Monday, September 9, 2013

Not The Best Reason To Add To A Position, But I Did

The best thing I can say about Devon [DVN] is that my basis keeps getting lower as I add to my holdings. It certainly hasn't been a financial winner. Past financial and operational engineering decisions all made sense to me, but it evidently didn't make actual sense as earnings have been inconsistent and the stock price has been lousy. The major change was selling all of their gulf and international properties and reducing debt to become a continental USA gas, oil, and liquids company. I still think that makes sense.

Over the last several weeks I've had a few strands of thought that have been intermingling. First, I've lightened up on some midstream MLPs as prices have been pushed high and multiples have been extended. That has changed to some degree as interest rates have risen, but MLPs are still priced richly. So I've taken some money off the table.

Next, Devon announced in June that it was going to do some more engineering and create a midstream MLP since those assets would be valued much higher than the market was giving DVN credit for them as a combined company. Given the MLP multiple of earnings, cashflow, and book versus Devons that seemed a no brainer. Assuming DVN sells those assets to the new MLP at similar multiples that should produce a lot of gain, cash, and share price improvement at Devon. 

The wife's been out of town for a week which left a lot of time for me and the dog to discuss whether I should up the ante again on Devon and anticipate some good reaction to the upcoming MLP. The answer came not from the dog, but from a very recent Jim Cramer article. Cramer named Devon as one of his 10 worst stocks and was not the least bit complimentary about company's management or prospects. So I bought some more even though I've had to fight the temptation to throw in the towel also over the past couple of years. 

The MLP is set for this Fall so we will shortly see if that or Cramer has any positive impact on DVN. If it doesn't I'll blame Gertie for not talking me out of the decision.

Wednesday, September 4, 2013

Three Quality, Two Really, Companies 20% Off Their Recent Highs Worth Buying

Since their arrival about a week ago, gulls have been using our no wake buoy as a soapbox. There's been a lot of important opinions offered. I have no ability to critique the value of their squawking, but some seem prouder of their messages than the less vocal.

After a long dry spell, Crusty is ready to do some squawking. Here are three companies worth looking at: Jones Lang LaSalle [JLL], Valmont Industries [VMI], and Vulcan Materials [VMC]. All are off their recent highs by about 20% with no terrible news announced. I've added to positions in JLL and VMI. VMC is a new long position for me. My last involvement with Vulcan was on the short side a number of years ago.

None of the three are screaming buys, but they are good companies at decent entry points with JLL and VMI oversold. VMC is finally starting to get some traction and will likely be able to grow revenue and earnings significantly next year. If they don't de-leverage by selling stock too soon, they will be able to really accelerate earnings as their three-legged stool of a business [public/highway, residential, commercial] finally sees demand in all areas.

Valmont has been doing well on all fronts and has positive trends going for it in agriculture, utility grid, and highway construction. The forward P/E is much lower than their historical multiple so not only can they grow earnings, but also should see some P/E expansion without stretching. Also, VMI is an Omaha company so they don't often shoot themselves in the foot. 

JLL is, in my opinion, the best of the commercial real estate brokerage/management companies. They don't take on a lot of risk for their own account [proprietary investments tend to stay in their investment arm for the benefit of customers]. They have a global presence and somewhat predictable revenues. 

The seagull stopped yacking and so should I. 
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