Steven Halpern's THESTOCKADVISORS.COM
Each day, editor Steven Halpern posts timely and insightful commentary, market outlooks and specific stock and fund recommendations from the nation's top newsletter advisors on TheStockAdvisors.com. Here are a few recent postings.
Harmony Gold: 'Sleeper stock' wakes up
Mike Cintolo, editor Cabot Top Ten Trader, www.cabot.net: "Harmony Gold (HMY) is a 60-year old gold miner located in South Africa.
Until recently, this was a sleepy stock - despite the big rise in gold prices during the past few years. But that looks to be changing.
The company's current results aren't anything to crow about, but management is taking the company on a growth path thanks to three newer mines that are ramping production.
Even with some older mines that have already reached peak production, Harmony believes its total gold output will reach two million ounces by fiscal 2013 (which begins next June), up from a run rate of about 1.3 million ounces today.
As with most commodity stocks, it's the combination of rising gold prices (now north of $1,500 per ounce) and rising production that gets investors excited, and that's what seems to be happening here.
After years of up-and-down earnings, the bottom line is projected to spurt to $1.08 per share for the fiscal year beginning in June; if that occurs, it would be the highest earnings figure since 2002!
As for concerns, we can't say management has proven itself to be of the highest quality, but big investors are beginning to believe the top brass' outlook.
HMY was anything but a Top Ten Trader stock for the past couple of years; shares languished between 9 and 13 during that time, with neither bulls nor bears taking much of an interest.
However, the action since late-February has been both intriguing and encouraging - HMY exploded above that 13 level on huge trading volume.
In fact, average daily volume has jumped from 1.9 million shares to 3.6 million during that time; clearly somebody very large is gobbling up a lot of shares.
The stock has acted well since the breakout, and if you want gold exposure, you can buy some around here with a looser stop around 13.5."
Suncor: Look to Canada oil sands
Jack Barnes, contributing editor Money Morning, www.moneymorning.com: "Looking for a mining company that generates energy with its own diversified refinery division, wholly owned pipelines, and a retail gas station network?
In that case, Suncor Energy (SU) - founded in 1953 and headquartered in Calgary, Canada - should be at the top of your list.
Most importantly, it boasts strong and reliable crude oil production from its oil sands operations.
Suncor produces bitumen in the Canadian oil sands, which it expects to account for 90% of its 2011 crude oil production.
Furthermore, Suncor has built the necessary refining capacity to convert the tar sands' synthetic oil into refined gasoline and oil products.
This process allows the company to capture the profits of the full hydrocarbon supply chain.
Suncor has refining capacity of 443,000 barrels of oil equivalent per day (boe/day), with roughly half of that capable of running on oil sand feeds.
That refining capacity is spread out over both eastern and western Canada. The company also has a small refinery outside of Denver, CO, giving it U.S. domestic refining exposure.
Currently, oil sands production accounts for 330,000 barrels of oil equivalent per day (boe/day). But Suncor expects that to grow to about 800,000 boe/day by 2020.
The company expects to grow at a compounded annual growth rate (CAGR) of 8% over the next decade.
Suncor often highlights that fact to show that it expects to grow its oil sands production at a CAGR of 10% and its conventional and international CAGR production at 4%.
Of course, that growth is predicated on regulatory approval, due to a strategic oil sands partnership Suncor formed with Total S.A.
This relationship includes the development of new oil sands mines and upgrades, as well as asset ownership swaps between the two firms.
This new partnership will provide Suncor with $1.75 billion in the first half of 2011. The extra liquidity will allow the company to focus on mining as its engine of growth.
Suncor also has divested some of its natural gas-specific projects, allowing it to pay down its debt load over the last year.
This deleveraging process already has reduced Suncor's net debt to $11.1 billion from $13.3 billion a year ago.
If you're looking for stable energy companies capable of leveraging higher oil prices, but not susceptible to the violence in the Middle East, you might consider Suncor."
Silver shines for Alexco Resource
Ian Wyatt, editor Small Cap Investor, www.smallcapinvestor.com: "Alexco Resource (AXU) shows every sign of running higher along with the precious metal.
The Vancouver-based company was founded in 2005 by a management team with decades of experience in the mining industry.
With a market cap of $520 million, the stock has traded on the Toronto exchange since 2006 and on the AMEX exchange since 2007.
All indications are that Alexco will turn profitable in the fiscal year that ends in June, which should help green light the stock in many investors' minds.
