The Wikinvest Daily Angle

Whatever Happened To Those Ethanol Companies?

admin — Fri, 27 Nov 2009 07:01:19 +0000

Today’s Daily Angle comes from Wikinvest Wire member Hard Assets Investor. You can read the full article on the Hard Assets Investor Blog.

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Sometimes it’s nice to revisit your old hangouts and reminisce. Investors in first-generation corn ethanol producers, however, just wish they could revisit their money.

The three publicly traded refiners we’ve been tracking over the past 18 months are moribund. Two—VeraSun Energy Corp. (OTC:VSUNQ) and Aventine Renewable Energy Holdings, Inc. (OTC:AVRNQ)—are bankrupt. The other, Pacific Ethanol, Inc. (NASDAQ:PEIX), is solvent in name only; its four operating subsidiaries have all filed Chapter 11 petitions, while the holding company stares at the prospect of standing before the bankruptcy bench itself. So what happened?

Margins Improving, Revenues Still Falling It’s ironic that one of the major factors leading to these companies’ woes has improved over the past six months. Since May, the gross dollar yield obtained from the conversion of corn into fuel has risen fourfold, but it’s too little, too late.

That’s because the margins were so thin at the outset. Crushing corn into ethanol yielded only 37 cents a bushel at the beginning of May, when corn was contracted at $4.14 a bushel, leading to a gross margin of just under 9 percent. But the price of ethanol has since risen 28 percent, while corn’s price has fallen six percent, so margins have improved. At last look, the gross yield was $1.88 per bushel, or 48 percent.

Price comparison of Ethanol Futures, Corn Futures, Gasoline Futures, and Corn Crush

But although margins may be wider now (yet still nowhere near the spreads obtained when these refiners first came online), much of those revenues aren’t being realized, due to production shutdowns or asset sales.

For example, seven of VeraSun’s ethanol plants are now cranking out blending components for Valero Energy Corp. (NYSE:VLO). In a deal that closed this May, the nation’s largest oil refiner swooped in to snatch the ethanol plants from VeraSun’s bankruptcy estate. Valero’s not the first of the oil majors to embrace biofuels; big oil has been looking at adding integrative ethanol components to its operations for some time. For example, Royal Dutch Shell plc (NYSE: RDSA) stepped into the biofuels arena back in 2002 with an investment in a Canadian company that brewed ethanol from plant waste. Chevron Corp. (NYSE:CVX) has partnered up with a forest products company to make fuel out of wood waste. Although ethanol currently represents about 9 percent of the nation’s liquid fuel supply, that share is bound to expand in future years, due to federal mandates.

There’s a fair amount of caution exercised in these deals, however, especially for projects devoted to so-called conventional ethanol made from corn. Corn-based fuel is energy inefficient, in part because it corrodes pipelines and therefore must be trucked to be blended with gasoline for motor fuel use. Valero, for its part, believes the former VeraSun facilities can be converted to accommodate the production of newer ethanol blends, including those made from feedstocks other than corn.

Click here to continue reading this article on Hard Assets Investor.

Adjusting Financial Statements

admin — Wed, 25 Nov 2009 07:01:22 +0000

Today’s Daily Angle comes from Wikinvest Wire member Saj Karsan of BarelKarsan.com. You can read the full article on Saj’s blog.

Investors should be aware that certain stakeholders of financial statements can exert pressure or political influence that results in accounting rules that distort the true economic picture of a business. Investors need to be aware that such situations exist so that they ensure they have made adjustments that reverse these distortions.

For example, it took many years before officials finally caved and made stock option expensing mandatory. Managements, fearing that they would have to lower the number of options they receive or face huge drops in their reported profits, lobbied hard against the move. This quote is attributed to Harvey Golub, former Chairman and CEO ofAmerican Express:

“…while stock options have value to the executives, …, they cost the corporation nothing. They are never a cost to the company and, therefore, should never be recorded as a cost on the income statement.”

If they are not a cost to the company, then a company that pays out no cash but instead pays suppliers, bills, and employees in options has operating profit margins of 100%! Obviously, this is a distortion of the company’s true economic picture.

Though option expensing is now mandatory, I would argue that option accounting requirements have not gone far enough. Currently, balance sheets omit any indication of the value of outstanding options, but the outstanding options are very real obligations that should be subtracted from the shareholder’s equity. Fortunately, within the notes to the financial statements, investors have what they need to make the adjustments themselves.

This was but one example of adjustments that need to be made to accounting statements in order for investors to make a more accurate determination of a company’s intrinsic value. Many other examples exist, some of which are discussed on this page.

