March 2011


Technology companies are always prone to obsolescence, whether that be in technology itself, or purely in consumer taste, competition is always around the corner.

AAPL has been remarkable over the last few years in that they have bucked the competition on both counts. However, Android seems to be cutting into their market share. This evidence is present in their financial statements that discloses a significant Inventory and Receivables bulge comparative to Revenues.

Revenues………………+52%
Inventory………………+130%
Receivables…………..+96%

This of course may well be due simply to the ongoing recession. This bulge has been reduced when you look at the Quarterly figures, however, I suspect that AAPL earnings might well disappoint for the first time in years. AAPL is almost a given to provide an estimate, and then significantly beat those estimates.

What if their estimate is accurate, or even slightly lower? That would be a surprise. Stocks don’t like surprises of the lower kind. Even the chart is suggestive of a pause in the uptrend. This looks to be a potential area to either sell-out if you are a long term holder, or get short if you are a speculator.

Two commodities that correlate to two of the stocks that I hold. Corn to BIOF and Oil to JBLU. Both obviously in these days of inflation fueled by the Federal Reserve and Bernanke, can go far higher.

Corn Planted Acreage Up 5 Percent from 2010
Soybean Acreage Down 1 Percent
All Wheat Acreage Up 8 Percent
All Cotton Acreage Up 15 Percent

Corn growers intend to plant 92.2 million acres of corn for all purposes in 2011, up 5 percent from last year and 7 percent higher than in 2009. If realized, this will be the second highest planted acreage in the United States since 1944, behind only the 93.5 million acres planted in 2007. Acreage increases of 250,000 or more are expected in Iowa, Kansas, Nebraska, North Dakota, Ohio, and South Dakota. The largest decrease is expected in Texas, down 150,000 acres.

Obviously the higher the price, the more supply will be called forth [planted] and just as obviously, this could take some time to work through.

Oil of course has it’s own set of problems, none of which are really being resolved currently. The really major one being Peak Oil and the inability to drive growth with a comparably cheap energy source.

Adding to my incredibly speculative BIOF purchase, I have two more:

I’ll be adding three more fundamental based stocks and adding the analysis on BIOF which is an incredibly speculative purchase.

AAPL I suggest will likely disappoint in earnings, possibly for the first time in years. Time to get short.

flippe-floppe-flye moving to new highs;

BEHOLD: COCAINE GORILLA CLOWN RAPE RALLY
Tuesday, March 29, 2011 at 4:08 pm | 1,768 views

Everything was up but my airlines, which is entirely acceptable because they are hedges against my refiners. I was up again and my gains are about 12%.

In my hyper cocaine personal account, I am up 22%, mainly long WNR—leveraged to the max. I am telling you exactly what I am doing in that account because I am going to show you something spectacular. You surf the web, in search for counsel. Most have a good stories and a neatly groomed mustaches, but little personal success, zero substance. Like they say: “those who choose to teach are real dicksuckers in real life.”

My main man!

From Bloomberg

U.S. corn planting will expand to cover the second-largest area since World War II this year and still fail to meet demand for feed and ethanol, driving prices to their highest in at least 34 years.

Sowing will expand by 4 percent to about 91.75 million acres, the most since 2007 and the second-highest since 1944, according to a Bloomberg survey of 32 analysts. Corn will rise 5.7 percent to average $7.15 a bushel in the third quarter, the most since at least 1977, Abah Ofon and Koun-Ken Lee, analysts at Standard Chartered Bank in Singapore, wrote in a report.

A United Nations index that tracks the cost of 55 foods rose to a record in February, with higher prices contributing to riots in the Middle East and northern Africa that toppled leaders in Egypt and Tunisia. That’s driving up inflation and spurring central banks to consider higher interest rates that may slow global growth.

“We will have inadequate acreage, which without spectacularly favorable weather, will usher in a significant food shortage” in some parts of the world, said Doug Jackson, a West Des Moines, Iowa-based vice president at INTL FCStone Inc. “Demand is outrunning normal production expansion, led by biofuel policy,” said Jackson, who has been a grain analyst since 1974.

Animal-feed use is being driven by record prices for cattle and hogs, and biofuel demand is forecast by the U.S. Department of Agriculture to increase by more than 8 percent. The agency releases a forecast on planting intentions on March 31.
Ethanol Production

In the year ending Aug. 31, about 40 percent of the corn crop will be used to produce ethanol, the USDA predicts. Refiners get a tax credit of 45 cents for every gallon of ethanol blended into gasoline. Since Oct. 1, the price of the fuel has jumped 45 percent on the New York Mercantile Exchange. Corn jumped 89 percent in the past 12 months and traded at $6.7675 as of 3:40 a.m. on the Chicago Board of Trade.

The price of wholesale beef in the U.S. rose to a record last week, while the number of cattle in feedlots climbed 5 percent on March 1 from a year earlier. Wholesale pork jumped 33 percent in the past 12 months, and producers expanded the breeding herd by 0.5 percent on March 1 from a year earlier.

The Standard & Poor’s GSCI Agriculture Index of eight prices has climbed 62 percent in the past 12 months on a total- return basis. Last year, flooding in Canada, China and Australia and drought in Russia and Europe hurt crops from cotton to wheat.
Grains Council

World grain markets face “continued tightness” as record production probably won’t be sufficient to make up for rising demand, the International Grains Council said on March 24.

