Tag Archives: BP

10 Dividend Stocks You Can Set and Forget

Tired of keeping a close eye on financial news and popping in and out of positions in an effort to get the most out of an increasingly volatile market?

If so, you’re not alone. There is a solution, however, for investors who’ve become mentally exhausted thanks to a bull market that has now persisted for a stunning nine years — just buy some dividend stocks and stop watching the market every day. Go find a new hobby instead. With some stocks, you really are better off just leaving them alone and letting time do the hard work for you.

With that as the backdrop, if you don’t know how or where to start a hunt for new income-oriented holdings, here’s a look at ten great dividend stocks that would at home in almost any investor’s portfolio. They’re all more reliable than average, and represent companies that can weather almost any storm.

In no certain order…

Dividend Stocks to Buy: AT&T (T) Dividend Stocks to Buy: AT&T (T)investorplace.com/wp-content/uploads/2016/04/tmsn2-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/04/tmsn2-73×40.jpg 73w, investorplace.com/wp-content/uploads/2016/04/tmsn2-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/04/tmsn2-250×137.jpg 250w, investorplace.com/wp-content/uploads/2016/04/tmsn2-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/04/tmsn2-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/04/tmsn2-160×88.jpg 160w, investorplace.com/wp-content/uploads/2016/04/tmsn2-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/04/tmsn2-100×55.jpg 100w,https://investorplace.com/wp-content/uploads/2016/04/tmsn2-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/04/tmsn2-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/04/tmsn2-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Mike Mozart via Flickr

Dividend Yield: 5.3%

Telecom giant AT&T Inc. (NYSE:T) is an oldie but a goodie, and with uncharacteristic weakness from the stock since the middle of 2016, the dividend yield has been pumped up to an impressive 5.3%. That’s a dividend that has been paid every quarter for the past few decades, by the way, and raised like clockwork every year since 1984.

Sure, AT&T has got headaches right now, even beyond its usual competition. The deal to pair up with Time Warner Inc (NYSE:TWX) hasn’t exactly been smooth sailing. Industry insiders are relatively certain it’s going to happen despite the DOJ’s interference though, and in that AT&T is leading the race to make 5G connectivity a reality, it should be able to keep its wireless competitors in check at the same time it ramps up enrollments in its streaming cable service DirecTV Now.

AT&T looks to be firing on all cylinders.

Dividend Stocks to Buy: Blackstone Group (BX) Dividend Stocks to Buy: Blackstone Group (BX)investorplace.com/wp-content/uploads/2017/05/bxmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2017/05/bxmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2017/05/bxmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2017/05/bxmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2017/05/bxmsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2017/05/bxmsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2017/05/bxmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2017/05/bxmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2017/05/bxmsn-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2017/05/bxmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

Dividend Yield: 6.9% over the past 12 months

Blackstone Group LP (NYSE:BX) isn’t a traditional company. In fact, it’s not a company at all. It’s an organization that owns and financially supports a variety of other companies, and in some cases gets involved in the management of them. It’s a private equity firm, but it’s so much more than just that.

Additionally, it’s good at what it does, and that’s good for income-seeking investors. While the dividend payout can vary unpredictably from one quarter to the next, broadly speaking it has been on the rise for quite some time, and a dividend of some sort has always been dished out. And if the economy heats and up in interest rates rise, much like a bank, that’s very good for Blackstone’s bottom line as it will eventually makes its way back into the pocket of shareholders.

The dividend yield of 6.8% over the last year, in the meantime, isn’t too shabby either.

Dividend Stocks to Buy: AmTrust Financial Services (AFSI) Dividend Stocks to Buy: AmTrust Financial Services (AFSI)investorplace.com/wp-content/uploads/2016/05/cashmsn2-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/05/cashmsn2-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: 401(K) 2012 via Flickr (Modified)

Dividend Yield: 6.6%

There aren’t any kinds of insurance AmTrust Financial Services Inc (NASDAQ:AFSI) doesn’t offer. In fact, life and health insurance are the only two major insurance markets AmTrust doesn’t dabble in.

That’s a two-edged sword, mind you. While the company has sidestepped the debacle of the ramifications of the Affordable Care Act and now the (more or less) end of it, Amtrust’s heavy reliance on catastrophic insurance policies meant it took a big hit when hurricanes Harvey and Irma took aim at the United States during the fall of last year. All told, the insurer swung from a profit of 61 cents per share in the same quarter a year ago to a loss of four cents per share in Q3 of 2017.

The resulting beat-down wasn’t necessary though, as it founded on a catastrophe the likes of which are rarely seen. The strong selloff from AFSI, however, has cranked its dividend yield up to a still-sustainable 6.6%.

Dividend Stocks to Buy: UBS Group (UBS) Dividend Stocks to Buy: UBS Group (UBS)investorplace.com/wp-content/uploads/2017/05/ubsmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2017/05/ubsmsn-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2017/05/ubsmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

Dividend Yield: 3.2%

When investors go on the hunt for dividend stocks within the financial sector, Zurich-based UBS Group AG (USA) (NYSE:UBS) usually isn’t a top-of-mind name. It should be though, now more than ever … It not only had a 3.2% yield, but also a 26-cent special dividend paid out in the past year.

