Friday, January 29, 2010

Chevron Bored with Downstream Op's

Chevron (CVX) reported lower Q4 results due to down stream issues such as reduced refinery margins. Both US and International operations had the same tale of woe. When you read the earnings release you can tell the company is more excited with the exploration side of the business and barely had time to explain what’s what with the downstream aspects. Sure demand is off as the economies of the world slowed.

They had something called a planned Q4 shutdown at El Segundo California. But no other comments about how they are managing the over capacity were offered. No comments about their pricing power and relative market share of the refinery markets that they operate in were provided. Investors are just expected to suck it up and accept.

Chevron is a managed company and investors expect management to provide management. If you want a naked exposure to a commodity you would just do that and buy the commodity outright in whatever form you find convenient. If you can experience billion dollar reversals within a single quarter you need billion dollar answers from management. Market forces do not justify their management contracts.

Chevron’s Chairman and CEO, John Watson is providing no effective guidance to shareholders by saying “Earnings decreased in 2009 as a result of lower crude oil and natural gas prices and a decline in refined product sales margins, driven by a weak global economy,” That statement can be made by an economics 101 student.

Thursday, January 28, 2010

US Airways Gambles on Shuttle Market

US Airways Group (LCC) announced Q4 earnings and wrapped up the year by saying things are better. Investors look to the future so when in the press release they declare that shuttle routes between Boston, Washington DC and New York will be growing to 99% of ASM (Available Seat Miles) you just have to start worrying about the future. This is short haul stuff. The Obama administration is looking to make significant improvements in traffic and pollution. US Airways is thinking through the rear view mirror hoping that the economy will improve and travellers return to their same old habits.

This is a very pro-active political administration. They are in a hurry to make change. By betting 99% of your ASM you have gambled the company on the wrong strategy. Watch for special surcharges and taxes imposed by the Federal government on short haul high pollution air routes. You will be priced out of the market.

With a market cap of approximately $800 million you will become road kill. Chairman and CEO Doug Parker did not address the issue and may not be aware that it exists. When you look at the board of directors you are not impressed with their backgrounds and ability to contribute to the company.

Wednesday, January 27, 2010

Yahoo Transformative?

Yahoo (YHOO) released earnings at the higher end of the guidance range and watched the stock sell off. Chief Executive Officer Carol Bartz said 2009 was a transformative year. Transformative is not exactly a defined term in the investor lexicography. But Yahoo shareholders have had one.

Yahoo is approximately $22.2 Billion in market cap. They will win some and lose some in the advertising revenue wars. They currently have some $3.5 billion in cash and equivalents. This is 16% of current market capitalization. What to do, to increase shareholder wealth?

Yahoo should think about getting into the dividend game. You have a few black eye’s in the Internet space and the go go momentum investors are not impressed. If a dividend goes on the table and the market believes it’s credible it will change the valuation. Your shares may become a currency. Buy and hold investors will start to accumulate.

Carol Bartz a dividend would be transformative.

Bernanke Yes or No?

Ok so Ben is up for a contract extension. If this was the NFL with a Not For Long psyche I would expect a cut. But Ben does not work Sundays.

The market and main street are angry. For some strange reason they want to bite someone. Million dollar losses can do that to an investor. Bernanke just happens to be the special of the day. Even if Senators decide to bite, yesterday cannot be changed.

It's all about tomorrow.

The market does not have a real sense of how Bernanke will deal with the tomorrow. Politicans, well they only know about the next election. The selection of the head of the Fed Reserve has not been known to swing an election. The electorate cannot connect the dots. Politicans will re-appoint him. That way the senate can blame Obama because he re-nominated him.

There is no GPS for this.

Tuesday, January 26, 2010

Peabody Energy Reverse Dividend Signal

Peabody Energy (BTU) posted great looking numbers and shareholders energized the stock and drove the price upwards. China and India are buying in huge quantities causing inventories to deplete and prices to rise. China has become a net importer of met coal and India has huge electric generation plants under construction. Peabody lays claim to 2% of the world coal and some 10% in the US.

Yet the market cap is around $12 billion and the dividend is very anaemic looking. The stock has become a commodities play and management speaks to the commodities aspects first and investors second. Given their stated propensity for long term contracts with locked in profits there should be more respect for the power of a dividend.

The reverse dividend signal that is being sent lets investors conclude this is a play stock and not a core holding. Substantial dividend increases would go a long way to reverse investor conclusions.