Thursday, June 17, 2010

June 16, 2010 Electric Cars catch up with mothballs?


June 16, 2010 Electric Cars catch up with mothballs?

Ok we may have found some Linkage today, but we will get to that in a while.

Today a lackluster weak market squeaked into positive territory at the end of the day. We added some BMI, UNG, WPRT, and C on the dips today. They were little chunks, but we added just the same. We called the consumer price index wrong Sunday. I was thinking that since WMT was cutting back some of its discounting, we would see a small spike in the CPI. It didn’t happen and it hit expectations of being down.2 %. It will be interesting to see how quadruple witching trades shake up the market tomorrow. Now I had to look up quadruple witching as I was familiar with triple witching. This is a day when we have stock index futures, index options, stock options and single stock futures all expire. Remember if you buy a future or an option, the elements of that trade is the price of the option, the price of the underlying stock or index, and the expiration date of the contract.

So tomorrow all of the worlds collide. If you bought an S&P index option in January with a June 17 strike price of 1200, you are really out of the money so you would let it expire worthless. Now if in January you thought the S&P would close at 1000 on June 17th and you sold a put option, you have to make good which means you will be buying the index option in order to close out your position. Tomorrow if there are a lot of short positioned people out of the money we will see a bump as people will have to buy their way out of their positions. If they are in the money, we could see a sell off.

Follow The Linkage

Might have a couple here today. In a WSJ article about electric cars and California’s subsidizing of SmartCharge stations, there were a list of companies that stand to benefit if EVs take off. One is a private company, (but keep your ear to the ground as my SEC homework tonight indicates they have had two rounds of preferred stock offerings.), Coulomb Technologies is in the bird seat as far as designing and building these charging stations in NY, NJ, CA, TX, and IL.

There are a few companies mentioned in the article, but that is not linkage, that is old news. But if you read more about the charging stations and look at the specs on the charging system themselves, you see they are very hi tech with interconnectivity to smart phones and the internet. When you do a little more digging (third degree of separation), you see that one of their key partners on the project is Siemens AG SI. Now Siemens is a huge multinational. You would think that the analysts covering SI would be all over this. Not. I only found a couple of peripheral mentions about EVs.

Now in reading about SI, the more I liked the stock besides the EV opportunity. They specialties in Smart Grid technologies are very impressive. It goes head to head with GE in many sectors and frequently eats their lunch. They also do well against Rockwell and EMC. Their financials are pretty. If the catastrophe in the Gulf of Oil is the catalyst to start considering LNG or eCars, Coulumb will be the Exxon of the future and SI will be making the gas pumps and smart grid network powering those vehicle. This is a 2 to 5 year play so do your home work and get in very very slowly as an investor. Watch the Euro as well as the value of the stock will be tied to the Euro performance.

More Links.

We have a problem. There are way too many tomatoes. That’s right we have a tomato glut. Growers are seeing a 30-35% drop in prices. Growers are donating tomatoes to charity to move tonnage and to get some value. The obvious play would be to short any publically held tomato growers. Too late. Its so bad even poor people can afford tomatoes. Now here is the possible linkage. 41 % of Heinz’s global revenue comes from the sale of ketchup. Guess what they use to make Ketchup, tomatoes. Ok don’t go out and buy gobs of Heinz just yet. They, Heinz have long term contracts to protect them from the commodity swings in tomatoes. But there is a little article that I discovered while doing the hunt for green tomatoes. (Three degrees of separation) Heinz is negotiating with the CA tomato growers association for at least a 10% drop in the price of tomatoes. That is pretty fair to the growers that are seeing a 25-30 % drop in prices.

So what happens when a company that sells about 4 billion dollars a year in ketchup get’s to lower the primary cost of its main ingredient by 10%. You can even figure it out your self. Let’s assume that ketchup makes up 40% of the Income 1.2 billion. (Right from the annual report) That means that 500 million in profit is from ketchup. If you improve that bottom line by 10%, that is 50 million more to the bottom line. The company’s current P/E is 16.6 and it closed today at 46.60. Do the math. 46.60/16.60 = 2.80 a share earnings. Take the 50 million in savings and divide it amongst the 312 million shares and you get 16 cents more a share in earnings. That makes earnings 2.96 time the multiple of 16.6 and you got a 49 dollar stock.

Do your homework, but I am going to get in a December 49 dollar call for under a buck for the contract. That means I won’t be in the money until 50 a share. Ironically there is a huge block of calls at 50 a share in December. Perhaps a few fund managers have done the math.

Ok one more linkage but I am too tired to do the homework tonight. See if you can figure out where I am going with this. Fedex did beat estimates as expected but the CEO had some sobering expectations, BUT mentioned they are putting more planes in service. What is the linkage?

Salve Lucrum

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