There’s room for dividend growth too. Analysts are looking for 2017 earnings of $1.28 per share, up from 2016’s $1.17, which is projected to grow to $1.50 in 2018. And, only about 57% of its profits are currently being passed along to shareholders as dividends.

Dividend Stocks to Buy: Two Harbors (TWO) Dividend Stocks to Buy: Two Harbors (TWO)investorplace.com/wp-content/uploads/2017/10/mortgagemsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-91×50.jpg 91w,https://investorplace.com/wp-content/uploads/2017/10/mortgagemsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2017/10/mortgagemsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: House Buy Fast via Flickr

Dividend Yield: 11.9%

Two Harbors Investment Corp (NYSE:TWO) is anything but a household name. It’s not even a company. It’s an investment company, organized as a REIT, and is an obscure one at that. Don’t let the obscurity fool you though. There’s a lot of reliability packed into this obscure mortgage REIT package too, all the way back to 2010.

More important, things could heat up for this outfit sooner than most people are expecting. As Chief Investment Officer Bill Roth commented within the last quarterly report, “We are very excited about the opportunities we see emerging for our business. With the Fed reducing their reinvestments in Agency RMBS and mortgage spreads likely to widen, owning MSR is a significant benefit to our portfolio. Yet, at wider spreads, we believe there could be a tremendous investment opportunity to add Agencies.”

It’s currently yielding 11.9%.

Dividend Stocks to Buy: Iron Mountain (IRM) Dividend Stocks to Buy: Iron Mountain (IRM)investorplace.com/wp-content/uploads/2016/06/irmmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/06/irmmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/06/irmmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/06/irmmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/06/irmmsn-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/06/irmmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/06/irmmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/06/irmmsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/06/irmmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw,728px” />Source: Orin Zebest via Flickr

Dividend Yield: 6.3%

In a world that’s increasingly centered on the digital cloud, one would think the printed documents and literal signatures on forms would be a thing of the past. And to a large degree, things are moving in that direction. If you think paper is a thing of the past though, think again. The world is still printing like crazy, and organizations still need to store it all for a myriad of reasons.

Enter Iron Mountain Incorporated (Delaware) REIT (NYSE:IRM), which as its name implies, offers secure storage of physical files for organizations that are legally required to retain them. Iron Mountain helps companies make the move from physical to digital document management, helping them solve tricky compliance problems along the way.

It even offers document shredding solutions. In all cases though, it’s a wonderful recurring revenue business, easily supporting the dividend yield of 6.3%. That dividend grows pretty regularly too.

Dividend Stocks to Buy: BP (BP) Dividend Stocks to Buy: BP (BP)investorplace.com/wp-content/uploads/2017/05/bpmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2017/05/bpmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2017/05/bpmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2017/05/bpmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2017/05/bpmsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2017/05/bpmsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2017/05/bpmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2017/05/bpmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2017/05/bpmsn-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2017/05/bpmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Shutterstock

Dividend Yield: 5.6%

The future of BP Plc (ADR) (NYSE:BP) has more to do with the price of oil than how well the company itself is managed. But, both bode well for the company. Oil prices have rallied from less than $30 per barrel in early 2016 to a current price near $60 now, and though a little profit-taking is in the cards, the broad undertow remains a bullish one.

Crude’s rebound couldn’t have come at a better time for BP either. As of October, the dividend was and was expected to remain above per-share earnings. With crude well above BP’s breakeven price of around $47 as of August though, margins should start to widen quite nicely and leave decent-sized profit cushion for that dividend yield of 5.6%.

Dividend Stocks to Buy: Southern (SO) Dividend Stocks to Buy: Southern (SO)investorplace.com/wp-content/uploads/2016/04/somsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/04/somsn-73×40.jpg 73w, investorplace.com/wp-content/uploads/2016/04/somsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/04/somsn-250×137.jpg 250w, investorplace.com/wp-content/uploads/2016/04/somsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/04/somsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/04/somsn-160×88.jpg 160w, investorplace.com/wp-content/uploads/2016/04/somsn-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/04/somsn-100×55.jpg 100w,https://investorplace.com/wp-content/uploads/2016/04/somsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/04/somsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/04/somsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Desiree Kane via Flickr

Dividend Yield: 5%

No list of dividend stocks to buy would be complete without a utility stock, and no list of ownership-worthy utility stocks would omit Southern Co (NYSE:SO).

As to the former, utility stocks are cash-flow machines. In good economic times as well as bad, at a very minimum consumers keep their lights on by forking money over to their power supplier every month. As to the latter, Southern serves a total of 9 million customers peppered all across the nation, with plenty of exposure in the south and along the east coast. That kind of scale means a lot in the utility business.

It also smooths out any bumps and rough patches that could otherwise jeopardize its yield of 5%. It’s been reliably paid and steadily rising since 1948.