The company's exploration has thus far been centered on its holdings in the Yukon's Keno Hill Silver District where it began to accumulate land in 2006.
Rated at 40 ounces per ton, Keno Hill is historically one of the richest silver production districts in the world.
From 1941 to 1989, the Keno Hill district delivered more than 217 million ounces of silver; production was halted in 1989 because of rising costs and low metals prices.
Commercial production began at the company's Bellekeno mine on January 1, and the mine appears ready to release its wealth to today's improved, more cost-effective technologies.
The company's production plans indicate that Alexco Resource will deliver 2.8 million ounces of silver in 2011. It projects this will increase to 5 million ounces by 2013, and to 7 to 10 million ounces by 2015.
The Bellekeno mine produces two metals typically found with silver - lead and zinc. As gold and silver have drawn most of the attention due to rising prices, other less glamorous non-precious metals, including lead and zinc, also have marched higher.
In addition to its silver lode, Alexco projects that it will produce 18 million pounds of lead and 8 million pounds of zinc from the mine this year.
At spot market prices of around $1.10 and $1.25 per pound, respectively, production of those metals should pay for all mining costs.
And therefore, the silver coming up becomes 'free' - produced at a negative cash cost. While lead and zinc pay the freight, the silver is all profit.
If Alexco Resource reaches 7 million ounces of silver output a year, the company will have a tremendous cash flow.
Interestingly, Alexco Resource also has another mining-related business - restoring mine sites and other brownfields environmental eyesores by returning the land and water to the way they were pre-mining.
So it cleans up after itself, and even cleans up any messes that other less conscientious outfits have left behind.
The company is sitting on $46.1 million in cash, thanks to a refinancing move made in 2010, and it also has no long-term debt on its books."
Cimarex Energy: A Permian play
Mark Skousen, editor Hedge Fund Trader Alert, www.markskousen.com: "We are seeing some attractive buying opportunities in the oil and gas sector. One of them is Cimarex Energy (XEC).
This company is an unusually safe oil and gas play. It has no exposure to the volatile Middle East - and nothing significant offshore.
Based in Denver, Cimarex is an independent oil and gas company with operations in the Mid-continent, Permian Basin and Gulf Coast areas of the United States.
It has a decentralized exploration team and relies heavily on its organization of geoscientists to generate its drilling prospects.
The company uses advanced 3-D seismic information to identify prospects. As a result, it has drilled some of the most productive onshore wells in the United States over the past two years.
The company is enjoying positive drilling results in each of the three primary areas where it operates.
Future prospects look good, too. Cimarex has roughly 94,000 acres west of Oklahoma that are part of the Cana-Woodford natural gas shale play.
It began operating there three years ago. This area currently accounts for roughly 12% of the company's total production base. Yet, it easily has ten more years of future production here.
Cimarex also has done a good job of hedging its bets. Not content to be a one-basin, single-niche company, it has a highly diversified portfolio of properties.
It has not diversified offshore, however. So, it will not be affected by new restrictions on offshore drilling.
I expect we'll get exciting news - and a potential price spike - when Cimarex reports quarterly results on May 6. So, pick up Cimarex at market today. And place a protective stop at $88."
Oasis Petroleum: An oasis in energy
Elliott Gue, editor The Energy Strategist, www.energystrategist.com: "The only area of operation for Oasis Petroleum (OAS) is the Bakken area of North Dakota and Montana; this is one of the hottest and fastest growing unconventional oil producing regions in the US.
Oasis is a small company in the early stages of a multiyear growth program.
The company operates in two regions: the West Williston, located along the border of Montana and North Dakota, and the East Neeson, located to the east in North Dakota.
Oasis estimates that ultimately recoverable reserves from a well in the West Williston are 400,000 to 700,000 barrels of oil.
That's compared to 350,000 to 600,000 on its eastern play. Nonetheless, both the West Williston and Neeson offer attractive returns on investment, particularly at current oil prices.
At the end of 2010, the company produced about 7,511 barrels per day from its wells. Management forecasts production of 11,000 to 12,500 in 2011, more than two times its average production in 2010.
To facilitate this growth, Oasis has boosted its planned capital spending budget to $490 million in 2011, up more than 40 percent from 2010.
The company plans to focus more than 80 percent of that budget on its fields in the West Williston, where six of its seven rigs will operate. Finally, the company plans to drill 69 operated wells in 2011, compared to just 26 in 2010.
