OIL

Saudi Arabia Attacked, Oil Prices Shoot Higher

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Image Shown: Saudi Arabia’s oil infrastructure was attacked over the weekend, causing WTI and Brent to rally at the start of the trading session. By Callum Turcan Disaster struck this weekend when several drones took out the Abqaiq oil processing facility and the massive onshore Khurais oil field in Saudi Arabia (KSA) on Saturday, with WTI and Brent both surging on the news once trading resumed at the start of the week. The Khurais oil field produces around 1.5 million barrels of crude per day and the Abqaiq oil processing facility is the largest in the world. Saudi Arabia’s oil production capacity was reduced by 5.7 million barrels of crude per day due to these attacks and the country is … Read more

Economic Roundtable: “Value” Versus “Growth” Rotation

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Tickerized for the DIA. “This kind of trading activity could be setting the stage for a big quant fund blow up, if the kind of leverage it takes to move the markets to this magnitude was applied. All it may take is for the B/M “value” factor to continue to suffer in the coming 12-18 months–it’s possible we could see a few quant firms go belly up. My guess is that market participants are paying very close attention to this activity, and if they “smell blood,” things could get ugly.” – Brian Nelson, CFA Earlier this week, the markets experienced significant internal “rotation,” as cyclicals and “value” stocks materially outperformed their defensive and “growth” counterparts, all the while the broader … Read more

Trump “Tweet Storm” Reveals Increased Frustration with Fed, China

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— Markets are starting to look toppy. — By Brian Nelson, CFA — The markets are under heavy pressure Friday, August 23, as China escalated the trade war with new retaliatory tariffs on $75 billion worth of U.S. goods (soybeans and autos), including a 5% tariff on U.S. crude oil prices. Removing the Energy Select Sector SPDR (XLE) from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio August 14 looks to have been a savvy move. Following the much-anticipated speech from Fed Chairman Powell today, President Trump responded with a series of tweets that showed tremendous frustration with the current situation. Here is the Twitter thread, reproduced below: — As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or … Read more

What’s on the Valuentum Team’s Mind?

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Let’s get the Valuentum team’s thoughts on recent developments. No changes to newsletter portfolios. Last Friday, August 16, Bank of America (BAC) CEO Brian Moynihan said in a Bloomberg interview, “We have nothing to fear about a recession right now except for fear of recession.” We sat down with the Valuentum team to get their thoughts. Let’s go around the horn. Callum Turcan: Interesting take, and I get why he thinks that way. The feedback loop of recession fears prompting businesses to invest less which in turn hurts consumer spending by weakening wage growth/employment growth rates thus leading to additional reductions in business investment. However, I think we are past the point of fear being the main enemy. Poor industrial … Read more

Oil Major Second-Quarter 2019 Earnings Roundup

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Image Source: Exxon Mobil Corporation – IR Presentation By Callum Turcan Earnings Coverage by Ticker: BP, COP, CVX, RDS.A/RDS.B, TOT, XOM Let’s look at the Oil Majors that have recently reported earnings. BP’s Upstream Operational Execution Remains Strong On July 30, BP plc (BP) reported non-GAAP flat year-over-year underlying replacement cost profit of $2.8 billion in the second quarter of 2019. Marginal reductions in operating income from its upstream and downstream segments were offset by a reduction in corporate-level expenses. BP owns a 19.75% stake in Rosneft (OJSCY) which saw earnings move lower in the second quarter by an estimated ~25%. Unlike its peers who generally reported significant weakness at their downstream operations (refining, petrochemicals, marketing, and retail operations), BP’s … Read more

Chevron’s Permian Opportunity, Outsize Dividend Yield

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Image Source: Chevron Corporation – IR Presentation By Callum Turcan Last year, the storied energy giant Chevron Corporation (CVX) produced 2.9 million barrels of oil equivalent per day on average and the company ended 2018 with 12.1 billion BOE in proved reserves on a net basis. Chevron’s upstream production base climbed by 13% from 2016 to 2018 while its proved reserves increased 8% during this period, led by growth at its Permian Basin operations. Management intends on growing Chevron’s downstream presence to support rising Permian crude oil volumes. We would like to draw attention to Chevron’s Permian operations as we see that having an outsized influence on its growth trajectory. Shares of CVX yield 3.8% as of this writing and … Read more

Why We’re Staying Away from KLX Energy Services for Now

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Image Source: KLX Energy Services By Callum Turcan KLX Energy Services Holdings Inc (KLXE) is the product of a major corporate restructuring, as the oilfield services side of KLX was spun-off to shareholders while the aerospace business was acquired outright by Boeing Company (BA) in an all-cash deal worth $4.25 billion (including the assumption of $1.0 billion in debt) last year. Going forward, the new KLX Energy Services is focused on providing well completion, well intervention, and drilling services to America’s upstream oil & gas industry. A key consideration is that as a more focused enterprise, KLX Energy Services should be able to better perform in a tough space to be in right now. Note that the company does not … Read more

In the News: Sears Adds to Retail Bankruptcies, Leading Defense Company Formed, and the Political Nature of Crude Oil Prices

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Sears officially files for bankruptcy, a top-ten global defense company is formed, and political tensions with Saudi Arabia have the potential to send crude oil prices higher. By Kris Rosemann At one time it was the largest retailer in the US, but Sears Holdings (SHLD) has fallen a long way to its filing for Chapter 11 bankruptcy protection early October 15. Real estate investment trust Seritage Growth Properties (SRG) is facing selling pressure as it generates roughly 30% of signed lease income from Sears properties, and a report released earlier this month from Reis noted that US mall vacancies hit 9.1% in the third quarter of 2018, a seven year high. Sears’ Chapter 11 filing marks the twelfth retail bankruptcy … Read more

In the News: Geopolitical Uncertainty Rules the Day

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Let’s take a look at some of the recent top stories and their implications on the market. By Kris Rosemann Brexit negotiations continue to be a messy ordeal for British Prime Minister Theresa May and her countrymen. The EU (VGK) rejected her most recent proposal without proposing counteroffers, and if there is no agreement, there will be no transition to keep the UK (EWU) and its businesses from being stuck in a sort of trade policy purgatory. May has been quoted as saying, “No deal is better than a bad deal,” as well as, “No one wants a good deal more than me.” A good deal would assure frictionless trade in goods and would not disrupt any intertwined supply chains multinational businesses … Read more

Dividend Growth: Capital Preservation Remains Key

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Image Shown: Since mid-June 2015, the performance of an ETF tracking the midstream MLP industry (AMLP) has collapsed while the performance of an ETF tracking the S&P 500 (SPY) industry has surged. By The Valuentum Team We think one of the things we do better than most is in our work supporting capital preservation. We have a knack for parsing out risk and explaining that risk clearly in advance to our members. A lot of investors tend to be buy-and-hold as they reinvest dividends and capture compounding over time, and this is wonderful. But it is okay to change your mind, too. It is okay to factor in new information and to be somewhat active in your equity portfolio construction, … Read more