Dividend Stocks to Buy: Park Hotels & Resorts (PK) Dividend Stocks to Buy: Park Hotels & Resorts (PK)investorplace.com/wp-content/uploads/2016/09/officereitmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/09/officereitmsn-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2016/09/officereitmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” />Source: Anders Jildén via Unsplash

Dividend Yield: 7.7%

The name Park Hotels & Resorts Inc (NYSE:PK) may not ring a bell, but some of the hotels owned by this REIT will. It owns and operates, among others, several Hiltons, boasting 67 locales and 35,000 rooms… most aimed at the upper-scale traveler.

It doesn’t necessarily seem like the steadiest market to be in, but it’s more stable than one might imagine. A huge chunk of its hotels are in important business districts, and if the economy takes off the way it looks like it’s going to take off, that will keep Park Hotels & Resorts plenty busy for some time. Even if the economy doesn’t quite turn red-hot though, the yield of 7.7% is relatively well protected.

Dividend Stocks to Buy: Pfizer (PFE) Dividend Stocks to Buy: Pfizer (PFE)investorplace.com/wp-content/uploads/2017/10/pfemsn-300×150.jpg 300w, investorplace.com/wp-content/uploads/2017/10/pfemsn-768×384.jpg 768w, investorplace.com/wp-content/uploads/2017/10/pfemsn-60×30.jpg 60w, investorplace.com/wp-content/uploads/2017/10/pfemsn-200×100.jpg 200w, investorplace.com/wp-content/uploads/2017/10/pfemsn-400×200.jpg 400w, investorplace.com/wp-content/uploads/2017/10/pfemsn-116×58.jpg 116w, investorplace.com/wp-content/uploads/2017/10/pfemsn-100×50.jpg 100w, investorplace.com/wp-content/uploads/2017/10/pfemsn-78×39.jpg 78w, investorplace.com/wp-content/uploads/2017/10/pfemsn-800×400.jpg 800w,https://investorplace.com/wp-content/uploads/2017/10/pfemsn-170×85.jpg 170w” sizes=”(max-width: 950px) 100vw, 950px” />Source: Shutterstock

Dividend Yield: 3.7%

Last but not least, the 3.7% yield Pfizer Inc. (NYSE:PFE) currently offers doesn’t necessarily put it in the top echelon of dividend stocks, but what it lacks in income-producing potential it balances out with lots of growth potential.

One of those growth engines is Eucrisa. As Chris Lau pointed out last month, 60% of eczema patients using the treatment are repeat buyers. It could be a $2 billion drug at its peak pace. Meanwhile, arthritis drug Xeljanz is slated for an approval decision in March. Both offer new revenue stream potential.

In the meantime, its existing portfolio of products will continue to drive cash flow that funds what it pays back out to shareholders. This is the same company that owns staples like Advil as well as Lyrica, for the treatment of diabetic nerve pain and fibromyalgia.

Pfizer’s going to be fine.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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Marathon Oil: A Fantastic Company With A Fantastic Price That I May Need To Sell

What happens when you as an author begin writing an article with preconceived notions subtly expecting to reaffirm your original thesis and move on to the next one, then realize mid research that you are likely wrong on a key assumption and alter your stance? This article!

I have held Marathon Oil (NYSE:MRO) (the oil producer, not the refiner) for around two years now, purchasing this company during the oil crash at a price of roughly $14/share. It turns out that I was a bit early in my oil grab, and as such, it has been a poor performer during those two years.

But I was unmoved from my long-term stance as I planned to hold this stock for potentially 5 to 10 years to fully capitalize on the oil company’s reemergence as a cost per barrel leader, balance sheet reform, a potential acquisition candidate, and most importantly, the oil market stabilization and long-term re-inflation of oil prices and as such oil producers’ stocks.

Well, it appears that only three out of those four items may be true. Unfortunately, for my thesis, the fourth and most important appears to be much less certain than before. Making this investment more of a trade than a long-term hold. Below I will explain my thinking on these four points and my likely stance for this year and beyond.

1) Marathon’s Resource Cost Transition

Marathon Oil, like many others in the industry, has done a fantastic job of lowering its expenses and improving its production base, as evidenced by the recent divestiture of its Canadian oil sands assets and its entry into the Permian Basin. I think this was an absolute coup for Marathon, adding to its lower cost inventory and divesting oil sands assets which are both high-cost and politically dangerous.

Source: Marathon Oil Barclays Conference

Marathon has also been busy on the corporate side, slashing its G&A costs by a whopping 35%. It is clearly “picking up what the oil market is throwing down” in that the days of cushy do nothing jobs and pet projects of senior management are over!

Source: Marathon Barclays Conference

The transformation in assets is further evidenced by the following slide estimating the break-even costs by basins; the blue being Marathon’s main plays, the green the newly acquired, and the red the divested oil sands. Caveat being that estimating the true break-even point of an oil company to be next to impossible and appears to be a closely held secret. Frankly, I do not have the time nor the will power to attempt this… So I won’t!

Source: Author Daniel Jones on SA

The main conclusion from this is that the company appears to be on the right track cost wise and perhaps leapfrogging some competitors. Marathon has long been thought to have a higher break-even than others in the industry and as such traded at a discount. Perhaps that line of thinking should change.

I always hesitate to rely on or believe corporate slides; however, it does appear in the 10-Q and earnings information that this data is credible.

