full-time investing; total portfolio up over 130% in 2009; but 2010 sucks!
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ViroPharma Likely To Report Positive Phase II Data
Peter Kang, 03.27.06, 11:53 AM ET
Piper Jaffray said ViroPharma is likely to release positive mid-stage data for its lead pipeline drug maribavir.
ViroPharma (nasdaq: VPHM - news - people ) is expected to announce preliminary results of a Phase II study of the experimental antiviral drug some time this week.
Maribavir, acquired from GlaxoSmithKline (nyse: GSK - news - people ) in 2003, is being developed to prevent and treat cytomegalovirus, or CMV, in bone marrow and solid organ transplant patients.
"We expect the data from this study to show a robust reduction in the CMV incidence rate from 60% in the placebo arm to at least 20% in the treatment arms," wrote analyst Thomas Wei, in a report sent to investors today.
"A favorable safety profile, in particular on bone marrow suppression, will be critical for the drug's success. Better-than-expected outcomes would include a reduction in the CMV infection rate to significantly below 20% in the maribavir arms or any trend towards reductions in CMV disease or mortality."
The analyst maintained a "market perform" rating on the stock and said the current CMV market is more than $200 million, with 45,000 patients in the U.S. annually.
"We believe that maribavir could be launched by 2009, and could take significant market share from current therapies as well as grow the overall anti-CMV market," said Wei.
Wei reiterated a $13 price target on ViroPharma shares. "Positive data for maribavir could create near-term upside for the stock," the Piper Jaffray analyst said. "As a reminder, our $13 price target assumes a worst case scenario for Vancocin and $3-$4 per share in value for maribavir."
A week ago, Piper Jaffray downgraded shares of ViroPharma to "market perform" from "outperform," citing concerns of generic competition for the biotech firm's anti-infective drug Vancocin.
The U.S. Food and Drug Administration recently changed the conditions surrounding the bioequivalence study required for generic drug applicants, which could bring generic versions of Vancocin to the market quicker than previously forecast.
ViroPharma acquired the U.S. rights to Vancocin from Eli Lilly (nyse: LLY - news - people ) in December 2004.
Questions (which keep recurring here):
1. How many GFCI shares outstanding?
2. If any shares are restricted, how many, and when do restrictions expire?
3. What is the the formula for CTBG share spinoff, that is, how many CTBG shares to be issued per GFCI share?
4. When will financials be made public?
5. What are annual revs?
6. What was total profit for all of 2005?
7. What is revenue and profit outlook for 2006?
Photos:
Yes, please send mugshots of Jim Dial and other execs at the show (if that's the appropriate term).
OT: Dr. Bill, didn't you say watch ENCY last week? Down 45% premkt on FDA decision that more clinicals are needed.
CALM up 20% premkt:
Cal-Maine Foods Sees 3Q Profit Jump
Monday March 27, 7:42 am ET
Shares of Cal-Maine Foods Rise on Strong Third-Quarter Earnings Report
JACKSON, Miss. (AP) -- Cal-Maine Foods Inc., one of the nation's biggest fresh-egg producers, on Monday said fiscal third-quarter earnings climbed sharply, helped by an improved market for eggs.
Profit for the quarter ended Feb. 25 increased more than threefold to $8 million, or 34 cents per share, from $2.4 million, or 10 cents per share during the same period a year ago. Revenue rose 29 percent to $130.1 million, up from $101 million in the year-ago period.
In a statement, Fred Adams, Jr., chairman and chief executive of Cal-Maine Foods, Inc. said, "These results indicate a better egg market and reflect the good job by our management team of controlling costs and servicing our customers."
Shares of Cal-Maine Foods jumped $1.29, or 20.4 percent, to $7.60 in premarket trading. The stock has traded in a 52-week range of $5.55 to $8.44 on the Nasdaq.
Cal-Maine foods sells shell eggs in about 28 states across the U.S.