Largest U.S. refiner Valero now Permanently Shutting Capacity

admin — Tue, 24 Nov 2009 07:01:50 +0000

Today’s Daily Angle comes from Wikinvest Wire member Edward Harrison of CreditWritedowns.com. You can read thefull article on Edward’s blog.

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Valero Energy has announced it is shutting down its Delaware City Refinery. This is a major news announcement because refiners should be seen as a canary in the coal mine for end-user demand and Valero is one company in the oil patch which has been loath to cut workers to improve the bottom line. This announcement is an indicator that, despite a technical recovery, the economy still has major obstacles to overcome.

Business Wire reports:

Valero Energy Corporation (NYSE:VLO) announced today it intends to permanently shut down its Delaware City refinery due to financial losses caused by very poor economic conditions, significant capital spending requirements and high operating costs. The shutdown will affect approximately 550 employees at the plant.

Valero notified refinery employees today of the impending shutdown, and will immediately begin negotiations with the refinery’s unions regarding the effects of the plant closure and the employees’ severance packages. A safe and orderly shutdown of the refinery will commence immediately. Valero remains committed to its marketing businesses in the Northeast and will continue to reliably supply its customers, partially through higher throughput rates at the company’s other refineries.

“The decision to permanently close the Delaware City refinery was a very difficult one,” said Valero Chairman and CEO Bill Klesse. “We have spent the last year diligently trying to avoid this situation, and I have worked closely with Gov. Markell in an effort to find a different outcome. Earlier this fall, we shut down the gasifier and coking operations in an attempt to improve reliability and financial performance, but the refinery’s profitability did not improve enough. Additionally, we have sought a buyer for the refinery, but feasible opportunities have not materialized. At this point, we have exhausted all viable options.

“We realize that the decision to close the refinery affects many employees, their families, and the community. We are thankful to our employees for their service, and we will treat them fairly during this difficult period.”

In the fourth quarter of 2009, the company expects to report a pre-tax charge of approximately $1.7 billion to $1.8 billion, or $2.00 to $2.15 per share after taxes, related primarily to asset impairment, employee severance and other shutdown costs. The company estimates the cash portion of the pre-tax charge will be in the range of $125 million to $150 million. The current and historical financial results of the affected operations will be shown as discontinued operations in the company’s financial statements.

The new CEO Bill Klesse came to Valero via Ultramar Diamond Shamrock (UDS), which Valero acquired at the top of the market in 2001. So, company ethos may be different than under Bill Greehey who was very committed to community. And Delaware City is an old Getty/Shell-Motiva oil refinery and a legacy asset of Blackstone-controlled Premcor, the company run by former Tosco head and Salomon Brothers commodities trader Tom O’Malley. So, it was not core to Valero’s operations. Valero already cut staff there in September. And the Shell-Motiva JV had serious operating difficulties with the asset before offloading it to Premcor.

Nevertheless, this was a refinery which has been upgraded significantly to process less expensive heavy, sour crudeoil. The fact that Valero is laying off workers and shuttering the entire site tells you that the situation is bad. They are saying in effect “we cannot continue to operate at a loss through this business cycle.” If Valero can’t make money, no oil refiner can.

I see this in a macro context as a sign of cyclically weak end-user demand. I do think peak oil is for real but the world is awash in oil and oil products right now. Witness the recent post by FT Alphaville’s Izabella Kaminska, which points to a glut of distillate entering the season of high distillate demand.

Continue reading this post on the Credit Writedowns blog…

Full Disclosure: Author has owned owned shares and call options in Valero and other refiners for a number of years, but sold all positions in 2007.

Eight Companies Rewarding Investors with Higher Payments

admin — Mon, 23 Nov 2009 07:01:51 +0000

Today’s Daily Angle comes from Wikinvest Wire member Dividend Growth Investor. You can read the full article on DividendGrowthInvestor.com.

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Most investors believe that successful dividend investing consists of identifying the highest yielding stocks in the market and then generating double digit returns on investment each year. The problem with this strategy it that it often overlooks the fact that such dividend yields are most often unsustainable in the long run. A much better strategy that could eventually produce double digit yield on cost to investors is dividend growth investing. Using this strategy a patient investor accumulates a diversified portfolio of stocks which have a long history of consistently growing dividends. The positive factor is that any investor can implement this strategy, especially now that brokerage commissions are almost zero.

As long as an investor is willing search for the best stocks that fit their criteria and do the work, focusing on dividend growth stocks should pay off in the long run. I identified the following dividend raisers for the past week.

