Sell Banco Santander
I’m going to take advantage of the 2.8% bounce today in the ADRs (American Depositary Receipts) of Banco Santander (SAN) to sell the Spanish bank out of my Dividend Income Portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/
The bounce came with news that CEO Alfredo Saenz had resigned and would be replaced by Javier Marin. Saenz faces legal problems stemming from a conviction dating back to 1994. In February the Supreme Court ruled that a pardon, granted to Saenz in 2011, went too far in allowing Saenz to work in banking despite the conviction that Saenz might be in violation of Spain’s “professional virtue” requirements for working in the industry. Saenz’s legal problems were just one more distraction that the bank didn’t need.
Especially since the bank’s last quarter was, from my point of view, a disaster. My rationale for owning Banco Santander even as the Spanish economy collapsed was that this global bank had more than enough strength in its non-Spanish operations to make up for problems at home. But results for the first quarter, reported on April 24, showed that just isn’t the case right now. The bank’s profitability in Spain was terrible, as expected and the bank’s ratio of non-performing loans continued to climb in the quarter, going to 4.12% from 3.84% in the fourth quarter.
But it was the weak performance of the bank outside of Spain that was a surprise and led me to this sell recommendation. Read more
Income from GE while you wait for turn in commodity-related industrials
General Electric (GE), at least, thinks there’s a future in the commodities sector.
Today the company announced that it would spend part of the $16.7 billion in cash it received from selling NBC Universal to Comcast (CMCSA) to buy Lufkin Industries (LUFK) for $3.3 billion. The price is a 38% premium to the April 5 close for shares of this maker of artificial lifts that bring crude oil to the surface. The deal will double GE’s share of the artificial lift market, giving the company a 15% market share.
General Electric made $11 billion in acquisitions in the energy sector in 2010 and 2011 and this deal fits with CEO Jeff Immelt’s strategy of expanding General Electric’s industrial business while shrinking the relative importance of GE Capital.
General Electric is paying about 13.5 times estimated EBITDA for Lufkin. That’s a little rich in comparison to other recent deals in the space, but analysts think there’s a good bit of fat to cut at Lufkin and that General Electric will be able to wring about $60 million in cost savings out of the company over the next five years.
The $88.50 a share purchase price is a big increase from the pre-deal share price of $63.93, but it is roughly equal to Lufkin’s high of $85.39 back in back in February 2012.
I wouldn’t say that GE is on a buying spree but the company is clearly using the softness in commodity related stocks to do some exploratory drilling of its own. Read more
ENI (E)
Way back on March 12, I promised http://jubakpicks.com/2013/03/12/all-time-high-for-u-s-stocks-hooray-but-why-should-we-care/ that I was going to add a stock to my dividend income portfolio soon (on March 13, I said.) Well, I didn’t make the add then and I’ve been waiting for the predictable volatility of this market to give me a better entry price. I got that price today and I’m finally making my add to that portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/
I’m going to take advantage of today’s 1.6% drop to recommend buying shares of Italian oil company Eni (E in New York.) It’s not surprising that shares of Eni are down today—the Milan exchange FTSE MIB index closed down 2.5% today in reaction to the Cyprus “solution.”
But today’s drop brings the total decline since the January 17, 2013 high to 10.9% and it pushes the dividend yield close to my 5% dividend income buying target. (The yield is 4.95% on March 25 based on the paid September 2012 dividend and the declared May 20, 2013 dividend.)
And I think you might even get some growth out of this oil stock. Read more
Never count Intel out–especially when it pays you 4.2% to wait
I don’t think it’s wise—or profitable—to ever underestimate Intel’s (INTC) patience. Recent product announcements and news on design wins show that the company continues its long-term attack on markets where Wall Street seems to have concluded that Intel can never win. (Intel is a member of my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ It pays a 4.2% dividend.)
“Never” is a long, long time.
First, Intel announced a slight upgrade on its Atom chip—the Z2580–at February’s Barcelona Mobile World Congress and that was almost immediately followed by news that China’s ZTE, the fourth biggest seller of mobile phones in the world, has decided to use it in some of its new phones. This is an important follow up to Intel’s win with the Motorola Razr I phone last year. Intel still doesn’t have a central position in mobile phone silicon but it is no longer completely locked out of that market and the company even has some momentum. The Atom Z2580 does look like it has closed some of the graphics gap with chips from ARM Holdings (ARM.LN in London and ARMH in New York.)
Second, Intel has beaten out Taiwan Semiconductor Manufacturing (TSM), the largest independent chip foundry in the world, to build chips for Altera (ALTR), a leader in field programmable gate array technology. Read more
SeaDrill is expecting 10 new rigs in 2013 and another 8 over the next two years–no wonder market are willing to look past today’s earnings miss
The rigs are coming. The rigs are coming.
And in yet more of SeaDrill’s (SDRL) aggressive use of its balance sheet, the company will fund its purchase of new higher margin ultra deepwater rigs by selling lower margin tender rigs in a deal that will close in April
It’s that aggressive increase in assets—and its ability to find a low cash cost way to fund it—that has made today’s shortfall on fourth quarter earnings irrelevant to the market. Shares of SeaDrill were up 0.24% as of 1:30 p.m. New York time today. EBITDA (earnings before interest, taxes, depreciation, and amortization) climbed just 5% for the quarter to $604 million. That missed analyst expectations—lowered in recent weeks on increased downtime for the company’s deepwater rigs—of $619 million in EBITDA. Total downtime for the company’s fleet came to 100 days in the fourth quarter. That resulted in a $60 million hit to revenue in the period. (The day rates that oil companies pay to hire SeaDrill’s fleet have stabilized at $580,000 to $620,000, SeaDrill reported.)
And here’s why the market has been willing to look past these quarterly numbers Read more
