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Jubak’s Picks – Sells


Company Symbol Date Sold Sell Price Price Now Today's Change Gain/Loss Since Sale
Flowserve FLS 11/05/2015 $47.91
Update : Update: February 17, 2015.  Nothing terribly surprising in Flowserve’s fourth quarter results reported today, February 17, after the close in New York. Earnings of $1.16 a share were 3 cents... more    Read Jim's Original Sell
Greenbrier Companies GBX 10/05/2015 $35.18
Update : Update: May 1, 2015.  They’ve been a long time coming. Today, May 1, regulators in the United States and Canada announced new safety rules for trains carrying oil. The rules would... more    Read Jim's Original Sell
FMC FMC 10/01/2015 $33.67
Update June 27, 2015: Update: June 24 The trouble with value stocks is that they can take forever to turn around and that can require tons of patience. Certainly my June 12, 2014 pick of FMC... more    Read Jim's Original Sell
Mosaic MOS 09/09/2015 $40.30

Do you believe that today’s big intervention by government purchasers in Shanghai and the resulting rally in Shanghai (up 2.92%) and across global markets really means anything for actual economic... more

American Airlines Group AAL 08/17/2015 $43.97
Update : Update: April 24, 2015.  Two pieces of good news for shares of American Airlines Group (AAL) today. The shares closed up 2.44% to $52.71. First, earnings for the first quarter of... more    Read Jim's Original Sell

Update Flowserve

Update: February 17, 2015.  Nothing terribly surprising in Flowserve’s fourth quarter results reported today, February 17, after the close in New York. Earnings of $1.16 a share were 3 cents a share above the Wall Street consensus. Revenue of $1.4 billion inched ahead by 0.8% year over year and exceeded analyst projections of $1.39 billion. Bookings climbed by 5.6% (or 11.2% in constant currency) to $1.32 billion and order backlog rose to $2.7 billion, an increase of $147.3 million or 5.8% from the fourth quarter of 2013. The gross margin rose 1.3 percentage points to 35.2% and operating margin improved by 2 percentage points to 17.3%. All in all a very solid quarter. Especially considering the company’s big exposure to the oil and gas sector. (That sector contributed 41% of bookings in 2013.) In its guidance for 2015 Flowserve sounded just like its industrial peers. No surprise that the company said that the first half of 2015 would feature major headwinds from a strong U.S. dollar and continued weakness in commodity prices (especially for oil and natural gas.) The first half of 2015 will be especially challenging thanks to a very slow recovery of oil and gas prices that won’t be strong enough to encourage spending by the company’s customers on new oil and gas, chemical, water, and power infrastructure. In addition the impact of a stronger dollar will be biggest in the first half of 2015 Due to normal seasonality and an improving global economy and commodity market, earnings in 2015 will be weighted toward the second half, Flowserve noted in its earnings presentation. For the year the company guided to earnings per share of $3.60 to $4.00 versus the current $3.79 Wall Street consensus. Flowserve is a member of my Jubak’s Picks portfolio http://jubakam.com/portfolios/ and I think the stock is worth holding for the oil and gas recovery in the second half of 2015. On the solid increase in margins in a tough market for its products, I’m nudging my target price on Flowserve to $92 a share by December 2015 from the current $90.

Update Greenbrier

Update: May 1, 2015.  They’ve been a long time coming. Today, May 1, regulators in the United States and Canada announced new safety rules for trains carrying oil. The rules would require the phase-out of older oil tank cars that are more vulnerable to puncture, fire, and explosion. Tank cars built before October 2011, the DOT-111 class, would be phased out within three years. Cars in the CPC-1232 class, built after October 2011 but still built without reinforced hulls, would be replaced by 2020. That’s a faster timetable than proposed by Canada earlier this year. New cars would have thicker hulls, head shields to protect the ends of cars, pressure relief valves, and electronic pneumatic brakes. The rules would result in either replacing or retrofitting an estimated 155,000 tank cars. As you might expect, the oil industry isn’t exactly overjoyed. The regulations are estimated to cost $2.5 billion, according to projections in the rules. Benefits, again according to the rules, would range from $912 million to $2.9 billion. To me those benefit numbers seem low. In July 2013, a train carrying crude derailed in Lac Megantic in Canada. The explosion killed 47 people. Yesterday, independent of the new rules, a group of six senators proposed a fee to be imposed on companies that ship oil, ethanol or other flammable liquids in older tank cars. The fee would pay for tax breaks of up to 15% of the cost of upgrading an older tank car--for companies that use new or retrofitted tank cars built to the standards in the new rules. Shares of companies that make tank cars or brakes for railcars—Greenbrier Companies (GBX), Trinity Industries (TRN), Westinghouse Air Brake Technologies (WAB), and American Railcar Industries (ARII)—all climbed after the rules were announced. Greenbrier, a member of my Jubak’s Picks portfolio, rose 7.23% as of 3 p.m. New York time or $4.17, to $61.86. The shares are down 1.21% as of that time since I added them to this portfolio on November 17, 2014. These regulations were a key part of my logic in buying this stock so they are anticipated in my $84 a share target price

