Monday, August 02, 2010

August 2, 2010 Stop Look and Listen, Baby, That's My Philosophy


August 2, 2010 Stop Look and Listen, Baby, That's My Philosophy

That line was from the huge Elvis Presley hit Rubberneckin’, Ok it wasn’t a huge hit. Actually it was an album fill for the RCA off label label Camden records and did not become a sizeable hit till the 1990’s when someone did a remix of the song, but I digress. (I know at least one reader who really does not like me saying but I digress.)

Thank you to the two people who corrected me in saying the market in July was up 2%. It in fact was up 7.06%. I did say it was late and I was tired. As many of you know we follow the broader S & P 500 and that too was up 6.89%. Both are great numbers and they both confirm our advice from last night to lock in gains, (hell, even take some gains- as we did on one of the kids portfolios with IDSA mentioned here May 12th and May 13th when we were doing our homework on WMS and Republic Services. The scrap iron company is up a split adjusted 62% so we took a little off the table.) We used the proceeds to take a new position in NLR. We have also initiated this speculative ETF in the primary Salve Lucrum portfolio.

It is all a matter of linkage. There is a surge in uranium prices (uh-Oh, that got somebody’s attention at Echelon I am sure), and while there is only one Uranium ETF, U traded on the Toronto market, NLR is the next best, (at least as to what I and my friends at Schwab could find) broad based nuclear play. China has 24 nuclear facilities under development. (According to World Nuclear Assoc.) There are more being announced every month in various parts of the world. (Russia 10, s Korea 6, India 4) NLR looks to be a good play, but this is a spec play. There is no underlying value here, just the promise that a bag of nuclear related companies might be profitable. It is an ETF that seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the DAXglobal Nuclear Energy index. The fund normally invests at least 80% of total assets in equity securities of U.S. and foreign companies primarily engaged in the nuclear energy business, which derive at least 50% of their total revenues from nuclear energy business. Such companies may include small- and medium capitalization companies. It is nondiversified. That was cut and pasted from Schwab. Thanks Chuck.

In support of this linkage there were articles on Morningstar and Bloomberg. Bloomberg reports that “China is buying unprecedented amounts of uranium, signaling that prices are poised to rebound after three years of declines. The nation may purchase about 5,000 metric tons this year, more than twice as much as it consumes, building stockpiles for new reactors…”. Now when it comes to China, they think in terms we cannot comprehend. They think about 10-30 year windows of opportunity. That is a stretch even for Warren Buffet. China recently locked in a purchase agreement for 10,000 tons of Uranium over the next 10 years. (After a little homework, they locked it in with CCJ, Cameco, more coming up next.) That in case you don’t know is a significant amount of uranium U3O8. India is right behind China in demand.

One of the components of NLR is CCJ, Comeco Cameco Corporation operates as a nuclear energy company. The company operates through three segments: Uranium, Fuel Services, and Electricity. The Uranium segment involves in the exploration for, mining, milling, purchase, and sale of uranium concentrate. It holds interests in uranium properties in the United States, Canada, and Kazakhstan. The Fuel Services segment involves in the refining, conversion, and fabrication of uranium concentrate; and the purchase and sale of conversion services. Its products include uranium trioxide, uranium hexafluoride, and uranium dioxide. This segment also manufactures fuel bundles, reactor components, and monitoring equipment used by Candu reactors. The Electricity segment involves in the generation and sale of nuclear electricity, through its 31.6% interest in the Bruce Power Limited Partnership. The company was founded in 1987 and is headquartered in Saskatoon, Canada. That was from FINVIZ.

CCJ is a world leader in U3O8 Uranium and has significant fields in Canada. Admitedly there have been some flooding issues lately and as most controversial projects, some of their largest deposits have had delays (Their Cigar Lake Project is a great example). Let’s face nuclear is back in favor after suffering through 140 dollar a barrel oil and watching the BP catastrophe. CCJ is for the first time locking in pricing agreement with base line minimums and no limits on the upside. So have other miner’s such as the giant Rio Tinto. There are 16 known producers looking and drilling in Kazakhstan, Canada, Australia, Namibia, Russia, Niger, Uzbekistan, and the US. CCJ has an estimated 16-20 % of the world production.

For all the homework you could possible stand, please check out the SEC document 40F from Cameco.