Automatic Data Processing, Inc. (ADP), which provides technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers, increased its quarterly dividend by 3% to 34 cents per share. The increased cash dividend marks the 35th consecutive year in which this dividend aristocrat has raised its dividend. . The stock currently yields 3.10%. (analysis)
MDU Resources Group (MDU) operates in six segments: Electric, Natural Gas and Oil Production, Construction Services, Pipeline and Energy Services, Construction Materials and Contracting, and Other. The company increased its quarterly dividend by 1.60% to 15.75 cents per share. MDU Resources Group is a dividend achiever, which has raised distributions for 19 years in a row. The company also boasts 72 consecutive years of uninterrupted quarterly common stock dividend payments. The stock currently yields 2.80%.
Tennant Company (TNC), which engages in the design, manufacture, and marketing of cleaning solutions, increased its quarterly dividend by 6% to 14 cents per share. Tennant Company is a dividend champion, which has raised distributions for 38 years in a row. The stock currently yields 1.90%.
Vodafone Group (VOD), which is engaged in providing service, such as voice, messaging, data and fixed line and others, increased its interim dividend by 3.5% to 2.66 pence per share. The final dividend for 2009 was 5.2 pence/share. Vodafone Group is an international dividend achiever, which has raised distributions for over one decade. The stock currently yields 5.80%.
DeVry Inc. (DV), which owns and operates DeVry University, Advanced Academics, Ross University, Chamberlain College of Nursing, and Becker Professional Review, increased its annual dividend by 25% to 20 cents per share. DeVry Inc. started paying dividends in 2006 and has been raising distributions consistently ever since. The stock currently yields only 0.30% however:”The dividend increase and continuation of the share repurchase program reflect our strong financial position and outlook for the future,” said Daniel Hamburger, DeVry’s president and chief executive officer. “We will continue to put our students first and invest in academic quality, which we believe leads to sustainable, long term growth and increased shareholder value.”
Span-America Medical Systems, Inc. (SPAN), which engages in the manufacture and distribution of various polyurethane foam products for the medical, consumer, and industrial markets in the United States and Canada, increased its quarterly dividend by 2.2% to 47 cents per share. Span-America Medical Systems doesn’t have a consistent history of raising distributions however. The stock currently yields 2.20%.
Baxter International Inc. (BAX), which develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions., increased its quarterly dividend by 12% to 29 cents per share. Baxter International Inc. has only started raising distributions since 2007. The stock currently yields 2.00%.
AmerisourceBergen Corporation (ABC), a pharmaceutical services company, offers drug distribution and related services to healthcare providers and pharmaceutical manufacturers in the United States, the United Kingdom, and Canada, increased its quarterly dividend by 33% to 8 cents per share. AmerisourceBergen Corporation has raised distributions since 2005. The stock currently yields only 1.00%.

Checking the weekly pulse of dividend growers is an important part of the dividend investor’s routine. It is generally a bullish sign when a company which has raised distributions for over 3 decades keeps raising them even through a recession. It also might help investors in identifying any future dividend growth stories, before they become mainstream holdings.

Full Disclosure: Author is long Long ADP

How Far Can Dollar Rise on Bernanke Comments?

admin — Fri, 20 Nov 2009 07:01:32 +0000

Today’s Daily Angle comes from Wikinvest Wire member Kathy Lien of KathyLien.com and FX360.com. You can read the full article on her blog.

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Bernanke’s support for the U.S. dollar and Federal Reserve President Lacker’s comment this week that the central bank is paying close attention to the value of the greenback has driven the buck higher against all major currencies. The last time Bernanke surprised the market with a comment on currencies was back in June. According to the following chart, the EUR/USD fell 4 percent in the 2 weeks following Bernanke’s comment. However after a month of consolidation, the uptrend resumed. I am a long term USD bear (see my artice Why The Dollar Could Fall Another 5-7 Percent) but as a trader first and analyst second, I know that uptrends do move in straight lines. Shaking out the shorts are needed to get some fresh blood into the markets. Interestingly enough, a 4 percent drop in the EUR/USD would take the currency to 1.44, the former breakout zone. I think any drop will be limited to 1.4650-1.47.

Technical chart of the EUR/USD with Bernanke’s comments highlighted

Take a look at the chart and make your own judgement.

USA Today: China Pushes Solar, Wind Development

admin — Thu, 19 Nov 2009 07:01:03 +0000

Today’s Daily Angle comes from Wikinvest Wire member Mark H of FundMyMutualFund.com. You can read the full article on the Fund My Mutual Fund blog.

