E.I. du Pont de Nemours, hereafter DuPont (DD), is a clear case of addition through subtraction.
After selling its performance coatings unit—which makes paints for cars and other industrial uses—for $4.9 billion in February, and after the planned spin off of its performance chemicals unit—which makes titanium dioxide pigments used in paint and paper, Teflon, and fluorochemicals—DuPont will look like a totally different company.
By subtracting the coatings and chemicals businesses, DuPont will have increased the percentage of revenues coming from such faster growing units as agriculture, nutrition and health, and industrial bioscience. For example, the agriculture unit, which includes Pioneer Hi-Bred, the world’s largest seed company, will go to 37% of revenue from 24% in 2011. Read more
Certainly it’s too early to say that a historic energy bill—and constitutional amendment—will pass Mexico’s legislature. Mexican senators have just begun to debate a bill that would amend the constitution and create a system that permits foreign oil companies to invest in Mexico’s oil industry for the first time since the sector was nationalized in 1938. The current bill would allow private companies to own part of the production—or part of the profit–from Mexican oil wells while keeping ownership of Mexican oil reserves in the hands of the government owned national oil company Petroleos Mexicanos or Pemex. Foreign oil companies would not be allowed to book state-owned reserves for accounting purposes—but would be able to put cash flow from production on their balance sheets. A system like this would give Mexico, which has seen production fall by 25% since 2004, the capital it needs to drill in deeper parts of the Gulf of Mexico, to modernize oil recovery methods used in its existing fields, and to begin to exploit the country’s own oil and gas shale geologies. (The effort is crucial to Mexico’s economy, which has seen a manufacturing recovery hobbled by energy costs far higher than those just across the border and by electricity rates 25% higher than in the United States.)
The bill is contentious. Mexico’s ownership of its own oil is, for many Mexicans a foundation of the country’s economic independence from the United States. Street protests are likely to be a continuing fact of life in Mexico City while the legislature debates the bill. The government of President Enrique Pena Nieto has set the goal of passing a bill before Christmas
Despite the protests and the deep ambivalence many Mexicans feel about letting the big international oil companies that dominated the country’s oil industry back in the door, I think the current legislation has a very good chance of passing. It has been crafted to avoid those points most likely to invoke that history—and the need is very pressing. Mexico gets a third of its budget from Pemex and therefore the downward trend in oil production isn’t just an issue for the economy as a whole but also goes right to the ability of the government to fund its operations.
If the bill does pass as I expect, what might an investor want to own? Read more
A huge week for shares of Cheniere Energy (LNG) as the stock climbed by 13.4% from the November 29 close through the end of trading on December 6.
That pushed the shares through my target price again. Given the news behind the surge in share price, as of December 9 I’m upping my target price on Cheniere Energy to $52 a share by June 2014. (Cheniere Energy is a member of my Jubak’s Picks http://jubakpicks.com/the-jubak-picks/ .)
What news makes me so positive on the stock?
Two big announcements on the company’s Corpus Christi liquefied natural gas export terminal pushed that project closer to getting an export license from the U.S. Department of Energy. (Cheniere already has an export license for its Sabine Pass export terminal. The facility, the first to receive a DOE license that permits exports to any country in the world is expected to begin shipping liquefied natural gas from the United States in 2015.)
Cheniere reported that it had signed a 20-year sale agreement with Pertamina, a state-owned Indonesian energy company, for the purchase of about 0.8 million metric tons a year of liquefied natural gas. The U.S. Department of Energy wants to see purchase agreements in place before it grants licenses for new export terminals so this deal moves the Corpus Christi facility a step closer to getting a license. (The deal, obviously, is contingent on the facility getting a DOE license.)
Still on the Corpus Christi front, Cheniere also announced that it had entered into contracts with Bechtel Oil, Gas and Chemicals for the engineering and construction of the LNG trains to be built at Corpus Christi. Plans call for construction to begin in 2014 (pending that DOE license again) on up to three liquefied natural gas trains with a total capacity of 13.5 million metric tons a hear. The first train is projected to go into production in 2018.
Again, as with the Pertamina deal, this construction contract, will move the license application ahead at the Department of Energy.
But to my mind the biggest news of last week for the valuation of Cheniere actually came from Royal Dutch Shell (RDS.) Read more
In the short-term certainly Apple (AAPL) is the best way to play the recent award of 4G licenses in China. (Apple is a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ )
In the longer run China’s move to 4G—from the current homegrown 3G and 2G standards—will lead to a huge increase in highly lucrative data-heavy traffic for China Mobile (CHL), China’s biggest operator with 740 million subscribers, and to a lesser degree for smaller rivals China Unicom (CHU) and China Telecom (CHA.) But that growth in traffic will come only after China Mobile spends heavily–$31 billion in 2014—to upgrade its network. That’s about what China Mobile will spend in 2013 and a 50% increase in capital spending over its five-year average.
While Apple’s iPhone works on the current 3G networks of China Unicom and China Telecom, it doesn’t really work very well on China Mobile’s current network. In fact it’s amazing that China Mobile has 45 million iPhone customers now given the way that iPhone users have to cobble together a patchwork network using the company’s 2G network and Wi-Fi.
You can understand the potential in 4G for China Mobile since the company says that current iPhone customers consumer about 25% more data than its current 3G customers.
Apple shares have surged repeatedly in recent days on rumors that the company will finally sign a deal with China Mobile after more than a decade of negotiation. The award of 4G licenses brings that likelihood close—although China Mobile has denied every recent rumor of a deal.
And since Apple won’t be the company spending $31 billion a year on upgrading its network, I’d guess that the announcement, when it finally comes, will be a bigger deal for the iPhone vendor than for the cell phone operator
Especially because getting access to 740 million customers would be a significant rejoineder to Wall Street voices asking “So where’s the growth?” about Apple.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.
It’s been 547 trading days—since August 2011—since U.S. stocks have suffered a 10% correction.
That’s a good thing if you’re all in but not so good if you’ve got money on the sidelines or cash flowing into your portfolio (from say your retirement contributions) that you’d like to invest on the dip.
No wonder that with the Standard & Poor’s 500 stock index down a whopping 1.1% from November 27 to noon (New York time) on December 5, I’m thinking about a buy on the dip opportunity of say a 3% decline or maybe a little more
A 10% drop is, I think pretty unlikely in the near term—say in December or January—because there is still money on the sidelines ready to buy the dip. And that, of course, limits the size of any dip.
3% though? Maybe a little more?
That seems possible given the market’s obvious nerves over the will they/won’t they meeting of the Federal Reserve’s Open Market Committee on December 18. That day could, although I think the odds are against it (even after today’s GDP number), bring a decision from the Fed to begin to taper off the central bank’s monthly $85 billion in asset purchases. That worry—witness the weakness in the market yesterday on a report of stronger than expected job growth from the ADP survey—was enough to take the market down from the open until about 1:30 p.m. New York time.
The market’s rally from 1:30 p.m. almost until the closing bell on December 4 is also an indication of the strength of buy on the dip sentiment.
I wouldn’t go hog wild with joy at a 3% drip, but there are a few stocks that I’ve been waiting to buy if they would just pull back a bit.
Some individual stocks are already close to or slightly over that 3% dip benchmark. Cummins (CMI), for example, is down 2.9% from December 2 through the December 4 close. Flowserve (FLS) is down 3.4% from November 25 through December 4.
And a few attractive names are down even more. Read more