2) Balance Sheet Repair & Reform

Marathon certainly seems to be active on the balance sheet as well. The below slide illustrates exactly what I want to see out of a company; proactive moves to reduce debt, extend maturities, and reduce interest expense.

This move I believe was brought to us by way of the shrewd oil sand divestiture proceeds net the acquired assets and helps to further de-risk the company and pave the way for profitable expansion.

Another slide via the Barclays Conference below:

Source: Marathon Barclays Conference

Marathon also slashed its dividend in 2015 from .21 per quarter to .05, which I know is a source of great shame for many but that I view positively and honestly believe should have been done a few quarters sooner!

Lately Marathon has been under strict orders to operate within cash flows and has been delivering with some room to spare as the latest 10-Q shows free cash flow of $182 million.

Marathon now proudly holds a net debt ratio slightly above 28%, placing it in good company among oil majors.

3) Potential for Acquisition

I know, I know… If it hasn’t been acquired by now, why would it right? Marathon is always kicked around by analysts and pundits as a potential takeover candidate; yet, here it is, free and independent. So why should that change?

It shouldn’t… simply because it is a good candidate for a takeover! The market cap of Marathon today is $13.6 billion. This falls into the “easily digestible” category for a plethora of oil majors.

With the changes that have happened with Marathon’s asset base in 2016-2017 along with the apparent stabilizing of world oil markets, you have to think that at some point majors will sniff around and kick the tires to help them lower costs of production or to improve their production profile as they begin to come out of the panic rooms they built in 2015.

Let me be clear that this is not a reason to own it nor is it my reason to continue to hold it, but I would be lying if I said it does not factor into my thesis at all.

If a company came in tomorrow with a $25 offer, I would have a hard time saying no to it as I imagine you would as well.

4) Long-Term Oil Prices

Now I get to the point of the article where I explain my third bullet point.

My prior assumption has always been that I had a solid 20 years to invest and profit in the oil sector until fossil fuels would be shunned and begin the steady decline in price due to demand side erosion reaching a tipping point around 2035 in a smooth and orderly way. Naturally assuming that the markets would act the same. And as Lloyd Christmas once stated:

Source: Meme Generator

Oil prices have been the most volatile in modern history in the last decade, trending well above the steady levels of 1950 to 1974 and 1985 to 2005. Volatility breeds “discounting” in commodity producers’ stocks, investors’ natural enemy.

Source: Oilprice.com

Below are slides from BP (NYSE:BP) that explain its 2035 vision, outlining the company’s forecast for energy consumption growth. Notice the trend lines in an oil & gas company’s own forecast.


Source: BP

You’re going to say but electric cars and renewables are but a minute fraction of total demand! And you would be correct! However, as we know the market is a forecasting machine. If you knew with near certainty that a hurricane was going to hit your house in six months, I would venture a guess that you would decide to head over to your local home goods store and buy some supplies to prepare right away even though you still had 180 days until disaster strikes.

However, if you knew with near certainty that sometime in 5 to 15 years a hurricane was going to hit your house, your potential actions and time frame of said actions would be much less clear.

The market acts in a similar way. Only with oil companies the underlying commodity may still rise and fall violently on short-term supply and demand issues whilst the companies that produce said commodity will be slowly discounted down more and more as the future becomes clearer.

I also found this VERY interesting slide in BP’s report. It is a graph showing the projected cost of battery packs for electric vehicles. As you can see, BP is projecting parity between electric vehicles and gas as soon as 2021. Again this is from an oil producer, which has a vested interest in keeping markets calm and painting a rosy future.

Source: BP

As we have seen with the “Amazon Effect,” retail stocks were decimated well before any meaningful damage was done by the actual threat, trading at ridiculous PEs, and analysts were chopping price targets faster than the Brazilian rain forests.

My point is that oil companies will be heavily discounted well before any meaningful damage is done to demand. Figuring out exactly when that will be is likely a fool’s errand and way above my pay grade at Seeking Alpha but ironically the price of oil may continue to rise due to instability and supply disruptions.

So where does this leave me with Marathon Oil?

My magic eight ball is coming back with the answer of “cloudy.”

I really like this company and it seems to be getting its groove back by improving costs, firming up the balance sheet, divesting unprofitable assets, and acquiring a low cost inventory of acreage. All while still retaining a bit of a valuation discount in my opinion relative to the work it has done recently.

So what will I do?

In short, I am looking for a nice pop into the low to mid 20s, then sadly heading for the exits. When that will be is up for plenty of debate. Could it be this year? Maybe, with a mid-cap oil stock, that could happen at any time. A supply disruption, political instability or a war/skirmish in the Middle East (I really hope this doesn’t happen BTW) and Marathon will be flying higher than a North Korean ICBM.

If I do not get my pop to the 20s in 2018, then I am content to hold this company for a maximum of two more years to allow the oil markets to recover from imbalance and see the fruit of the efforts put in during 2017.

However, in 2020, I am likely out of MRO and also my other oil name ConocoPhillips (NYSE:COP) which I also think is a fantastic company on the rebound.

Where I will go from there is a journey I have not fully contemplated yet; I may choose to boost my currently small position in Vestas Wind Systems ADR (OTCPK:VWDRY) or perhaps another alternative energy name.

