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Stocks

Weekend review w/e 080208

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What recession?
Last Friday evening we went to local Red Lobster restaurant at around 6:30, and we were told there could be 25 min wait as we saw a large crowd. Being impatient as I was, we decided to try Olive garden. When we went there, same thing: we were told the wait time is 25 to 30 min. It seems to me the mid range restaurants, because people still eat in this economy recession. So buy Darden Restaurant (parent company of Red Lobster & Olive Garden) stock (NYSE: DRI)?

Software glitches
AA baggage handling system broke down on Monday, and the problem persisted more than 1 day. Read this ABC news. How could this happen?

AA baggages handling system break down JFK pic

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Stocks

Analyze CHK hedging strategy: I

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Chesepeake Energy logo

Chesapeake Energy (NYSE: CHK) is a stock I have known for a while. I traded it in year 2006, I did not hold it for long term partly because I usually don’t hold a stock for more than a year (until Mindray), more importantly I did not understand all the natural gas price volatility, CHK’s hedging strategy etc. Fast forward two years, the natural gas and CHK stock have been doing very well until last week, and I have studied the CFA a bit.

Chesepeake is a natural gas (plus a bit oil) explorer and producer, it’s No. 2 US natural gas according to its investor presentation (click its July 16 presentation here). Natural gas is nothing new, it’s mainly being used in power generation, industrial and residential (heat) use. Exploring and producing natural gas is not a sexy thing either, except CHK claims it has the best geo-scientists and engineering team in the industry. The ultimate differentiator of CHK, compared to its peers, is its large hedging strategy. Using hedging, basically it tries to get a predetermined fair price of its product (natural gas), or in other words, it tries to get a fair profit from exploring and producing the natural gas. It lays out its hedging positions in its quarterly report, and it regularly put updates.

How about its hedging results? Here are some articles I saw from seekingalpha.

Article one, article two.

Why hedging?

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Stocks

Cal-Maine: egg company Buffett may like?

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Amid the terrible market and paper loss in my brokerage account, I was doing some soul search: general market condition aside, what went wrong in my investments; new ideas?

I came across this Cal-Maine foods from the latest Barrons, Egg Fight: The Yolk’s on the Shorts. We all know the egg price went up quite a bit recently, so as the stock of Cal-Maine (Nasdaq: CALM). From July 6 2007 to July 3 2008, the stock was up 75%.

eggs back light pic

So I went to Cal-Maine Investor Relationship web site and started reading. Some interesting facts from reading its fiscal 2007 annual report, and its investor presentation.

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Stocks

Got some Yahoo YHOO today

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(Update July 7) Microsoft and Carl Icahn appeared to team up and will try to ouster the current board, esp. CEO Jerry Yang. I don’t think the current board and management is toasted because:

1) Two co-founders Jerry Yang, David Falio, along with their friends Softbank, Alibaba have more shares than Carl Icahn and his friends;

2) They will fight for the support for institutional shareholders, such as Legg Mason Bill Miller etc. Some of the institutional shareholders bought the YHOO shares much higher than the price Carl Icahn bought recently. Unless there is a liquidity problem, those “higher cost” YHOO share holders will hold on it and try to get a higher exit price.

(Original) Yahoo (Nasdaq: YHOO) shares are back to pre-Microsoft bid days today. So I went ahead of grab some shares.

The buzz on merger and proxy fight aside, I think the business and the brand of Yahoo worth more than the stock price today. Interestingly Yahoo board and management put up this power point presentation at SEC web site, to persude stock holders not to side with Carl Icahn’s proxy fight.

Yahoo headquarter Santa Clara pic
(Source: business week)

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Life Stocks

Bread rice price hike, Memphis tiger’s loss

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Wheat, Rice
Couple weeks ago I noticed Panera raised its bagel price from 95 cents to $1.01, because of the sharp rise of wheat price. We all know bread flour is made from wheat. The wheat price has been up 50% in last 6 months, due to draught in key wheat producing country Australia. Interestingly Panera stock (PNRA) went up from last I look. I guess the ability to pass cost to customer is a signal of strength. We will continue to eat bagel for breakfast, and we can get the 6 cents from somewhere else 🙂

I went to buy rice yesterday and found the price is also up. I heard about the Thailand new policy to control rice export and price hike, so this is not a surprise. I also watched CCTV news that Premier Wen is visting rice producing provinces, to encourage farmers planting more rice.

