Navigating the Energy Sector When Oil Prices Drop

Navigating the Energy Sector When Oil Prices Drop

Oil. Black gold. It’s the lifeblood of the global economy. As essential as sunlight is to plants, so too is the world dependent upon oil to function.Around 80% of the world’s total energy usage stems from fossil fuels like oil. As it stands today, without oil, the ability to power a city or transport goods becomes impossible.For investors, a product like oil has built in demand which helps to prop up prices making it the most heavily traded commodity in the market. Take a look at Exxon Mobile’s (XOM) chart over the past 10 years to get a sense of how valuable oil really is. Its price more than doubled over that time, providing investors with plenty of profits over the years. Figure in its dividend yield and an investor would’ve made over 2 ½ times their original investment.As such, the energy sector has been dominated by oil companies and offshore drillers. Other energy plays like solar, coal, and nuclear have had periods of dominance, but none have oil’s longevity. The reason is simple – the cost per kilowatt hour. In other words, it all comes down to the cost of generating electricity.At $100 a barrel, the cost of oil per kilowatt hour is roughly $0.06 while solar is about $0.38. However, government subsidies and regulation has brought alternative energy sources like solar closer in alignment with oil. Even still, solar is priced between $0.12 and $0.30 per kilowatt hour making it inferior from a cost-efficiency perspective to oil.Rising oil prices and a continued reduction in cost to generate electricity from alternative sources has led to a revolution in...
Takeover Targets: What To Look For

Takeover Targets: What To Look For

Most people are familiar with the phrase, “There ain’t no such thing as a free lunch.” Basically it means you can’t get something from nothing.Investors may have a basis for refuting that adage though. Enter the corporate takeover.A takeover is when one company purchases, or takes over, another company, usually after extensive negotiations and financing. The acquiring company becomes responsible for the target company’s debt obligations, holdings, and assets. In many cases, this transaction results in a significant price appreciation for the company that’s being taken over making it one of the most sought after events an investor can hope to be a part of.Even the possibility of a takeover can have drastic effects on a stock’s price. If a company is interested in another, they may tender an offer to buy the other out at a specific price, often higher than that company’s current stock price. The rumor is enough to lift a stock’s price by ten, twenty, thirty percent or more overnight.You can see why such an event is worth chasing after. Of course, like the mythological unicorn, actually owning a stock when it becomes a takeover target is something you almost never get to actually see.Even so, there are ways to spot takeover targets before they receive an offer. A word of warning – a stock should never be bought solely for the purpose of being taken over. It should be bought for solid fundamental reasons with the possibility of a takeover as an added bonus at most.The Key Elements Of A Takeover TargetIdentifying a takeover target isn’t as difficult as you might think. There are...
Real Estate Investment Trust (REIT) Resurgence

Real Estate Investment Trust (REIT) Resurgence

REITs (Real Estate Investment Trusts) have a reputation for being complicated, unwieldy asset classes. It’s underserved – they’re actually one of the simpler companies to invest in due to their business model.Let’s define what a REIT is to better understand how it works. It is a company that owns a portfolio of real estate properties and receives income in the form of rent and capital appreciation on the property. A simple model, but highly effective. Furthermore, REIT’s must pass on at least 90% of their profits to shareholders thanks to a specific tax structure that allows them to bypass income taxation. This enables them to pay higher-than-average dividends which often catches the eye of income seeking investors.Perhaps the confusion regarding what REITs are and the associated real estate crisis of 2008 explains the difficulty investors have had in the sector over the past few years. A quick peek at the Vanguard REIT Index ETF (VNQ) 2-year performance looks more like the Superman roller coaster ride at Six Flags than a stock chart.The sector’s unusual volatility can clearly be seen. It’s rate of return is roughly 15% over a two year time period, but has experienced large swings in value during that time. In May of 2013, the stock price was just over $78; in January of this year, the stock had dropped down to less than $65. Now it looks as if the price is climbing again with a current value of $77.13.Traditionally, REIT’s have been considered an investment with less-than-average volatility. However, the mortgage crisis and introduction of ETFs changed that paradigm and temporarily forced volatility levels to...
George Soros is Betting Against the Market and Why Investors Should Take Notice