Lyamec to Force Changes at Grifco International
Last Update: 7:15 AM ET Mar 27, 2006
HOUSTON, March 27, 2006 /PRNewswire-FirstCall via COMTEX/ -- Lyamec Corporation, a merchandising and distribution services firm announced that it has begun a time lined campaign to force and implement executive level changes at Grifco International. Grifco International (GFCI) recently acquired Global Oil Tools as well as an equity participation of rights on "Global Oil Tool Libya," a 24,000 Sq. ft. manufacturing and distribution facility set for the free trade zone of Misurata, Libya. As an equity holder of Grifco International, Lyamec interim CEO R.G. Raymond said "We are seeking to effect and implement changes to Grifco's operational policies at all levels including looking into and addressing any historical shortfalls that may have impacted the company's performance. We look to enhancing corporate operations and corporate policies in an effort to bringing proper valuation to our plans in the U.S. and in our collective market regions, starting with Libya. We look for deliberative processing of recommendations by establishing a committee which will comprise of a variety of talents and expertise needed to effectively address various issues at hand."
Concurrently on the Libyan front, Mr. Hagegh of Misurata's General Peoples Committee issued the planned facility their seal of approval on January 16th, 2006, which now paves the way for ground breaking and for the establishment of the 24,000 Sq. ft. manufacturing and distribution facility.
Libya's National oil company's (NOC) highest priority is increasing oil and gas production through revitalizing/overhauling of outperforming oil fields with proven reserves to their previous production levels. Libya's expanding onshore/offshore exploration and production has created robust demand and a growing market for American oil equipment and services. In recent meetings with Jerry Swinford, President of newly spun off CTT Technologies, R.G. Raymond stated "Jerry and I met and we talked on several issues regarding current activities and moreover in working together to building on CTT's capabilities in our market regions."
Global Oil Tools is ISO 9001 and A.P.I. Spec. 14A certified and its Quality Assurance Program conforms to all specifications set forth in ISO 9001 (ANSI/ASQC Q91) and A.P.I. Spec. 14A. Global has strict quality control standards, starting with the purchase of raw materials, through the manufacturing process, the inspection process, and the shipping process. Global maintains complete traceability on every product manufactured.
The Lyamec Group ( www.lyamec.com) was established in 1999, to fulfill the existing and expanding demand for U.S. made products as outlined by President Clinton on April 28, 1999. The Lyamec Group provides vital assistance in laying unique and integrated platforms with cross-border assets to further streamlining efficient and effective opportunities and solutions.
For additional information, contact:
Patric Riggs, Investor Relations, ir@lyamec.com, +1-713-542-9996.
This release was issued on behalf of the above organization by Send2Press(R), a unit of Neotrope(R). http://www.Send2Press.com
"Grifco International, Inc. (GFCI), a provider of oil and gas service equipment to the worldwide oil and gas industry, today announced it will attend the 9th Annual SPE/ICoTA Coiled Tubing Conference & Exhibition on April 4th and 5th. ... "
and it drops to .145x.15 ... must not be quite the news everyone was hoping for ... financials, that is ...
The good doctor will also soon learn (as you have) that the hassles for the Moderator will exceed the pride and power associated with this auspicious position.
... and meanwhile GFCI price action is smelling like a load of bilge ... backing down to .154
Thanks for that ERHE valuation perspective. Good points all!
Do you work for S.A.C. Capital?
Excellent to hear that VPHM's Maribavir Phase II trials were positive enough to move ahead with Phase III. This announcement at the GS conference is definitely "foreshadowing" the good PR we have been hoping for by the end of next week.
BTW, I spoke to their IR guy yesterday who confirmed the Phase II results were due to be reported by end of March. He was in a very good mood as a matter of fact, and he confirmed they were pursuing a multifaceted response to FDA's announcement that caused VPHM to sink so deeply into the muck last week.
JC needs more than a post-it note on his forehead. Put a big "L" up there with a laundry marker to remind us of his irresponsible treatment of VPHM, recommending it highly one week and abandoning it the next. He is never that irresponsible with anything he owns in his "charitable trust", which we might realize is a marketing tool for selling TheStreet.com and RealMoney.com subscriptions.
Prediction: There will be at least one 10-20million+ trading volume day next week after the next news release. If I'm not careful I'll start preaching about VPHM like Spongebob does about Canadian stocks. LOL. We VPHMers could surely use a good break next week, no wait, make that a good breakout!
Oilman, althought ERHE may be more of a "reserve play" than a rev/earnings play, it is significant that they will have almost zero cost to produce revenue since partner buyins are leaving ERHE with no obligation to share in any drilling/production costs. This is a very enviable situation for any company.
Eventually, when oil does begin to flow from their blocks, they will start receiving large sums of money into their coffers, which they will be able to leverage into other exploration projects.