Because I am long out of rice business, I have bought some Syngenta (SYT) to hedge the grain price (seriously, I hope to gain from the global ag boom).

Memphis tiger’s stunning loss
I was stunned to see Memphis lost the NCAA champaignship game last night. They were up about 10 points with 2 minutes left (story from CBSSports). Then they did something pretty stupid, something paper tiger would do: they pass on the balls to kill the time! One thing analysts liked to talk is “with 10 seonds left, Memphis let Kansas shot a 3 point and tied to overtime”.

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Stocks

Cramer was wrong on BSC last week

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As you may know, the Bear Sterns (BSC) was bought by JP Morgan for $2 a share as of this afternoon March 16 US time (Reuter News). And here was Cramer’s take on Bear Sterns on Mad Money just last Tuesday (March 11).

Dear Jim: Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? –Peter

Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”

Yeah, the Bear IS in trouble and they are taken over, but at $2 (it may go slightly higher if another buyer emerges), it is virtually go under as far as shareholder concerned.

The following is a list of Investment services companies:

Investment services companies pic
(Source:Google Finance, Mar 14, 2008, full size pic is here)

Bottom line: if you have BSC stocks and listened to Cramer’s advice and hold it through last week. I felt very sorry for you 🙁

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China Stocks

Bear, liquidity, soft commodity

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Bear Stern (NYSE:BSC) spoiled the market today. There was some confusion about Citic Securities recent agreement. As far as I know, according to Bloomberg, there was a small stock swap deal and potential JV. But lately they are under a talk to revise the deal. So nothing like the China Invest Co. Blackstone IPO fiasco.

Liquidity in my little portfolio
Interestingly, I found when market is in panic selling, big name stocks such as China Mobile (CHL), Research in Motion (RIMM) usually got down, and small name stock such as GSI Technology (GSIT) did not go down too much, sometimes it even went up. How come small stock got the power to fight against the market? Well, the answer lies in liquidity. When the big guys got panic, and decided to sell, they will usually sell the Microsoft, the Google, the Pizer,…because those stocks are traded millions of shares a day, and they could find buyer easily, without too much discount. This is not the case for GSIT, which trades about 50,000 shares a day. It takes a few buyer for my 500 shares.

Soft Commodity

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Stocks

My accounting homework on MON and SYT

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The following was done a while ago. Why I have not followed it in last two years, and missed this great agri boom? Because I followed all the hypes: Home Inns, Heelys and Crocs 🙁

==========
Dec. 14, 2005

Dear Mr. John,
Both Monsanto and Sygentia are leaders in the agriculture business. Their financial fundamentals are solid. Both are profitable and have an R&D expense of about 10% of their annual sales. Since we are long term investors, we will look at the following ratios for year 2004 at first.

PE ratio: Monsanto’s 36.4 is significantly higher than Sygentia’s 6.3, which means the investors are more optimistic about Monsanto’s earning growth. We need to examine the expected growth is organic or will be materialize.

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Stocks

Croc-less for now

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I sold the remaing few CROX shares today. Not because I was scared of the bad news from mortgage and banking industries, and general worsening US economy. It’s because I think the Crocs story is over, for now.

Lessons learned (this is related to my previous Stock Lessons series…)
1) When someone claims some new company is going to be next Microsoft, Google, etc. Run, not just walk away from it. On May 26 2007 our friend “expert” Georges Yared wrote a piece saying Crocs is the next Nike. Well, it looks more likely Crocs is the next Heelys 🙂

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Stocks

Crocs released 10K year 2007

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Here is some interesting stuff I read (auditor’s opinion):

“We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2007 of the Company and our report dated February 29, 2008 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption on January 1, 2007 of the Financial Accounting Standards Board’s Interpretation No. 48, Accounting for Uncertainty in Income Taxes, and the adoption on January 1, 2006 of Statement of Financial Accounting Standard No. 123(R), Share-Based Payments.”

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