The Daily Kill Sheet Picking Off Profits One Stock At A Time!

February 26, 2013

The Daily Kill Sheet For February 26, 2013

Filed under: Industrial,Industrials,Shorts,Take Profits,Uncategorized — Administrator @ 10:03 am

Time to take profits on our 1/25 Caterpillar Inc. (CAT, $88.80) short position. The shares have weakened substantially since reporting earnings on 1/31. Although the consensus estimate has dropped $0.59 a share over the past four weeks, it still remains well above my $6.50 estimate. Looking ahead, I expect estimates for the year to continue to fall. However, the stock is approaching its 200-day moving average and I am expecting a dead-cat bounce here. Thus, we will take a 7.1% return on our short position here and look to reshort the name on a bounce or break below the 200-day moving average.

February 21, 2013

Daily Kill Sheet For February 21, 2013

Filed under: Uncategorized — Administrator @ 11:57 am

Position Update – Safeway Inc. (SWY $23.71)

Safeway reported adjusted fourth-quarter earnings this morning of $0.94 a share, $0.19 better than the consensus estimate. Same-store sales increased 0.8%and marked the third consecutive quarter where the company gained U.S. market share.

We’ve held the stock for about nine months now, and for most of that time the stock has been a laggard. While we are showing a 17.30% overall gain in the position, the market has outpaced us over most of that time period. Even so, I’ve hesitated to sell the shares given that results have beaten my expectations in each of the past three quarters while the stock’s valuation has remained near the lower end of its traditional range. Much of today’s surge came after management noted that its comps were running up about 2% quarter to date, which implies their fastest run rate since 2008.

After today’s surge I am goin to take the money and run, however. Most of our gain in the stock has happened today, and after a big one-day run up stocks have a tendency to take a breather. Thus, we’ll use today’s strength to take profits in this slow-moving value play. While it is encouraging that comps are accelerating, gross margins were down this quarter and an aggressive price strategy will likely put pressure on the gross margin going forward. With that said, I suspect that a lot of today’s strength is short covering, and we are going to take advantage of it here   and take profits of 17.3%.

February 14, 2013

Daily Kill Sheet For February 14, 2013

Filed under: Uncategorized — Administrator @ 4:41 pm

Position Update – Occidental Petroleum (OXY)

As I anticipated in last week’s Sure Shot LetterOccidental Petroleum Corporation (OXY) announced today that its Board of Directors has increased the company’s dividend 18.5% to an annual rate of $2.56 a share, from its previous annual rate of $2.16. This increase brings OXY’s compound annual dividend growth rate over the last 11 years to 16%. Looking ahead, absent a large acquisition, I expect OXY will continue to raise its dividend at a low double-digit rate given its strong cash generating abilities and low pay out ratio. Occidental Petroleum shares remain a Buy up to $94 a share.

New Trading Idea

Take a look at Archer Daniels Midland Company (ADM, $31.40) on the short side. The company just reported second-quarter earnings of $0.60 a share, $0.09 above last year’s tally and $0.02 above the consensus estimate. Even so, earnings were of low quality. Indeed, the company had a number of restructuring charges during the quarter and had about a $40 million pretax gain on the sale of assets.

ADM benefitted from strong results by its oilseed crushing operations. While the record utilization helped to boost margins it’s unlikely the strength will last into the June quarter as inventories built up with the 2012 crop will begin to dry up and pressure margins. A slowdown at this segment will only exacerbate the margin pressure already present from the comapny’s ethanol operations. Over the past year high corn prices, coupled with a bumper sugar crop in Brazil has lead to severe pressure on ethanol margins. Both Poet and Valero, ethanol competitors, have idled plants in the hopes of lowering inventories, while ADM has only slowed their production. Even so, the industry remains oversupplied due to a surge in Brazilian imports due to the bumper sugar crop in that country. Lower corn prices in recent weeks have lowered input costs here in the States and Valero now has plans to bring at least one of its idled plants back on line. This will only add to the ethanol over supply and likely keep a lid on ethanol prices going forward. Thus, I expect ADM‘s margins to remain under pressure, rather than improve as the year progresses.

Looking ahead, last year’s drought will likely continue to have a negative impact on ADM‘s operations at least through the first half of the year. Water levels in the Mississippi river remain well below normal and is hampering barge traffic. The result has led to increased transportation costs and the potential for delayed deliveries.

While management was cautiously optimistic that drought conditions will improve as the year progresses and that crop yields will be higher, The Andersons, a competitor, said on their conference call that “they expect drought conditions to hurt earnings of both their grain and ethanol businesses through the first half of the year.  All said, I believe it is too early in the year to make any predictions about this year’s grain crops. ADM’s share price has moved up due to its better-than-expected quarter and optimism about this year’s corn and soy crops.

The stock has jumped about 10% since the company reported earnings on February 5th. After the stock’s recent run, two of my favorite technical indicators are signalling that the stock is near-term overbought here. The Williams %R ratio is well above oversold levels and has started to edge lower. Meanwhile the TRIX indicator is also showing signs of near-term buyer exhaustion and is also close to doing a bearish crossover. With that said, my near-term target is $28.75, near the mid point of a small recent gap in its chart, implying a 9.2% return to my target.

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