It seems that once the money starts flowing, share buybacks to increase share value would be the way to go (sorta XOM-like in that respect).
Unfortunately, it remains hard to determine a reasonable price point to buy ERHE stock. If you are already long, how are you determining what is a fair market value per share now and a fair market value per share in future? At this point I have only one way to look at ERHE, that is, it is a news-driven stock that goes up when news is good and down when news is bad.
Mr. Bill, your presence here remain highly suspicious due to the fact that you have posted on no other boards. You are obviously not here for the good of mankind. Why should we believe that you are a doctor? Why should we believe that you have an excellent trading record?
It is obvious that you wish to maintain your presence here until GFCI files bankruptcy. Is it just so you can say, "Told you so" when it happens?
I just cannot understand for the life of me why you waste your time and everyone else's time by being here day-in and day-out blathering and ranting on the hopelessness of the situation.
Most that show up here to post and read other's posts agree that the bottom line on GFCI is that it is a Very High Risk Longshot, and most of the information posted by the company has not been verified. It is, afterall a pinksheet company, and I'd have to guess that it will probably one day end up like NWAU.pk at sometime in future. The promises and claims will be proven untrue, and the stock price will go down as a result. However, there is some LOW PROBABILITY that some of the company's claims will eventually be proven true (perhaps it will be financials that exceed the most skeptical view), and the stock will actually rise.
None of us knows for sure what the future holds for GFCI, but depending on the size of one's holdings, GFCI's future is of negligible significance or great importance.
Why not think of how you might bring joy somewhere!
Much appreciated!!!
Like I insinuated, it remains hard to put hard numbers on future revenue expectations. I'm sure ERHE will not be publishing any estimates themselves for some time since any estimates would have to be highly hypothetical.
Do you know if anyone at ERHE or any analyst has tried to estimate future annual revenues to ERHE based on some number of successful wells per year in each block? Although I doubt that anyone would float any future ERHE revenue numbers this early, but I had to ask.
ERHE has had to enter production sharing agreements in order to fund their share of costs, however, it is no longer clear exactly what WI remains with ERHE. The fact that they have been able to secure and keep their interest in multiple blocks is very impressive for such a small company.
Question: Does anyone know what working interest ERHE still maintains in each of their blocks?
The knowns include: There is VERY high probability that ERHE will obtain VERY substantial future income from these blocks.
The unknowns include: how much income will flow into ERHE, when the income will begin, and how long it will last.
Dr Bill, if you truly wanted to "learn and grow", you wouldn't be wasting your time on this board. You have stated your negative opinion of GFCI in a multitude of ways.
For the life of me, I cannot figure out what psychological need is being met by your presence here. Go save a life!
Rogue, this one's for you:
Top Ten Reasons Dick Cheney Won't Resign...
10. Trying to fix up Condi Rice with his daughter
9. Turns out when you shoot somebody, if you're not vice president, you gotta do time
8. Bush leaves at two every day and then it's margaritas and Fritos
7. Set the solitare high score on his office computer
6. Wants to see if he can help Bush get his approval rating under ten
5. Too hard to give up Vice Presidential Discount at D.C. area Sam Goody stores
4. Wants to stay on the job until every country in the world hates us
3. Extra-zappy White House defibrillators
2. Undisclosed location has foosball and whores
1. Why quit when things are going so well?
---Late Show with David Letterman
OT: Comic Relief
Oil Change Instructions For Women
1. Pull up to Jiffy Lube when the mileage reaches 3,000 miles since the last oil change.
2. Drink a cup of coffee.
3. 15 minutes later write a check and leave with a properly maintained vehicle.
Money Spent
Oil Change $20.00
Coffee $1.00
Total $21.00
Oil Change Instructions For Men
1. Wait until Saturday, drive to auto parts store and buy a case of oil, filter, kitty litter, hand cleaner and a scented tree, write a check for $50.00.
2. Stop by 7 - 11 and buy a case of beer, write a check for $20.00, drive home.
3. Open a beer and drink it.
4. Jack car up. Spend 30 minutes looking for jack stands.
5. Find jack stands under kid's pedal car.
6. In frustration, open another beer and drink it.
7. Place drain pan under engine.
8. Look for 9/16 box end wrench.
9. Give up and use crescent wrench.
10. Unscrew drain plug.
11. Drop drain plug in pan of hot oil: splash hot oil on you in process.
Cuss.