Who knows what the future will be, but one thing is looking more certain to me than it did a few days ago, and it honestly makes me sad. My portfolio likely will be missing an oil name permanently in 2020.

Disclosure: I am/we are long MRO, COP, VWDRY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Basic Materials, Oil & Gas Drilling & ExplorationWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

Marathon Oil: A Fantastic Company With A Fantastic Price That I May Need To Sell

What happens when you as an author begin writing an article with preconceived notions subtly expecting to reaffirm your original thesis and move on to the next one, then realize mid research that you are likely wrong on a key assumption and alter your stance? This article!

I have held Marathon Oil (NYSE:MRO) (the oil producer, not the refiner) for around two years now, purchasing this company during the oil crash at a price of roughly $14/share. It turns out that I was a bit early in my oil grab, and as such, it has been a poor performer during those two years.

But I was unmoved from my long-term stance as I planned to hold this stock for potentially 5 to 10 years to fully capitalize on the oil company’s reemergence as a cost per barrel leader, balance sheet reform, a potential acquisition candidate, and most importantly, the oil market stabilization and long-term re-inflation of oil prices and as such oil producers’ stocks.

Well, it appears that only three out of those four items may be true. Unfortunately, for my thesis, the fourth and most important appears to be much less certain than before. Making this investment more of a trade than a long-term hold. Below I will explain my thinking on these four points and my likely stance for this year and beyond.

1) Marathon’s Resource Cost Transition

Marathon Oil, like many others in the industry, has done a fantastic job of lowering its expenses and improving its production base, as evidenced by the recent divestiture of its Canadian oil sands assets and its entry into the Permian Basin. I think this was an absolute coup for Marathon, adding to its lower cost inventory and divesting oil sands assets which are both high-cost and politically dangerous.

Source: Marathon Oil Barclays Conference

Marathon has also been busy on the corporate side, slashing its G&A costs by a whopping 35%. It is clearly “picking up what the oil market is throwing down” in that the days of cushy do nothing jobs and pet projects of senior management are over!

Source: Marathon Barclays Conference

The transformation in assets is further evidenced by the following slide estimating the break-even costs by basins; the blue being Marathon’s main plays, the green the newly acquired, and the red the divested oil sands. Caveat being that estimating the true break-even point of an oil company to be next to impossible and appears to be a closely held secret. Frankly, I do not have the time nor the will power to attempt this… So I won’t!

Source: Author Daniel Jones on SA

The main conclusion from this is that the company appears to be on the right track cost wise and perhaps leapfrogging some competitors. Marathon has long been thought to have a higher break-even than others in the industry and as such traded at a discount. Perhaps that line of thinking should change.

I always hesitate to rely on or believe corporate slides; however, it does appear in the 10-Q and earnings information that this data is credible.

2) Balance Sheet Repair & Reform

Marathon certainly seems to be active on the balance sheet as well. The below slide illustrates exactly what I want to see out of a company; proactive moves to reduce debt, extend maturities, and reduce interest expense.

This move I believe was brought to us by way of the shrewd oil sand divestiture proceeds net the acquired assets and helps to further de-risk the company and pave the way for profitable expansion.

Another slide via the Barclays Conference below:

Source: Marathon Barclays Conference

Marathon also slashed its dividend in 2015 from .21 per quarter to .05, which I know is a source of great shame for many but that I view positively and honestly believe should have been done a few quarters sooner!

Lately Marathon has been under strict orders to operate within cash flows and has been delivering with some room to spare as the latest 10-Q shows free cash flow of $182 million.

Marathon now proudly holds a net debt ratio slightly above 28%, placing it in good company among oil majors.

3) Potential for Acquisition

I know, I know… If it hasn’t been acquired by now, why would it right? Marathon is always kicked around by analysts and pundits as a potential takeover candidate; yet, here it is, free and independent. So why should that change?

It shouldn’t… simply because it is a good candidate for a takeover! The market cap of Marathon today is $13.6 billion. This falls into the “easily digestible” category for a plethora of oil majors.

With the changes that have happened with Marathon’s asset base in 2016-2017 along with the apparent stabilizing of world oil markets, you have to think that at some point majors will sniff around and kick the tires to help them lower costs of production or to improve their production profile as they begin to come out of the panic rooms they built in 2015.

Let me be clear that this is not a reason to own it nor is it my reason to continue to hold it, but I would be lying if I said it does not factor into my thesis at all.

If a company came in tomorrow with a $25 offer, I would have a hard time saying no to it as I imagine you would as well.

4) Long-Term Oil Prices

Now I get to the point of the article where I explain my third bullet point.

My prior assumption has always been that I had a solid 20 years to invest and profit in the oil sector until fossil fuels would be shunned and begin the steady decline in price due to demand side erosion reaching a tipping point around 2035 in a smooth and orderly way. Naturally assuming that the markets would act the same. And as Lloyd Christmas once stated:

Source: Meme Generator

Oil prices have been the most volatile in modern history in the last decade, trending well above the steady levels of 1950 to 1974 and 1985 to 2005. Volatility breeds “discounting” in commodity producers’ stocks, investors’ natural enemy.