Just something to keep your eye on as your politicians promise you that the US will be the world leader in green tech jobs. In fact they will have to layer countless more debt on your children and grandchildren for temporary “green jobs”, to make this mirage come true - for a while. Most likely this promise will come next spring as the next massive stimulus is pumped to the masses to create “green jobs” retrofitting buildings and such. Meanwhile, ask where the production is and what work we will be left with after we borrow money from China to create temporary jobs. (Nov 2, 2009: Lack of Green Energy Manufacturing Capability in US Means 84% of Stimulus Goes to Foreign Firms.)

Remember, Japan and Germany are a decade ahead of us as we decided daytrading homes was the real way to prosperity as a nation… and China is subsidizing every form of green energy.

Just this week I saw two separate Chinese firms (both of which we’ve owned in the past) pledging to build plants in the US as “political” cover… Suntech Power (STP) in solar and A-Power Energy (APWR) in wind.

Gov. Jan Brewer on Monday announced plans for a Chinese-owned solar panel maker to build its U.S. headquarters and a manufacturing plant in the Phoenix area, propelling one of the nation’s sunniest states toward a bigger global presence in the renewable energy industry. Suntech Power Holdings Co. said it expects to start building photovoltaic panels at the facility by the third quarter of 2010. The company, which has more than 9,000 employees, expects to eventually employ 250 or more people at the plant.

By doing so, they can clap their hands that they are creating jobs (hundreds!) in the US - collect money from the federal government (which in reality is their own government’s money, just passing through the US government after we borrow it) while 99% of the production is back in the home country. But hey we get some assembly jobs here, and some great photo opportunities for some governors.

John Paulson’s Hedge Fund Buys Citi, Drops Goldman

admin — Wed, 18 Nov 2009 07:01:41 +0000

Today’s Daily Angle comes from Wikinvest Wire member Richard Wilson of HedgeFundBlogger.com. You can read the full article on Richard’s blog.

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John Paulson’s hedge fund trades attract a lot of attention because of his ability to profit in downturns. Last year, Paulson made about $2 billion largely by betting that the housing market would crash and this year he has been taking big stakes in struggling banks. In Q2 2009, it was revealed that Paulson was purchasing significant shares of Bank of America and his fund’s latest filing shows that he has bought 300 million shares of Citigroup.

In addition to his investment in partly government-owned banks, it’s also interesting to see the stocks that Paulson has sold. Last quarter, Paulson sold his entire stake in Goldman Sachs and also sold shares in JPMorgan Chase & Co.

“If you are guided by what happened to these companies, you would have to think Citigroup is the most problematical of the major banks,” said Warren Marcus, who ran the bank research department at Salomon Brothers Inc. during the 1970s. “Maybe there is a perception that Citi over time has got a better upside than some of the others.”

Armel Leslie, a spokesman for Paulson & Co., declined to comment on the holdings. The firm has about $29 billion under management that it invests in four strategies: merger arbitrage, event-driven trading, credit and financial services.

Paulson ranked second in fund-manager earnings last year, according to Institutional Investor’s Alpha Magazine. His Credit Opportunities Fund soared almost sixfold in 2007 through wagers that subprime mortgages would sour. He started the Paulson Recovery Fund in 2008 to invest in financial firms hurt by mortgage writedowns. Source

100Gbps Edges Closer With Multivendor Test

admin — Tue, 17 Nov 2009 07:01:29 +0000

Today’s Daily Angle comes from Wikinvest Wire member Rob Powell of TelecomRamblings.com. You can read the full article on Rob’s blog.

For many in the telecommunications industry, commercial 100Gbps can’t get here fast enough, but it is coming! Today at the SC09 conference in Seattle, a coalition of made up of Juniper Networks (JNPR), Infinera (INFN), Level 3 Communications (LVLT), Internet2, and ESNet demonstrated a multivendor 100Gbps routing and optical network. This group has been working steadily together since last November. In this case of course, we are talking about the 10×10Gb version of 100G, which requires fewer technical advances and will probably come first.

The test involved a new 10×10GbE physical router card from Juniper which they announced yesterday. A 100G test signal was sent from Seattle to Portland and back via Infinera gear over the Internet2 and Level 3 networks – which of course are the same intercity fiber route, but still. Now, this is not a 100G wavelength solution, it is about delivering a 100GbE product to customers using a network with a whole lot of 10G pipes bundled together. But since it doesn’t have to wait for them to work out the kinks in the 100G native wavelength model, it is probably closer to commercial viability.

So when do we see that commercial product then? Who will be the first to offer a 100GbE intercity connection to someone other than a trade show audience? Perhaps we will see something by springtime?