12. Crawl out from under car to wipe hot oil off of face and arms. Throw kitty litter on spilled oil.
13. Have another beer while watching oil drain.
14. Spend 30 minutes looking for oil filter wrench.
15. Give up; crawl under car and hammer a screwdriver through oil filter and twist off.
16. Crawl out from under car with dripping oil filter splashing oil everywhere from holes. Cleverly hide old oil filter among trash in trash can to avoid environmental penalties. Drink a beer.
17. Buddy shows up; finish case of beer with him. Decide to finish oil change tomorrow so you can go see his new garage door opener.
18. Sunday: Skip church because, "I gotta finish the oil change." Drag pan full of old oil out from underneath car. Cleverly dump oil in hole in back yard instead of taking it back to O'Reilly to recycle.
19. Throw kitty litter on oil spilled during step 18.
20. Beer? No, drank it all yesterday.
21. Walk to 7-11; buy beer.
22. Install new oil filter making sure to apply a thin coat of oil to gasket surface.
23. Dump first quart of fresh oil into engine.
24. Remember drain plug from step 11.
25. Hurry to find drain plug in drain pan.
26. Remember that the used oil is buried in a hole in the back yard, along with drain plug.
27. Drink beer.
28. Shovel out hole and sift oily mud for drain plug. Re-shovel oily dirt into hole. Steal sand from kids sandbox to cleverly cover oily patch of ground and avoid environmental penalties. Wash drain plug in lawnmower gas.
29. Discover that first quart of fresh oil is now on the floor. Throw kitty litter on oil spill.
30. Drink beer.
31. Crawl under car getting kitty litter into eyes. Wipe eyes with oily rag used to clean drain plug. Slip with stupid crescent wrench tightening drain plug and bang knuckles on frame.
32. Bang head on floorboards in reaction to step 31.
33. Begin cussing fit.
34. Throw stupid crescent wrench.
35. Cuss for additional 10 minutes because wrench hit Miss December
(1992) in the left boob.
36. Beer.
37. Clean up hands and forehead and bandage as required to stop blood flow.
38. Beer.
39. Beer.
40. Dump in five fresh quarts of oil.
41. Beer.
42. Lower car from jack stands.
43. Accidentally crush remaining case of new motor oil.
44. Move car back to apply more kitty litter to fresh oil spilled during steps 23 - 43.
45. Beer.
46. Test drive car.
47. Get pulled over: arrested for driving under the influence.
48. Car gets impounded .
49. Call loving wife, make bail.
50. 12 hours later, get car from impound yard.
Money Spent
Parts $50.00
DUI $2500.00
Impound fee $75.00
Bail $1500.00
Beer $40.00
Total $4165.00 -- But you know the job was done right!
DZR.v hitting new 52wk high today. SHY.v also looking OK. Any word out there on the production to be expected from Hounddog#2 well (recently cased and currently undergoing "completion")?
Market action is suggesting they should get some large gas flows (perhaps similar or exceeding Hounddog#1).
CZR.v and SHY.v each have 25% WI in both "dogs".
SPAB approved for trading on Nasdaq Capital Market vs Nasdaq National Market; up a few pennies. I think this is a Yielddude favorite. Hey, where is Yielddude anyway?
VPHM: It's a good example of the 3 day rule: Give it 3 days to settle out before buying after bad news. It appears that the heavy selling is over for now; some buying interest is coming in today now that (forced) margin sellers are out. Volume appears to have eased somewhat since yesterday. Looks to me it may sit around 11 (+/.40) all day. My instinct is that it should gain a little upward momentum over the next week but won't be over $15 for awhile (a long while).
At this point, I would imagine VPHM believers (longs) will be interested to see what they report on Clinical Trials of Mirabivir. Does anyone know when they are e3xpected to discuss PhaseII trial results?
JMHO...
Motley Fool says look at VPHM:
ViroPharma's Generic Discount
By Rich Duprey (TMF Cop)
March 20, 2006
Did you feel that downdraft? Whoosh! That gale force wind was created by tiny biotech ViroPharma (Nasdaq: VPHM) falling off the cliff and plummeting 33% on news that generics may be allowed to enter its antibiotic drug market sooner than expected.