Source: Oilprice.com

Below are slides from BP (NYSE:BP) that explain its 2035 vision, outlining the company’s forecast for energy consumption growth. Notice the trend lines in an oil & gas company’s own forecast.


Source: BP

You’re going to say but electric cars and renewables are but a minute fraction of total demand! And you would be correct! However, as we know the market is a forecasting machine. If you knew with near certainty that a hurricane was going to hit your house in six months, I would venture a guess that you would decide to head over to your local home goods store and buy some supplies to prepare right away even though you still had 180 days until disaster strikes.

However, if you knew with near certainty that sometime in 5 to 15 years a hurricane was going to hit your house, your potential actions and time frame of said actions would be much less clear.

The market acts in a similar way. Only with oil companies the underlying commodity may still rise and fall violently on short-term supply and demand issues whilst the companies that produce said commodity will be slowly discounted down more and more as the future becomes clearer.

I also found this VERY interesting slide in BP’s report. It is a graph showing the projected cost of battery packs for electric vehicles. As you can see, BP is projecting parity between electric vehicles and gas as soon as 2021. Again this is from an oil producer, which has a vested interest in keeping markets calm and painting a rosy future.

Source: BP

As we have seen with the “Amazon Effect,” retail stocks were decimated well before any meaningful damage was done by the actual threat, trading at ridiculous PEs, and analysts were chopping price targets faster than the Brazilian rain forests.

My point is that oil companies will be heavily discounted well before any meaningful damage is done to demand. Figuring out exactly when that will be is likely a fool’s errand and way above my pay grade at Seeking Alpha but ironically the price of oil may continue to rise due to instability and supply disruptions.

So where does this leave me with Marathon Oil?

My magic eight ball is coming back with the answer of “cloudy.”

I really like this company and it seems to be getting its groove back by improving costs, firming up the balance sheet, divesting unprofitable assets, and acquiring a low cost inventory of acreage. All while still retaining a bit of a valuation discount in my opinion relative to the work it has done recently.

So what will I do?

In short, I am looking for a nice pop into the low to mid 20s, then sadly heading for the exits. When that will be is up for plenty of debate. Could it be this year? Maybe, with a mid-cap oil stock, that could happen at any time. A supply disruption, political instability or a war/skirmish in the Middle East (I really hope this doesn’t happen BTW) and Marathon will be flying higher than a North Korean ICBM.

If I do not get my pop to the 20s in 2018, then I am content to hold this company for a maximum of two more years to allow the oil markets to recover from imbalance and see the fruit of the efforts put in during 2017.

However, in 2020, I am likely out of MRO and also my other oil name ConocoPhillips (NYSE:COP) which I also think is a fantastic company on the rebound.

Where I will go from there is a journey I have not fully contemplated yet; I may choose to boost my currently small position in Vestas Wind Systems ADR (OTCPK:VWDRY) or perhaps another alternative energy name.

Who knows what the future will be, but one thing is looking more certain to me than it did a few days ago, and it honestly makes me sad. My portfolio likely will be missing an oil name permanently in 2020.

Disclosure: I am/we are long MRO, COP, VWDRY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Basic Materials, Oil & Gas Drilling & ExplorationWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

Marathon Oil: A Fantastic Company With A Fantastic Price That I May Need To Sell

What happens when you as an author begin writing an article with preconceived notions subtly expecting to reaffirm your original thesis and move on to the next one, then realize mid research that you are likely wrong on a key assumption and alter your stance? This article!

I have held Marathon Oil (NYSE:MRO) (the oil producer, not the refiner) for around two years now, purchasing this company during the oil crash at a price of roughly $14/share. It turns out that I was a bit early in my oil grab, and as such, it has been a poor performer during those two years.

But I was unmoved from my long-term stance as I planned to hold this stock for potentially 5 to 10 years to fully capitalize on the oil company’s reemergence as a cost per barrel leader, balance sheet reform, a potential acquisition candidate, and most importantly, the oil market stabilization and long-term re-inflation of oil prices and as such oil producers’ stocks.

Well, it appears that only three out of those four items may be true. Unfortunately, for my thesis, the fourth and most important appears to be much less certain than before. Making this investment more of a trade than a long-term hold. Below I will explain my thinking on these four points and my likely stance for this year and beyond.

1) Marathon’s Resource Cost Transition

Marathon Oil, like many others in the industry, has done a fantastic job of lowering its expenses and improving its production base, as evidenced by the recent divestiture of its Canadian oil sands assets and its entry into the Permian Basin. I think this was an absolute coup for Marathon, adding to its lower cost inventory and divesting oil sands assets which are both high-cost and politically dangerous.

Source: Marathon Oil Barclays Conference

Marathon has also been busy on the corporate side, slashing its G&A costs by a whopping 35%. It is clearly “picking up what the oil market is throwing down” in that the days of cushy do nothing jobs and pet projects of senior management are over!

Source: Marathon Barclays Conference

The transformation in assets is further evidenced by the following slide estimating the break-even costs by basins; the blue being Marathon’s main plays, the green the newly acquired, and the red the divested oil sands. Caveat being that estimating the true break-even point of an oil company to be next to impossible and appears to be a closely held secret. Frankly, I do not have the time nor the will power to attempt this… So I won’t!