Update FMC

June 27, 2015

Update: June 24 The trouble with value stocks is that they can take forever to turn around and that can require tons of patience. Certainly my June 12, 2014 pick of FMC (FMC) for my Jubak’s Picks portfolio is testing my patience. I bought the stock as a restructuring story when it looked like FMC would split into two companies to bring out the value in its lithium, agricultural chemicals, and health and nutrition units that was being hidden by the company’s big commodity soda ash minerals business. That planned split was replaced by a purchase of Cheminova, a Danish agricultural chemicals company, for $1.8 billion and then the subsequent sale of FMC’s soda ash business to Tronox for $1.64 billion The buy/sell strategy took more time than the split strategy might have, but it was aimed at the same target: clarifying the focus of FMC by getting rid of a very cyclical commodity minerals business in order to invest in faster growing units That still makes sense to me as a sound strategy that will lead to stock price appreciation but the delivery date for that appreciation has been pushed off further into the future by the slowdown in South American economies. That slowdown is being led by Brazil where the economy managed just 0.1% growth in 2014 before slipping into contraction in the first quarter of 2015. Forecasts call for negative growth of 1.2% in 2015 Which wouldn’t be such a big problem for FMC except that South America historically accounts for the majority of sales in the company’s agricultural chemicals unit. That dependence—55% in 2014—has been reduced by the Cheminova acquisition to 46%, but that still gives FMC a big exposure to growth or the lack thereof in the region I think, however, that you should dig deep and find additional reserves of patience for the second half of 2015 and into 2016. Growth in the market for agricultural chemicals is likely to stay flat for the remainder of 2015, but the integration of Cheminova will bring substantial synergies of $120 million and year over year revenue comparisons look easy to beat. The rebalancing of global sales to give North America and Europe a bigger share should help since those markets look to be recovering faster than Latin America. (The Cheminova deal also brought FMC a plant in India, which will help the company grow share in that market.) The shares are down 21.7% in the last 12 months and trade within 10% of their 52-week low of $51.04. As of today, June 24, I’m lowering my prior $82 a share target price to $69 a share, about a 25% gain, by December 2015. The stock pays a 1.2% dividend.

I’m using today’s cash-induced rally in Shanghai to sell Mosaic–I just don’t see higher stock prices turning into stronger economic growth in China

September 8th, 2015

Do you believe that today’s big intervention by government purchasers in Shanghai and the resulting rally in Shanghai (up 2.92%) and across global markets really means anything for actual economic growth of China or anywhere else in the world?

If you believe this was largely (or entirely) an effort to prop up stock prices in Shanghai that will have almost no effect on the real economy in China—or on demand for the things (like iron ore) that China buys, then you should sell on the rally.

If you believe there is some mechanism by which rising stock prices will result in increased economic growth in China and elsewhere, you should buy on the rally. Apple’s forecast of strong sales of iPhones in China, or a turn around in demand for BMWs would be more likely.

Personally, I don’t see the magic switch that would turn stock profits—assuming that the rally doesn’t end badly and there are any—into economic growth. Rather than a sign of potential stronger growth, I see the intervention by government cash as a sign that China’s government recognizes that it has a deep growth problem on its hands. And that it can’t afford a bear market in Shanghai at this juncture. (Most capital for Chinese business is still raised from banks so the economic effects of a bear market in Shanghai are smaller than they would be in the U.S. system.) Frankly, I don’t see adding more cash to a financial system that has trouble allocating cash efficiently is going to fix a system that needs big exposure to the consequences of bad investment decisions.

So today I went through my Jubak’s Picks portfolio looking for stocks that I bought on the premise of stronger growth in China but where that premise remains a mostly unfulfilled—or at least delayed—promise.

Tomorrow I will sell shares of fertilizer producer Mosaic (MOS) out of Jubak’s Picks with a loss of 11.25% since I added it to this portfolio on June 3, 2015. I was convinced, then, that demand for potash fertilizers from China and India would pick up enough to let a resurgent phosphate fertilizer business drive profits at Mosaic higher. That dynamic is crucial to rising earnings at Mosaic since the company, the third largest potash producer in the world, has higher production costs than its biggest competitors. At times of rising demand that disadvantage doesn’t matter very much. When demand is sluggish—like now—and prices are under pressure, those higher costs hurt the top and bottom lines and blunt the effect of Mosaic’s dominant phosphate business.