Asleep at the wheel:

And under the category of asleep at the wheel, there was a spinoff of one of our holdings MDR, McDermott. McDermott International, Inc., through its subsidiaries, operates as an engineering and construction company worldwide. It operates in three segments: Offshore Oil and Gas Construction, Government Operations, and Power Generation Systems. The Offshore Oil and Gas Construction segment engages in the front-end design and detailed engineering, fabrication, and installation of offshore drilling and production facilities; and installation of marine pipelines and subsea production systems. It also provides project management and procurement services. In addition, this segment operates a fleet of marine vessels used in offshore construction and various fabrication facilities. The Government Operations segment manufactures and supplies critical nuclear components, fuels, and assemblies for government and commercial uses, as well as provides various services, including uranium processing, environmental site restoration services, and management and operating services for various U.S. Government-owned facilities primarily within the nuclear weapons complex of the U.S. Department of Energy. It also supplies research reactor fuel elements for colleges, universities, and national laboratories; offers uranium-based products used for medical isotopes; and converts or downblends high-enriched uranium into low-enriched fuel for use in commercial reactors to generate electricity, as well as provides heavy fabrications for industrial use, including components for defense applications. The Power Generation Systems segment supplies fossil-fired boilers, commercial nuclear steam generators and components, environmental equipment and components, and related services. It designs, engineers, manufactures, constructs and services utility and industrial power generation systems, including boilers used to generate steam in electric power plants, pulp and paper making, chemical and process applications, and other industrial uses. The company was founded in 1923 and is based in Houston, Texas.

You’ll note the reference to nuclear energy. That division has been spun off into a separate company called Babcock and Wilcox. The end result is we now hold all of our MDR at an asset adjusted value and ½ as many shares of the new company at the asset adjusted value. The net result as of the close of business today, is about an 8% hit to the total value of the deal. We will be reading through the management changes as a result of the spin off. We bought this originally back in June as a defense contractor play. The nuclear division spinoff does not change that. In fact it looks as though the spinoff was done to retain its preferred nation status with the DOD. We will hang on to it for the moment.

You Deserve a Break Today

McDonald’s is making an incredible offer. Free Fries with every order NOT! It has said it wants to deplete it current nest egg of about 3 billion in cash and annual free cash flow of about 1 billion a year. Deploy might be a better word. The board recently approved a 10 Billion dollar repurchase plan and has already bought back $1 billion as of the first quarter 2010. There are nice dividends coming out of burger heaven. They are doing some interesting value enhancements using their franchise relationships which will free up more cash. And Ronald (CEO Skinner) McDonald is sitting on billions in real estate value. All of this implies a value easily into the mid eighties. MCD is in the Salve Lucrum portfolio and in several other related portfolios.

Oh Happy Day

The first trading day of the month was pretty. My guess about Loews was off as they did beat estimates of 81 and came in at 87. A nice beat, but there were some accounting footnotes worth checking out if you follow the stock. We don’t. A very strong Purchasing Manager Index number out of China last night (Just about the time I was posting) kicked off a nice rally which carried over to Europe and was enhanced with some nice banking news out of the Eurozone and that was followed up by some nice earnings numbers (AGN, OSK, and NRG). This was also added to by a slightly surprising Industrial Supply Management number and a decent construction spending number.

Can it last? Tomorrow we have a personal income and outlay report. With the lackluster employment numbers, I would have to agree with the estimates of a slight drop from .4% to .1%. If it goes below zero or especially -.1%, look for some aggressive profit taking after today’s gain. We will also see existing home sales report tomorrow. It will be down, but this is expected. Factory orders are due out tomorrow and the estimate is a slight -.5% decline. I am thinking we might have a pleasant surprise to a positive .1%. I base this on some of the rail reports we have been following.

Again its late and there are slough or is it slew of stocks reporting tomorrow. Here are my guesses and which ones we hold. Anadarko will slightly beat the 35 cent estimate, let's call it 37. Pfizer will miss the 52 cents a share, but not by much. DOW chemical will beat 56 big. Let’s call it 64 cents. There is a lot of hype surrounding Cognizant tech and many are expecting a big beat. I do not know enough to disagree, but with all the press, this is when an upset happens. AMT, my tower stock I pimped here for so long is due to make some money. We no longer own it, but look for a 24% beat at 24 cents a share versus the consensus of 20 cents. And lastly the bellwhether stock of P & G. A lot a folk will be watching this and I feel that since commodity prices have remained in check, that their margins should have improved. Look for a beat of 75 cents a share versus the expected 73.  There is a 77 whisper number out there but its way outliered for me.

Now sometimes we don't feel we get our monies worth when we pay our taxes.  I just found out that you can sign up for the daily Whitehouse Blog and they will tell you what POTUS, (President Of The United States) is doing all day.  Yesterday he scheduled a 40 minute lunch with VP Biden.  They must have good service in the White House  And they give you a picture of the day.  This is yours as a law abiding US citizen.  Heck even you 12-30 million illegals can sign up for it too.  Anyway I thought it would be fun to share some of these pictures with cute little captions from the dark corners of my mind.  Here is a recent Picture of the day:

"Ain't it cool!  I can sit here for hours and it won't leave without me!"

Salve Lucrum


Post a Comment

<< Home