Source: Author Daniel Jones on SA

The main conclusion from this is that the company appears to be on the right track cost wise and perhaps leapfrogging some competitors. Marathon has long been thought to have a higher break-even than others in the industry and as such traded at a discount. Perhaps that line of thinking should change.

I always hesitate to rely on or believe corporate slides; however, it does appear in the 10-Q and earnings information that this data is credible.

2) Balance Sheet Repair & Reform

Marathon certainly seems to be active on the balance sheet as well. The below slide illustrates exactly what I want to see out of a company; proactive moves to reduce debt, extend maturities, and reduce interest expense.

This move I believe was brought to us by way of the shrewd oil sand divestiture proceeds net the acquired assets and helps to further de-risk the company and pave the way for profitable expansion.

Another slide via the Barclays Conference below:

Source: Marathon Barclays Conference

Marathon also slashed its dividend in 2015 from .21 per quarter to .05, which I know is a source of great shame for many but that I view positively and honestly believe should have been done a few quarters sooner!

Lately Marathon has been under strict orders to operate within cash flows and has been delivering with some room to spare as the latest 10-Q shows free cash flow of $182 million.

Marathon now proudly holds a net debt ratio slightly above 28%, placing it in good company among oil majors.

3) Potential for Acquisition

I know, I know… If it hasn’t been acquired by now, why would it right? Marathon is always kicked around by analysts and pundits as a potential takeover candidate; yet, here it is, free and independent. So why should that change?

It shouldn’t… simply because it is a good candidate for a takeover! The market cap of Marathon today is $13.6 billion. This falls into the “easily digestible” category for a plethora of oil majors.

With the changes that have happened with Marathon’s asset base in 2016-2017 along with the apparent stabilizing of world oil markets, you have to think that at some point majors will sniff around and kick the tires to help them lower costs of production or to improve their production profile as they begin to come out of the panic rooms they built in 2015.

Let me be clear that this is not a reason to own it nor is it my reason to continue to hold it, but I would be lying if I said it does not factor into my thesis at all.

If a company came in tomorrow with a $25 offer, I would have a hard time saying no to it as I imagine you would as well.

4) Long-Term Oil Prices

Now I get to the point of the article where I explain my third bullet point.

My prior assumption has always been that I had a solid 20 years to invest and profit in the oil sector until fossil fuels would be shunned and begin the steady decline in price due to demand side erosion reaching a tipping point around 2035 in a smooth and orderly way. Naturally assuming that the markets would act the same. And as Lloyd Christmas once stated:

Source: Meme Generator

Oil prices have been the most volatile in modern history in the last decade, trending well above the steady levels of 1950 to 1974 and 1985 to 2005. Volatility breeds “discounting” in commodity producers’ stocks, investors’ natural enemy.

Source: Oilprice.com

Below are slides from BP (NYSE:BP) that explain its 2035 vision, outlining the company’s forecast for energy consumption growth. Notice the trend lines in an oil & gas company’s own forecast.


Source: BP

You’re going to say but electric cars and renewables are but a minute fraction of total demand! And you would be correct! However, as we know the market is a forecasting machine. If you knew with near certainty that a hurricane was going to hit your house in six months, I would venture a guess that you would decide to head over to your local home goods store and buy some supplies to prepare right away even though you still had 180 days until disaster strikes.

However, if you knew with near certainty that sometime in 5 to 15 years a hurricane was going to hit your house, your potential actions and time frame of said actions would be much less clear.

The market acts in a similar way. Only with oil companies the underlying commodity may still rise and fall violently on short-term supply and demand issues whilst the companies that produce said commodity will be slowly discounted down more and more as the future becomes clearer.

I also found this VERY interesting slide in BP’s report. It is a graph showing the projected cost of battery packs for electric vehicles. As you can see, BP is projecting parity between electric vehicles and gas as soon as 2021. Again this is from an oil producer, which has a vested interest in keeping markets calm and painting a rosy future.

Source: BP

As we have seen with the “Amazon Effect,” retail stocks were decimated well before any meaningful damage was done by the actual threat, trading at ridiculous PEs, and analysts were chopping price targets faster than the Brazilian rain forests.

My point is that oil companies will be heavily discounted well before any meaningful damage is done to demand. Figuring out exactly when that will be is likely a fool’s errand and way above my pay grade at Seeking Alpha but ironically the price of oil may continue to rise due to instability and supply disruptions.

So where does this leave me with Marathon Oil?

My magic eight ball is coming back with the answer of “cloudy.”

I really like this company and it seems to be getting its groove back by improving costs, firming up the balance sheet, divesting unprofitable assets, and acquiring a low cost inventory of acreage. All while still retaining a bit of a valuation discount in my opinion relative to the work it has done recently.

So what will I do?

In short, I am looking for a nice pop into the low to mid 20s, then sadly heading for the exits. When that will be is up for plenty of debate. Could it be this year? Maybe, with a mid-cap oil stock, that could happen at any time. A supply disruption, political instability or a war/skirmish in the Middle East (I really hope this doesn’t happen BTW) and Marathon will be flying higher than a North Korean ICBM.