In the first half of 2015, rising margins in the potash business for Mosaic promised a strong second half as rising demand led to increased capacity utilization at Mosaic. Those higher margins on increased capacity utilization now just don’t look likely to materialize. A July forecast from Potash of Saskatchewan that looked at rising demand from Brazil and a second half recovery in economic growth in China to lead prices higher now looks premature.

Mosaic’s shares are up 7.3% from their August 25 low as of the September 8 close. The company will pay its 27.5 cents a share (a 2.73% yield) dividend on September 13 to shareholders of record as of September 3.

 

Update American Airlines

Update: April 24, 2015.  Two pieces of good news for shares of American Airlines Group (AAL) today. The shares closed up 2.44% to $52.71. First, earnings for the first quarter of 2015, announced before the open today, April 24, rose to a record $1.2 billion, or $1.73 a share. That was slightly above expectations for $1.71 a share and tripled earnings (excluding special credits) in the first quarter of 2014. Revenue fell 1.7% to $9.83 billion, but that was in line with projections. While passenger revenue per available seat mile fell 1% domestically and 4.1% internationally, operating expenses dropped by 7.1% from the first quarter of 2014 thanks to a huge 42.2% plunge in fuel costs as oil prices collapsed. American Airlines Group closed its last hedges on fuel costs in July 2014 and has been naked ever since. Pretax margins, excluding special charges rose to a record 12.7%, up 8.6 percentage points from the first quarter of 2014. Second, American Airlines put off delivery of five Boeing 787 Dreamliners intended for international routes. Four will not be delivered in 2017 and the last will be delivered in 2018. American also announced that it would speed the retirement of some older MD-80s and 757s. The goal is to reduce supply growth, especially on international routes were capacity growth has been cutting into fares. American now projects that its international seating capacity will climb 1% in 2015, down from earlier projections for a 1.5% increase. The really good part of this second piece of news is that American’s U.S. competitors seem to be following suit. Last week Delta Air Lines (DAL) announced that it would cut expansion in global markets by 3% in the fourth quarter. United Continental Holdings (UAL) this week said it would reduce growth outside the United States by 0.7%. (Both American and United Continental are members of my Jubak’s Picks portfolio.) Although this trend certainly isn’t great for Boeing (BA), which is still looking to increase production on the 787 so it can move into the black for each airplane it produces, capacity restraint is the key to airline profits. The industry has a tendency to expand capacity so fast in good times that it posts huge losses in any drop in traffic. The longer the industry can put off that development in this cycle, the longer it will remain profitable I added American Airlines Group to my Jubak’s Picks portfolio back on December 2, 2014 at $47.76 as a hedge on falling oil prices since the airline would see a rapid drop in fuel costs if oil continued its plunge. The question now that oil looks to have bottomed is how much longer to hold the shares. Fuel costs always lag the price of oil so American Airlines still has several quarters of falling fuel costs to go by my estimation. In the fourth quarter fuel fell to $2.52 a gallon. For the first quarter that dropped even further to $1.83 a gallon in comparison to $3.10 in the first quarter of 2014. Credit Suisse projects that fuel cost at American will rise slightly to $1.94 in the second quarter (versus $3.03 a gallon in the second quarter of 2014), then to $2.06 in the third quarter (vs. $2.98), then to $2.16 in the fourth quarter (vs. $2.52). In 2016 fuel costs will, at $2.36 on average for the year, exceed average fuel costs for 2015 of $2.00 a gallon. That would suggest that on falling fuel costs alone the stock would be a reasonable hold into the third quarter of 2015. At that time investors might begin looking ahead at the higher costs per gallon in 2016 and they will certainly see, if the Credit Suisse projections are correct, a pattern of a declining reduction in fuel costs on a year to year comparison. Falling fuel costs aren’t the only thing this stock has going for it in 2015. The integration of operations between American and U.S. Airways after the 2013 merger is now substantially complete and with the issuance of a single operating certificate this month the group can now move workers and equipment to maximize efficiency. The group has also now unified its frequent flier and other market programs. Summer is usually a good time for air travel and for airlines if capacity discipline stays in place. I wouldn’t forget that this is a notoriously cyclical industry so I’m not raising my target price on yesterday’s news a great deal. As of April 24, I’m tweaking my target price to $66 by September from the current $64.


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