Sell These Energy Stocks Today

By The Greek:

I believe that a Federal Reserve cut to its 2013 economic forecast Wednesday should serve as a driver of concern about cyclical energy demand. If I am correct, these energy ideas should see near-term weakness. Thus, I believe capital could be preserved by a temporary reduction in holdings here. Over the longer term (one-year), I favor energy for geopolitical and economic reasons, but I believe a nimble trade here could prove to be value-added.

I recently discussed long/short considerations for Exxon Mobil (XOM) in a stock specific article. However, as I considered the issue, I believe it has broader reaching impact than to just Exxon Mobil, and that investors in the five widely held energy stocks discussed here would also benefit from the investment thesis.

Stock	Year-to-Date Performance
Exxon Mobil (NYSE: XOM)	+3.0%
Chevron (NYSE: CVX)	+11.3%
ConocoPhillips (NYSE: COP)	+3.4%
BP (NYSE: BP)	Unch.
Halliburton (NYSE: HAL)	+14.6%

As you can see, the upward gains of the energy equipment and services and exploration and production companies have been outsized in comparison to the integrated behemoths. They tend to be more cyclical in nature, with exploration and development activity weighing heavily on demand and the price of the commodities. As a result, they are likely to exaggerate downside performance as well.

Stock	Year-to-Date Thru 3/19	Beta
Halliburton (HAL)	+14.6%	1.8
Schlumberger (NYSE: SLB)	+7.2%	1.8
Baker Hughes (NYSE: BHI)	+10.8%	1.8
Transocean (NYSE: RIG)	+16.9%	2.0
Chesapeake Energy (NYSE: CHK)	+27.3%	1.3

However, the entire energy sector should be impacted by a reconsideration of global economic activity. Each of these stocks should be negatively impacted by any such downgrade to U.S. economic expectations as discussed in my previous work, Fed Warning – Expect a Sharp Cut to the Economic Forecast.

In short, my expectation is that the Fed will revise its 2013 economic outlook significantly lower Wednesday. The basis of this view is multifaceted. I believe the fourth quarter GDP growth disappointment was born of the government’s fumbling of the fiscal cliff and debt ceiling issues. Economic growth was just 0.1% in Q4 2012, versus expectations for 0.5% growth. There’s strong possibility that the same issue impacted Q1 2013, though to a lesser degree. I do not believe the issue was adequately accounted for within the Fed’s December 2012 published economic forecast.

Also, we know from the Fed and the Budget Office that the sequester spending cuts will likely burden economic growth by 0.6 percentage points this year. We also know that the Fed expects a 1.5 percentage point burden in total from the sequester cuts and from the expiration of the payroll tax break and on other implemented austerity-like measures. These figures do not appear to be accounted for within the previous Fed forecasts, since December’s forecast was only cut slightly versus September’s, to a 2.3% to 3.0% growth range. If the Fed revises the economic outlook today, the shares of cyclical stocks and other major energy names should retrench along with oil and gas prices.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Buffett Genius Fails Apple

By Markos Kaminis,

There is a theory going around the corporate world that allowing your stock price to rise beyond the reach of round-lot seeking civilian investors builds a sophisticated shareholder base. It’s a theory born of investment genius, and one seemingly shared by Apple (Nasdaq: AAPL), but it’s a theory that has just been effectively challenged.

The theory goes that a sophisticated investor base will do less trading and prove to be less reactionary to temporary anomalies and news flashes. As a result, companies with ridiculously large stock price figures are supposed to see less volatility in their shares. It should provide for a steady stock price that best reflects the value of a company, which makes perfect fiduciary sense. After all, what is best for shareholders is best for a public company. When you can keep your stock price clear of noise, you help to keep it as close to its intrinsic value as possible. Perhaps not coincidentally, it should also allow corporate bonus incentives tied to stock price performance to be unadulterated by sinful day traders and greedy profit seekers, otherwise known as the efficient market. This begs to question whether an excessively high stock price fosters inefficient valuation, but that will be the subject of an academic research report well suited for the blog.

The idea was born of Warren Buffett genius, as far as I know; or at least Buffett’s Berkshire Hathaway is most famous for it. Berkshire’s A Class Shares (NYSE: BRK.A) trade at a preposterous $155,411.27, and yes, I satirically included the cents to pose protest to the silliness that some might call a form of class warfare. It is really not class warfare, though, because those interested in riding along with Buffett genius can still buy the B Class Shares (NYSE: BRK.B), which trade at a pauper’s price of $104. Other companies with high trading points, like Google (Nasdaq: GOOG), for instance, have determined to offer other classes of shares to maximize capital access opportunities.

In Berkshire’s case there very likely is a real impact to the shareholder base. It’s because of the significance of the numbers and the fact that they represent dollars. As the share price rises toward the big bucks that better resemble the cost of a home (though not anywhere near New York), it gets impossible for little guys with big dreams to afford even one share.



Chart at Yahoo Finance

However, that genius did not prove true for Apple over the last six months as the company’s shares fell 39% from their September intraday high of $705 to their $432 close last week. Though, I suppose an Apple (AAPL) fanatic might attribute that to the share price just not reaching that certain threshold point where the short-sighted could no longer get in. In any event, it’s one of the reasons one might argue against an Apple stock split, or at least one of those I listed in September 2012. For those of you praying for AAPL to keep falling so you can buy a share, I also made the case for an Apple stock split just to be fair.

In recent works about Apple, I have attributed the stock’s performance to investor concern as to where future growth will come from. I have indicated that For Apple, No News is Bad News. Though some will argue that despite the stock’s performance of late, there’s no problem, I have suggested The Problem with Apple is Apple and what seems a late in arriving next best thing, which I have openly hoped would be an Apple Television.