If I do not get my pop to the 20s in 2018, then I am content to hold this company for a maximum of two more years to allow the oil markets to recover from imbalance and see the fruit of the efforts put in during 2017.

However, in 2020, I am likely out of MRO and also my other oil name ConocoPhillips (NYSE:COP) which I also think is a fantastic company on the rebound.

Where I will go from there is a journey I have not fully contemplated yet; I may choose to boost my currently small position in Vestas Wind Systems ADR (OTCPK:VWDRY) or perhaps another alternative energy name.

Who knows what the future will be, but one thing is looking more certain to me than it did a few days ago, and it honestly makes me sad. My portfolio likely will be missing an oil name permanently in 2020.

Disclosure: I am/we are long MRO, COP, VWDRY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Basic Materials, Oil & Gas Drilling & ExplorationWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

Chesapeake Energy: Buy The Shakeout

Chesapeake Energy (NYSE:CHK) is testing a very important price range this morning that I believe could mark the launching point for this out of favor oil stock.

Chesapeake Energy produces natural gas, oil and natural gas liquids (NGL) in the United States. It operates in two segments: exploration and production; and marketing, gathering and compression.

Exploration and production is engaged in finding and producing oil, natural gas and NGL. Marketing, gathering and compression is engaged in marketing, gathering and compression of oil, natural gas and NGL.

As of December 31, 2016, it owned interests in approximately 22,700 oil and natural gas wells throughout the country.

Why Buy Chesapeake Energy Now?

As a trader, I enjoy looking for chart patterns that show capitulation near or at a level of long-term support at a multi year low. I also look for a positive catalyst in the near future that could set up a longer-term rally.

A look at this YTD chart.


As you can see from the chart above it has been a painful journey for shareholders that have stayed long the stock. I have traded in and out of the name all year.

I am disappointed with the share count at 909M shares and expensive refinancing that the company has conducted over the last year. In my opinion this has weighed heavily on the stock.

Balance Sheet issues

To say Chesapeake has a stretched balance sheet is an understatement. At the end of the last quarter the company had $5M, (yes, that’s right) in cash on the balance sheet. To be fair they have a substantial credit line of $4B to use for business operations, but cash is king and they have none.

Here is a clip from the 8k.

The above statement from page 6 of the 10Q caused me concern, which is why I wrote an article in August telling investors to stay away. You can view that article here.

Here are a few negative highlights.

Net cash used in financing of $548M. Proceeds from issuance of senior notes of $742M. That rate was too high at 8%. In short they are paying too much to refinance their debt and that must stop. Interest paid net of cap interest stood at $342M up from $209 in the year ago period.

On the positive side Chesapeake is starting to make a profit after years of massive losses.

Earnings Growth?

Here is an interesting clip from the earnings report showing net income swing from a $4.1B loss through September 30, 2016, to a gain of $506M net income through 9/30/2017.

Revenues are also rising from $5.85B a year ago to $6.97B through the first three quarters of this year for a gain of 19%. That will only get better with the pricing of oil and gas this quarter.

I am in the camp that believes oil is going to rally into the new year on a strong global economy and powerful forces that will take WTI into the $60s.

While BP (NYSE:BP) is and has been my favorite pick in oil the space, the stock has rallied 25% since August with no slowdown in sight.

Any pullback in oil will likely be met with buying as the world experiences global growth accelerating before our eyes.

Chesapeake is hedged over $3.10 on nat gas with approximately 70% of their production. This caps their profits on a strong move over $3.10 in nat gas but helps them when the price drops like it has down to $2.67 yesterday.

Chesapeake has great assets that it can sell to right the balance sheet; the question is when they will announce a significant sale.

I see CEO Lawler making a move in the first or second quarter of this year as the rising price of crude will bring better pricing for a significant asset sale.

One last look at an intraday 60 minute chart to show the buy point on this pullback from the $4.20 level of 10 days ago.


This chart goes back to the beginning of August. It is a 60 minute chart that shows you the ride that is typical of this stock. I have been in and out at various points in this shakeout, trading the ranges.

I am now becoming very convicted on the stock at this price. My reasoning is grounded in behavioral finance and the process of grinding down stock holders.

The stock recently made a yearly low $3.41. I am considering this a hard bottom, and what we are looking at today is a third retest of the $3.65 to $3.70 level. If you’re risk-adverse and don’t mind missing a big rally, then look for a buy point at the 3.41 level on a hard retest.

In my view the price action is offering those short a gift to cover and those that are long, an opportunity to capitalize on a rally in crude that has yet to materialize in high debt oil producers.

Conclusion

I am a buyer of Chesapeake Energy right here and now at the level of $3.73 as I finish this piece. I encourage investors to do their own due diligence and make their own decisions. It is important to always have an exit strategy in place for making any trade.

If you enjoyed this article then please click on the link and follow me. I discuss real time trades on my premium site Bargain Hunter.

Disclosure: I am/we are long CHK, GE, LYG, BAC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Basic Materials, Independent Oil & GasWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here