Management offered a few tidbits about some of Oasis' recent well results during a conference call to discuss fourth-quarter earnings.
Specifically, management highlighted its success in the Indian Hills portion of the West Williston.
Wells in this region are apparently deeper and have higher geologic pressures, which increases initial production rates. In addition, management noted that the reservoir rocks have greater porosity.
Because of these favorable characteristics, wells in this region perform far better than the average well in the West Williston area.
Oasis has 23,000-acre leasehold in Indian Hills, and plans to spend about 20 percent of its total 2011 capital budget on drilling this acreage.
The firm's largest position in the West Williston is the Red Bank region. This area isn't as productive as Indian Hills, but the wells have performed performed in line with average for the region.
Oasis continues to experiment with other means to increase production other than simply drilling more wells; for example, the company is testing 36-stage fracturing jobs.
It's a bit early for management to gauge results, but it appears that the additional cost of performing a larger fracturing job is offset by higher production and reserve bookings.
The post-earnings dip in the stock price likely reflects profit-taking after a substantial rally. A fast-growing producer in a red-hot area, Oasis Petroleum rates a buy."
Linn Energy: In line for income
Doug Fabian, editor High Monthly Income, www.fabian.com "Linn Energy (LINE) is a Houston-based independent oil & gas development company. Its market cap is a Texas-sized $6.2 billion.
Linn recently reported very strong fourth-quarter adjusted net income per unit of 43 cents, which easily bested consensus estimates.
The 43 cents per share earned in the quarter represents a 55% increase over the same quarter in 2009. Average daily production, a metric key to energy master limited partnerships (MLPs), surged 43% year-over-year.
Adjusted earnings from continuing operations - a good measure of the company's cash flow - was up 55% year-over-year.
Linn used this strong cash flow to pay a quarterly cash distribution of 66 cents per unit, or $2.64 on an annualized basis, which equates to a powerful 6.7% yield.
One thing I really like about Linn Energy is that it's a way to play the boom in energy prices without having to expose our capital to Middle East risk.
That's because Linn holds interests in various properties located in Oklahoma, Kansas, Louisiana, Illinois, Michigan, and California, as well as in the Permian Basin in West Texas and Southeast New Mexico.
As of December 31, the company had proven reserves of 2,597 billion cubic feet equivalent of oil, gas, and natural gas liquids, and operated 7,097 gross productive wells.
In energy-MLP parlance, this means the company is super-sized.
At the end of February, Linn announced that it would make a public offering of 14 million shares to pay down debt and to raise cash to pay for a series of new oil-producing contracts.
The company further reported that it signed three purchase agreements to buy oil properties worth $434 million in the Permian Basin as well as the Williston Basin of North Dakota.
Linn also will use money from the public offering to buy back outstanding senior notes. Sound fiscal moves like this make the company an attractive investment opportunity."
Energy bets: Total & Tsakos
John Buckingham, editor The Prudent Speculator, www.theprudentspeculator.com: "We buy only those stocks we find undervalued along several lines relative to their own trading history, those of their peers or that of the market in general.
Two ideas we currently like are in the energy sector: Total (TOT) and Tsakos Energy Navigation Ltd. (TNP).
Total is the fifth-largest, publicly-traded integrated oil and gas company in the world. Its global businesses cover three segments: upstream exploration and production; downstream refining and marketing; and chemicals.
We view Total as an attractive international major oil play due to its low cost structure, high profitability and strong balance sheet.
While continued sluggishness in Europe is a challenge, the French oil giant remains committed to projects already underway as well as to potential upstream acquisitions.
The company plans to invest up to $20 billion in 2011 of which 80% is earmarked for its upstream segment and it recently raised its exploration budget to $2.1 billion in an attempt to make larger discoveries.
Though shares have risen with the price of oil, the valuation is still compelling as the stock currently trades for 8.4 times estimated earnings.
Its price-to-sales multiple of 0.7 also represents a discount to its integrated oil peer group. Giant-cap TOT currently offers a 4.3% dividend yield.
The crude oil transportation industry is fragmented, highly competitive and subject to volatile pricing. Despite this, Tsakos Energy Navigation has managed seventeen years of continuous profitability.
Tsakos provides seaborne crude oil, petroleum products and liquefied natural gas transportation services internationally.
Currently, the company operates a modern fleet of 52 double-hull vessels, including one liquefied natural gas tanker.