This turn of events for Apple seems to say that no matter how high a stock price is kept, the operating performance of a company and expectations about its future will always dictate what its investors do, whether they are small-money bearing individuals, affluent and wealthy people, or sophisticated institutional investors.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Don't Get Caught in JCP Short Squeeze

J.C. Penney (JCP) divergence from retail stocks (XRT).

J.C. Penney’s (NYSE: JCP) shares tanked more than 17% Thursday on the company’s latest EPS report disaster. Sales at Penney’s stores and its internet shop fell by 28.4% in its latest quarter against the prior year period. The company lost $1.95 a share this past quarter on an adjusted basis, against last year’s adjusted EPS of $0.21.

However, JCP’s embattled CEO Ron Johnson stated the company would seek to “reconnect” with its old core customers. Such an effort required the new chief to swallow his pride and back off his previously determined path away from sales promotion. With JCP shares down 59%, though, from their peak last February, shareholder and likely Board pressure was building on the once heralded boss-man to do something. Had he not acted, Johnson might have gone the way of Groupon’s (Nasdaq: GRPN) Andrew Mason, who was let go yesterday after his company’s earnings disappointment (one of many for Groupon).

Last May, I suggested at Seeking Alpha that investors sell J.C. Penney, which to me seemed to be taking on too much change too soon in its effort to more closely resemble Macy’s (NYSE: M). Those who sold the stock preserved a good deal of capital or made money on the short side. Today, though, I upgraded JCP to hold from sell, basically due to Johnson’s decree to revert to tried and tested sales methods. I could not bring myself to call it a buy just yet, though, as I’m not sure JCP’s team will do enough fast enough to make a meaningful impact. Besides, it may be too late to recover much of those lost sales, though I believe it can be done.

Most importantly to traders, JCP is on the rise Friday. I think the shares could continue to get some lift after the prior day’s deep decline, given the CEO’s important announcement. Also, there’s a decent chance Johnson could still get the boot, especially after GRPN got a double-digit lift Friday on the firing of Mason. Given JCP’s divergence from the SPDR S&P Retail (NYSE: XRT), it seems to me that a great majority of the blame could be attributable to Johnson and his team’s strategic changes. Yet, short positions should be closing out now and a squeeze would support JCP shares near-term whether the company deserves it or not.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Apple Not the Prettiest Girl in the Room Anymore

By "The Greek"

Darling Apple has captivated the hearts of investors and drawn the money of Americans for years. The company has endeared us to buy both its appealing products and its attractive stock. But in light of its 35% price depreciation since September 2012, Apple (Nasdaq: AAPL) is no longer the prettiest girl in the room. With sexy ladies like Expedia (Nasdaq: EXPE) up 95% in 2012, classy mommas like Whirlpool (NYSE: WHR) higher by 106%, rehabilitated hotties like PulteGroup (NYSE: PHM) up 110%, and wealthy cougars like Bank of America (NYSE: BAC) up 99%, who needs her.

She wowed us with her new styles, with her innovative iPod, iPhone and iPad, but now all the other stylish telecom and tech girls have copied her, with Google (Nasdaq: GOOG), Samsung (OTC: SSNLF.PK), Microsoft (Nasdaq: MSFT) , Nokia (NYSE: NOK) and Blackberry (Nasdaq: RIMM) offering competitive fashions. Like in all Greek tragedies, Apple’s biggest problem is Apple. She got too big and popular, and perhaps now boasts an ego that makes her vulnerable to up and comers with nothing to lose and the right hunger to win. Earning upward of $50 billion in revenue per quarter, Apple has grown too large to grow fast. What was once 71% average annual EPS growth over the last five years has become 14% projected growth for the next five.

One of, if not the best performing stock of the last decade, may be AAPL, which gained 6,558% since the close of 2003 through its September 2012 high of $705. The company’s 2012 performance actually helped the tally higher, with the stock up 33% last year even despite its downturn in the fall. Still, our old girl is suffering from a hangover in 2013, down 14% or so in January. That’s the worst month in the stock’s history.

Best S&P 500 Performers of 2012	Percentage Gain
Sprint Nextel (NYSE: S)	+138%
PulteGroup (NYSE: PHM)	+110%
Whirlpool (NYSE: WHR)	+106%
Bank of America (NYSE: BAC)	+99%
Expedia (Nasdaq: EXPE)	+95%
Lennar (NYSE: LEN)	+91%
Marathon Petroleum (NYSE: MRO)	+85%
Seagate Technology (NYSE: STX)	+85%
Tesoro (NYSE: TSO)	+77%
Gilead Sciences (Nasdaq: GILD)	+73%

Our once favorite baby doll could turn things back around before she falls too far off the pedestal, if only she would do what made her prom queen to begin with, innovate. I said it before and I’ll say it again, the smart Apple television must be the little lady’s next product development move. Her brand appeal would immediately make an imprint in television market share. And Apple has got to speed up its penetration in China, and pull some fuel for growth from that country’s burgeoning middle class.

At a P/E-to-growth ratio of just 0.7 now, AAPL should outperform the market. However, with concerns about its future growth at the fore, and with its current market share threatened, the long-term outlook remains sketchy; that’ even despite her sweet operating system. Our girl has got to get her mojo back, and I think the stock will get a facelift from the introduction of a smart TV later this year. So I’m not giving up on her just yet. It may even be time to buy Apple stock again. Call me a sentimental sucker for a lovely lady I guess.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.