Outlook for Precious Metals

admin — Mon, 16 Nov 2009 07:01:56 +0000

Today’s Daily Angle comes from Wikinvest Wire member Tim Iacono of TheMessThatGreenspanMade.Blogspot.com. You can read the full article on Tim’s blog.

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A week removed from the blockbuster announcement that the Reserve Bank of India had purchased 200 tonnes ofgold from the IMF, precious metals continued their ascent, gold making fresh all-time highs last week at just over $1,120 before ending the week with a gain of about $20 at $1,118 an ounce. Silver posted a modest gain, up from $17.39 an ounce to $17.42 an ounce.

The view that central banks will continue to be net buyers of gold rather than net sellers (as has been the case for about the last twenty years) has many calling the Indian purchase at $1,045 an ounce the “new floor” for the gold price.

That would certainly seem to make sense at least for the near-term as market analysts speculate on which central bank might be next to buy IMF gold while hearing the U.S. Federal Reserve and international G20 representatives stress that it is far too early to begin removing the massive liquidity and stimulus that have seemingly rescued the world from another Great Depression.

The recent rise in the gold price has obviously been aided by a weakening U.S. dollar but, with unemployment set to go even higher over the next six months, there is little reason to think that the Fed will do anything to bolster the currency during that time.

Rumors swirled last week that the Reserve Bank of India may have sold U.S. Treasuries to fund its recent gold purchase and there is growing unease amongst countries that maintain dollar “pegs” for their currencies as they have to print more of their own currency to buy dollars and maintain that peg.

As for silver, it is interesting to note that inventory at the iShares Silver Trust ETF (NYSEArca:SLV) continues to rise, surging in recent days to a new all-time high with the addition of 200+ tonnes as shown below.

Creation and Redemption of SLV shares compared to the price of Silver.

Meanwhile, inventory at the world’s most popular gold ETF, SPDR Gold Shares ETF (NYSEArca:GLD), remains below levels seen at mid-year.

It should be an interesting period ahead for both gold and silver since, going back to very early in the decade, there has been a repeating two-year pattern for the metals that can been seen in the gold chart below. Since 2002, prices have peaked at new highs early in the even numbered years - in 2004 at $425, in 2006 at $725, and, most recently, in 2008 at $1,035.

In many ways, recent events are shaping up to be a repeat of this pattern which, based on the previous peak-to-peak gains would imply a gold price somewhere north of $1,300 early next year.

Gold prices per ounce with even-year peaks highlighted.

Of course, any sharp rebound in the dollar (which some are still loudly predicting) would reverse this trend very quickly.

There were some truly odd goings on in Vietnam over the last week or so that, for those who pay attention to this sort of thing, really adds to the case for a much higher gold price, perhaps sooner rather than later. After seeing a surge in buying in gold bullion in recent years, particularly after inflation soared to nearly 20 percent in early-2008 and investors looked to preserve their wealth, the government banned imports of the metal.

Gold continues to be traded in the country, however, due to the limited supply, it has developed its own local market that, last week, saw bullion trading at about $60 higher than in global markets. After markets went “crazy” (see thisaccount in Vietnam.net), the government announced that it would resume imports of the metal and premiums are now reverting quickly to more normal levels.

The 10 Most Profitable Banks in India

admin — Sat, 14 Nov 2009 07:01:32 +0000

Today’s Daily Angle comes from Wikinvest Wire member David Hunkar of TopForeignStocks.com. You can read thearticle on David’s blog.

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Earlier this week we looked at the The Top 10 Banks in India based on Assets. In this post, lets review the most profitable banks in India based on 2008 Net Income.

State-owned banking giant State Bank of India is the most profitable bank followed by ICICI Bank (IBN). State Bank of India generates more than three times the profits of ICICI.

India’s 10 Most Profitable Banks/Financial Institutions based on Net Income in 2008:

S.No.	Bank	Net Income in Thousands of US $ (as of Dec, 2008)
1	State Bank of India	2,193,163.00
2	ICICI Bank Limited	663,347.00
3	Punjab National Bank	614,694.00
4	Bank of India	605,331.00
5	Bank of Baroda	470,099.00
6	HDFC Bank Ltd	442,069.00
7	Citibank NA	426,554.00
8	Power Finance Corporation Limited	386,684.00
9	Canara Bank	380,970.00
10	Standard Chartered Bank India	374,280.00

Source: BankScope

It is interesting to see Citibank (C) in this list. While the Citibank in the U.S. has to be bailed out by US taxpayers from collapse, Citibank subsidiaries in other countries have been performing well such as the Citibank division in India. The other foreign bank in the list is the British-based Standard Chartered Bank. The presence of these two foreign banks in the ranking shows the success of their Indian operations in the difficult environment last year.