George Soros is Betting Against the Market and Why Investors Should Take Notice

For institutional investors, keeping secrets for long is an impossible task. The Securities and Exchange Commission requires these entities to file a 13F, a quarterly filing required of investment managers of assets of $100 million or more, which contains information regarding the asset manager’s investment style and potentially even a list of equities owned.It’s a good gauge of what an investment company did in the last quarter. Taking a look back at prior quarters can paint a fairly accurate picture of what direction they’re assuming the market will take and how they’re positioning themselves to prepare – long, short, equities, derivatives, and so on.When an investor like George Soros suddenly increases a bearish position by 605% in a quarter, it raises more than a few eyebrows.For the quarter ending on June 30th, Soros Fund Management reported a large investment in puts, options that give an investor the right, but not the obligation, to sell a security at a given price, for an ETF that tracks the S&P 500.Breaking Down Soros’ PositionNormally, a large investment firm will place hedges on positions, whether long or short, in order to mitigate risk. However, Soros increased his put position from 1.6 million to 11.29 million shares. That’s the equivalent of going from $299 million to $2.2 billion in notional value.Skeptical investors dismiss any worries about an imminent market collapse due to the fact the Soros added to a few holdings like Facebook (FB) and Apple (AAPL) as well as added 182 brand new stocks. They believe his short position is simply a hedge or part of a longer term trading strategy.I’m not sure...
Target’s Problems May Signal the Beginning of a Paradigm Shift In the Retail Industry

Target’s Problems May Signal the Beginning of a Paradigm Shift In the Retail Industry

The retail sector has lagged behind the averages this year. Just take a look at the SPDR S&P Retail ETF’s (XRT) performance – down almost 4.5% year-to-date. The S&P 500 Index however has risen 5.7% over the same time period. This data seems to contradict the growing feeling of economic recovery and it’s clear that the reasons for retail’s sluggishness are more than skin deep.According to the Fed’s Beige Book, a collection of anecdotal economic information, regional banks saw moderate to modest growth in their local economies. Consumer spending, while not necessarily robust, has certainly seen a boost from its levels back in 2009 and has increased each year since. Yet despite this positive news, major retailers are reporting consistently disappointing earnings and lowering forward-looking guidance.Target Disappoints, AgainOne of the kings of retail, Target (TGT) has been suffering for a while now. The company’s recent 2nd quarter results weren’t completely unexpected with higher expenses and lower EPS guidance for next year. All seemingly related to the major security breach that occurred in 2013. Costs have risen exponentially since its computer network was hacked and customer’s credit card information was compromised.Digging a little deeper though, we find that an information breach isn’t the only thing dragging down numbers.Same-store sales figures are the go-to fundamental statistic used as a gauge for how a retailer’s stores (that have been operating for at least one year) are experiencing growth. In Target’s case, the figures are flat, meaning growth isn’t happening at all. If the slump continues, Target may even reduce its dividend, drop share buy-backs, and suffer another drop in its credit rating....
Best Companies To Invest In For ‘The Internet Of Things’

Best Companies To Invest In For ‘The Internet Of Things’

Best Companies To Invest In For ‘The Internet Of Things’The Internet of Things. A somewhat nebulous and colorless title for a concept that could revolutionize the world in much the same way the internet originally did. The idea is that everyday objects will be interconnected and able to identify themselves to other devices.The best way of explaining IoT is with examples. Picture a power generator that’s able to let maintenance know when there’s a problem without first being inspected, or remote monitoring systems that enable home automation – imagine your appliances being connected via wi-fi enabling it to download updates and ensure smooth operations. Recent additions to the IoT include automated car sensors that activate brakes when objects enter a field of range and bio-chip implants in farm animals to make them easy to track and catalog.The Internet of Things is in its infancy and yet we can already see the impact it’s having on the world. Mobile payments allow consumers to pay for basic services like fast food by simply tapping their phone, building on technologies like RFID, near-field communications, QR codes, and digital watermarking. Applications in environmental monitoring, infrastructure management, and medical and healthcare systems are revolutionizing the way we go about our day-to-day lives, and the long term benefits could be exponential.ABI Research indicates that there are over 10 billion devices connected in the world wirelessly with more than 30 billion expected by 2020. Gartner, Inc. says that the IoT will grow to 26 billion units installed by the same year resulting in a global economic value addition of $1.9 trillion. This expectation far outstrips the...