U.S. soybean acres may fall 0.8 percent to 76.786 million, a three-year low, according to the Bloomberg survey. Planting of spring and winter wheat may rise 6.8 percent to 57.239 million acres, and the area sown with cotton may increase 20 percent after prices more than doubled in the past year.

Surging corn prices will boost returns on high-productivity farmland in central Illinois by $189 an acre over soybeans, Gary Schnitkey, an agricultural economist at the University of Illinois in Urbana, said in a report. The average premium was $48 from 2004 through 2010.

Soybeans for May delivery rose 0.6 percent to $13.5625 a bushel today in Chicago trading. The oilseed has climbed 40 percent in the past 12 months.
Acreage Projections

The USDA’s acreage projections are based on a survey of farmer intentions in early March. In the past 20 years, the tally has overestimated the corn acreage 60 percent of the time and underestimated soybeans in 13 years, USDA data show.

Wet spring weather can delay corn planting. Farmers need warm, dry weather in April to make sure the crop is planted before May 10 in the Midwest to avoid yield losses from heat in July and August and possible frost damage in September.

Some farmers may shift to soybeans, rather than risk a late-developing corn crop. The outlook for prices will also determine acreage, said Jerry Gidel, a market analyst at North American Risk Management Services Inc. in Chicago.

“The idea of diversification also remains a strong factor with producers who like to separate their marketing risk between crops because of weather and world economic issues,” Gidel said. “Many times, producers don’t always make every farming decision based upon the highest economic returns that might be available at the time of planting.”

In a separate report on March 31, the government will say U.S. corn inventories on March 1 probably fell to the lowest for the date since 2007, while soybean supplies rose from a year earlier, according to a Bloomberg survey of as many as 22 analysts. Wheat inventories probably climbed to the highest since 2000, according to the survey.

Corn is the biggest U.S. crop, with a 2010 value of $66.7 billion, followed by soybeans at $38.9 billion, government figures show. Wheat was fourth at $13 billion, behind hay.

Buy BIOF

This is a longer term, dare I say, fundamental based, speculation. Analysis to follow.

Buy long HNR

flippe-floppe-flye would regard himself as a fundamentals chap, he claims this. Here then is a part, or possibly his entire analysis, after all crack spreads seems to be the only thing that he’s interested in.

Enough of the pussy talk, there is coin to be made. Crack spreads are sprinting higher this morning, up more than 3% to $23.68. More importantly, WNR has an edge. Do you know what said edge is?

Let us begin.

Domestic refiners make their money from a multitude of spreads, one of which is gas—another Brent/WTI. WNR has their refineries in New Mexico, El Paso, Texas and Virginia. They are within delightful proximity to Cushings, Ok aka where the glut supply of WTI is stored. As the world burns, it is my belief the spread between WTI and Brent will widen. As it widens, the executive management team over at WNR will sit back, over a nice tall glass of scotch, and enjoy the ride. Profits will soar. The company will do $7 billion in revenues this year and yet only 35% of the shares are owned by institutions.

How does that stack up to the other refiners? Let’s have a look.

HOC: 99%

TSO: 89%

FTO: 83% (acquired by HOC)

MRO: 81%

HES: 80%

VLO: 76%

SUN: 73%

CVI: 60%

WNR: 35%

Does that make sense? Of course not. Furthermore, with WNR‘s earnings set to explode, thanks to widening spreads, coupled with an industry high 25% of shares sold share, I reckon the perfect short squeeze is about to occur. If you are managing money and need exposure to the refiners, you cannot ignore WNR, especially with a FPE of 9 and 35% institutional ownership. Just my two cents

Looking at the financials of this company: these are all 5yr compounded figures.

Revenues…………………+17.3%
Cost of Revenues……….+18.73%
Gross Profit………………[-0.67%]
SG&A………………………+160%

Unusual expenses: in last 2 years [always a fundamental red flag]

Net Income: …………….Losses

Plant, Property & Equipment ………+60% [lots of expansion, collapse in profits, never good]
Depreciation……………………………+800%

Cash………………………………………[-31%]
Receivables…………………………….+11.7% [increased financing to customers]
Inventories……………………………..+26% [reduced sales]
Cash from Ops…………………………[-14%]

Just from a very superficial analysis, one can see that this company, irrespective of crack spreads, has difficulty in making a profit. Management however continue to compensate themselves accordingly for their failure.

On a fundamental basis, this company looks to be a disaster area. This of course underlines the abject failure of the ppt screening tool in respect to the fundamentals. I have touched on this area numerous times in the past.

Even the ownership data has some question marks:

OWNERSHIP INFORMATION
Shares Outstanding 91.00 Mil
Institutional Ownership (%) 43.82
Top 10 Institutions (%) 25.50
Mutual Fund Ownership (%) .07
5%/Insider Ownership (%) 55.95
Float (%) 44.06

I don’t know how up-to-date this data is in comparison to the ppt’s. My guess is that they are both wrong in that they have not been updated to real time. However, buying on ownership stats, is really a losing strategy. The stats are low [ownership] because the company is simply not profitable. That is the reason, and the reason is an important one.

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