ViroPharma's sole source of revenues is the drug Vancocin, which it bought the rights to in 2004 from Eli Lilly (NYSE: LLY) for $120 million. Not a bad deal, really, when you consider that sales in 2005 for ViroPharma were $126 million. Although it was still required to pay some royalties to Lilly, they were relatively negligible.
There's big demand for Vancocin, an antibiotic which treats enterocolitis (an infection and inflammation of the intestine that usually develops in a hospital setting). Sales are expected to continue their expansion -- they've grown at a compounded rate of 65% for the past three years -- since the bacterium already kills thousands of people each year in the U.S., and it's apparently growing more common and deadly. A supervirulent strain -- which generates 20 times more toxins that damage the colon than the typical strain -- has been reported in at least 14 states and several countries.
The fear of this widely spreading bacterium has allowed ViroPharma to raise prices of Vancocin by 80% since it acquired the rights to it. While $800 for the complete regimen compares favorably to other infection antibiotics that cost as much as $2,000, it's expected that ViroPharma could increase the cost by another 65% and still be considered reasonable. That has been fueling the growth in ViroPharma's stock, which has risen by more than 500% over the past year.
Yet it's also possible that the price increases played a role in the FDA's decision to allow generics to move into the market ahead of schedule. The FDA recently informed ViroPharma that the regulatory agency had revised its policy of requiring clinical trials showing the efficacy of possible generic alternatives; in the future it will merely require companies to show that lab tests of generics produce the same rate of dissolving as Vancocin does. Vancocin is the only FDA-approved oral drug of vancomycin that is delivered intravenously and specifically targets the bacterium that causes the infection.
Because of the cost factor, some doctors prescribe off-label treatments using metronidazole, which is less than one-tenth the cost of Vancocin. Yet the off-labels are not nearly as effective, nor can they treat the more severe cases of infection.
While it's difficult to imagine the FDA actually going through with this lesser standard of proof -- especially considering the heat that it's taking over its handling of Merck's (NYSE: MRK) Vioxx and Pfizer's (NYSE: PFE) Celebrex -- investors were concerned enough about the possible early entry of generics to whack $5 off ViroPharma's share price, which had followed a 9% decline the day before. The stock is more than 55% off its 52-week high, which piques my interest here.
The company has $233 million in cash, only $79 million in debt, and is trading at a little over two times its book value per share. It has a trailing P/E of only 5 and a forward P/E of just 8, and the company was finally able to become profitable in 2005, on the strength of Vancocin. Generics, if they're ever even approved, will not appear on the market for at least two years, and ViroPharma has announced its intention to vigorously defend its patents. Considering the hypervirulency of the new bacteria, it seems unlikely that the FDA would follow through.
Moreover, while Vancocin is the biotech's sole product right now, it has two other drugs in its pipeline: Maribavir, which it acquired from GlaxoSmithKline (NYSE: GSK) in 2003, is used to treat cytomegalovirus, a common virus in the herpes family that is found worldwide; and HCV-796, with which it entered into a partnership with Wyeth (NYSE: WYE) in 1999 to target hepatitis C. Considering the amount of cash it has on hand from Vancocin, it could also always buy into another cash-producing drug -- should generics prove formidable.
The sell-off is definitely overwrought here, and investors would do well to look a little closer at this promising biotech.
VPHM: Wade, the whooping got to me, so I punted on the confirmation from the company. Took the loss (big one) and moving on to other things...
VPHM: I heard that rumor, but can you point me to the PR?
TIA
Though I am long VPHM, I occasionally remind myself that their mkt cap at 1.11 Billion is much higher than annual revs ($170-200million million estimate for 'o6). I happen to prefer low P/E stocks with a mktcap less than annual revs. I believe that the high MktCap/AnnualRevs ratio could be one of the factors that is pulling VPHM down.
They must maintain a high margin to continue their EPS growth, even while they fund clinical trials on other products. As they gear up for their other two "wonder drugs" AND transition to a new manufacturer of Vancocin, they will encounter margin pressure.
Last point, as they drive their new products thru clinical trials, it could become apparent that they suffer from lack of efficacy.
If they do acquire a new drug, we CANNOT assume that their ROI will be anything near what it was for Vancocin.
added a little vphm at 16.40 ... yowch...
Sold WIRE earlier (stopped out); was moving down with IIIN; same general industry; I believe both may have had downgrades today.