Tsakos has aggressively expanded and modernized its fleet over the past few years by acquiring new vessels while at the same time retiring or selling older ships.
Tsakos believes its diversified fleet allows the company to better serve its customers. Cash reserves, crucial in navigating shipping cycles, have remained at very healthy levels and stood at $277 million at the end of 2010.
With a strong balance sheet, a double-hull-only fleet that is young relative to competitors, an experienced management team, and a diversified and solid client base, Tsakos is well positioned to take advantage of growth opportunities as they unfold.
Recently reported earnings beat expectations and we would expect further improvement as the global economy continues to improve. The 5.5% yield is also not too shabby."
Brigham Exploration a bet on Bakken
Tom Bishop, editor BI Research, www.biresearch.com: "Brigham Exploration (BEXP) is an independent oil company that utilizes advanced exploration, drilling and completion technologies.
In particular the Company is dedicated to drilling in the Williston Basin where its current emphasis is in the Bakken formation in western North Dakota.
In North Dakota, it has 195,400 net core acres; more recently, in eastern Montana it has another 115,000 acres.
A nice kicker here is that below the Bakken formation is the Three Forks with equally exciting potential.
Brigham was one of the first to see the potential of the Williston and started acquiring land rights early (2005).
As a result it now has one of the best land positions there. It has also been on the leading edge of rapidly evolving drilling and development techniques such as horizontal drilling and multi-stage fracing.
As a result some of Brigham's wells have achieved rock star status in the Basin. Indeed, it is BEXP, not a major, that has drilled all of the 4 highest IP rate wells in the Williston Basin and 7 of the top 10.
In addition it has drilled all of the top 8 IP rate wells west of the Nesson Anticline.
The average well is expected to ultimately recover about 600,000 boepd ultimately and add $12 million of Net Present Value (discounted at 10/yr., referred to as NPV-10%) to the company's valuation.
Brigham more than doubled its production rate last year from 5,000 boepd to 11,300 (Q4 to Q4) and is likely to see that climb to close to 19,000 boepd by the end of 2011, growing its rig count from 7 rigs at the end of 2010 to 8 in May and to 12 rigs by 9/2012.
The company drilled 38 net wells in 2010 vs. 7.5 in 2009 and expects to drill 68 net wells in 2011.
Proved reserves increased 131% during 2010 to 67 million boe. The increase in reserves replaced 2010 production 5.8 times over.
Analyst estimates are often based on conservative energy prices below prevailing rates. However, as energy prices climb, as they have, analysts shadow them higher...still at a safe distance.
Just last month I was forecasting $1.12 for 2011, near the consensus. However, the last four estimates I saw come across for 2011 averaged $1.50 and the consensus is now $1.29 (with a high estimate of $1.80).
For 2012 these four analysts averaged $2.71, way above the rapidly climbing current consensus of $2.29 and the consensus of $1.88 just 6 weeks ago. The shares remain a Strong Buy."
Sinopec: Energized in China
Yiannis Mostrous, editor Global Investment Strategist, www.globalinvestmentstrategist.com: "China Petroleum and Chemical (SNP), better known as Sinopec, is one of China's state-run oil majors and Asia's largest refiner by capacity.
It does operate with a "millstone" around its neck: central government price caps for fuels. Nevertheless, Sinopec is a direct play on China's expanding economic growth.
In order to keep its economic engine humming, China is scouring the earth for natural resources, particularly oil.
China is the second-largest consumer of oil behind the US, and has been importing record amounts of crude to meet runaway domestic demand.
China is now the world's largest market for automobiles - all of which will require more refined oil products.
The firm derives 80 percent of its revenue from producing and distributing fuels, but is eying E&P opportunities in order to diversify from its main refining business.
Sinopec has agreed to purchase a $2.5 billion share in an Angolan oil field from its parent company China Petrochemical Corp.
Sinopec's third-quarter net profit rose 15 percent from the previous year to $2.94 billion due to strong demand for oil products.
China's robust economic growth has led to strong demand for refined oil products. Sinopec was also boosted by rising oil-selling prices. And the company will be the major beneficiary of future raises in oil price caps by the central government.
Although Sinopec doesn't share the strong growth characteristics of China's other oil majors - its shares still trade at an unwarranted discount to those of its peers and offer better protection during a market reversal.
Sinopec's 2.9 percent dividend yield also provides investors with one more reason to hold the stock during turbulent times. Buy up to 95."
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