pimping a stock and just trying to make it sound good.