Bought WIRE this afternoon on slump following downgrade. I think fundies are still strong for this one. Anyone else here playing with WIRE?
Great article, Rogue.
VPHM chart continues to look like a sliding board. Anybody know what's up with this stock? Trailing PE now down to 8.6...
??? confusing ??? maybe the shorts have it under control?
A good read ... thanks ...
... however, I don't believe that our best solution to the energy crisis is as easy as building out infrastructure to get to the Canadian tar sands.
EPEX having a tough go of it lately. I guess their high percentage of gas vs oil wells is the reason. Still, it's now below yearend level and could well bounce back above $25 if we get a consistent upward bias in natgas and crude prices (which appears to be happening).
GEOI also appears to be taking on fuel for a nice liftoff.
Hey Bob and all you other geeky investors that need a gazillion windows open...
Here's another browser with lots of features... seems to go even beyond Maxthon.
http://www.opera.com/features/
This $2 billion mutual fund manager expects commodities to be down in 3 years but he is buying certain (larger)oils and oil sands.
FIVE QUESTIONS FOR...
Powering the grid
Fund manager weighs prospects for energy stocks
SAN FRANCISCO (MarketWatch) -- Commodity prices have cooled, but expectations for oil, metals and other natural resources are running high.
MacKenzie Davis tries to manage expectations for shareholders of the RS Global Natural Resources Fund (RSNRX), the $2 billion portfolio he's run with Andrew Pilara, Jr. since Jan. 2005. The two are relatively sedate speculators in this volatile area, where fortunes are made and lost on futures and forecasts. Davis and Pilara hold a concentrated group of a few dozen stocks across several sectors and don't trade much, a strategy that has delivered above category-average gains on a one-, three- and five-year basis, according to investment researcher Morningstar Inc.
And these supply- and demand-driven stocks have been, in a word, gushers. Natural-resources mutual funds are the second-best U.S. market performers over the past 12 months next to real-estate funds, up 23.5% on average, while Davis and Pilara's fund rose 33%. But the natural-resources sector has softened lately, down 2.5% in the four weeks through Friday. The RS fund lost about 2% in the same period. Against this stormier backdrop, Davis spoke with MarketWatch Investments Editor Jonathan Burton about prospects for natural gas, oil and coal.
In the current market environment, is it more advantageous to buy commodities or commodity companies?
You can make a strong argument that it makes sense to own commodity companies. We expect commodity prices to be lower in three years than they are today. In commodity stocks you get leverage. If you can identify great management teams that are redeploying capital, you're going to do much better owning commodity stocks as opposed to owning commodities.
Natural gas futures have tumbled almost 40% this year as temperatures and inventories have climbed. Do you see this sector staging a rebound?
You can make all these companies look wonderfully cheap if you use the current commodity price. But it doesn't necessarily reflect economic reality. It looks like we're going to be at record storage for pretty much the whole year. The investments we're trying to make are ones that are able to earn above their cost of capital using the mid-cycle price, have an opportunity to redeploy free cash flow back into their business, and continue to earn attractive rates of return. But of course we're conscious about valuation. When stocks start to discount commodity prices that we feel are unsustainably high, then we'll exit the position.
At the beginning of this quarter and at the end of last year as well we've trimmed back on some names where we have some concerns about capital efficiency and valuation. In the fourth quarter we sold a position in EnCana (ECA) . There was some concern on valuation, but ongoing concerns about capital efficiencies and how they were positioned. The run-up in natural gas also was driving a lot of day-rate increases in the drillers on the land drilling side. They were getting phenomenal margin expansion and running flat out. We spend a lot of time talking to producers, and we felt there was potential for softness in the drilling results. People weren't going to be as willing to pay up 15% or 20% a year for drilling rigs, and there were cost increases on the rig side as well to compress margins. So we reduced our exposure to some of the drilling names.
We're trying to look at this over an extended period. The key for us over the past three or four months has been around valuation. The underlying fundamentals -- pick your commodity -- are for the most part very good -- even for natural gas. Characterize me as a long-term natural-gas bull. That means I believe in a $5 to $6 natural gas environment for the next five to seven years. I'm just not willing to buy into $7 or $8 natural gas.
Fluctuating oil prices can create an oil slick for commodity and stock investors alike. How do you approach oil markets now?
Everybody's always trying to figure out the risk premium in oil. We're not smart enough to figure that out. We try to understand what oil price generates an economic rate of return in today's environment -- and that's a low 40s number. If oil stays above $60, it's the cherry on top for the oil producers.
One company we continue to like is Denbury Resources Inc. (DNR) . They own the largest source of carbon dioxide east of the Mississippi River, and they use that CO2 to flood oil fields and capture oil that you couldn't produce using conventional processes. It's stuck in the ground; you can't get it out unless you have CO2, and then it flows. So they're able to buy very cheap assets in terms of the stranded oil, and they've got this phenomenal growth profile in terms of production. They're buying reserves for 50 cents to $1 a barrel. Then they've got to build a pipeline and there are other capital costs, but it's economic at 25 bucks a barrel and maybe $30 today. The company is being valued at a multiple of cash flow, but if you look at the assets in place and come up with a risk net-asset value, we think you're buying it at a discount.
Have you invested much in big integrated oil producers and refiners?
We've made some investments on the integrated oil side. Our integrated investments are predicated on the belief that we're able to get cheap refining assets. We own Marathon Oil Corp. (MRO) as an example. They have a substantial position in the Midwest and are positioned to take advantage of the flow of heavy oil that's going to come out of Canada from the oil sands. There, we own Western Oil Sands Inc. (CA:WTO: news, chart, profile) .
In general, oil from the oil sands needs a certain amount of upgrading. The product needs to go into a refinery, and not many companies have the ability to handle this heavier oil. Having the capacity to refine that is going to be increasingly valuable, and that's a big piece of our investment in Marathon.
Oil refining is probably the one area that fits most closely to what we do that we missed. The refining industry destroyed capital really efficiently for 25 years. What we missed was the structural shift in supply and demand taking place that was going to allow these guys to earn very attractive rates of return. Now we have a hard time with valuation. Because of our methodology and our process, the list of companies that we looked at and said are too expensive and watched go up is not a short list. But we're not going to change our investment process to try to accommodate the market.
Coal mining shares have given your fund a boost. Are you still optimistic about this other black gold?
We're optimistic about Powder River Basin coal. The coal reserves on the East Coast have been mined for 150 years and are in structural decline. Powder River Basin coal in the West is our most abundant source of coal. It's also a low sulfur coal that helps companies meet emission requirements. We're seeing more blending of Western coal into the Eastern coal, and we're seeing price response. Powder River Basin coal prices have risen from $5 to $20 and now are about $15.
I would highlight Peabody Energy Corp. (BTU) . We certainly don't need $20 Powder River Basin coal for Peabody to make outrageous amounts of cash. This management has proven to be intelligent and savvy. They bought metallurgical coal assets in Australia in 2004 at four-times trailing cash flow just months before metallurgical prices doubled. They purchased some more Powder River Basin assets last year, which from a logistic standpoint makes a lot of sense. Over the long term they're going to be players, and we're always happy to identify management teams making intelligent capital allocation decisions.
Hey Wade, why not comment on the joy you feel after so much pain last week? Hey, it's gotta feel much better just due to CFK's bounce. Come on, man, talk about your joy...
LOL ... glad things appear to be better this week than last ... my portfolio lapse was not quite as painful as yours last week, but close.
Good Luck!
TSTA: There were some more insider sales last week, which may be why it's down again. Spinks sold 100,000 sh I think.
Send a "raise hell" message to your friends at AMTD. Those guys need to get it right. No excuse for continuing to screw up pink quotes.
I think the current price of CFK is the market looking 6 months ahead and predicting that demand for drillers will not stay at the current level, so rig rates will fall (but not down to the levels of 2004).
Also, as the market "looks 6 months ahead", then the price of ASPN is the market telling us that the natgas shortage in 2006 will not reach the levels it saw in 2005, that is, Katrina and Rita will not be back in 2006.
By the way, I am long both ASPN and CFK, and I'm just not sure if I will have the tolerance and patience to wait for the day when hurricane Esmerelda (or Edith, or Buster) forms later this year.
I emailed Ameritrade this morning, and they got back to me with the following:
"I do apologize, but we are having issues regarding Pink Sheets. Bulletin Board quotes cannot be updated street wide at this time as all market makers are having quote feed problems this morning. Thanks for your patience."
GFCI up 30%; haven't seen any news yet.