Tag Archives: management

A Bullish Case For Dominion Resources

Dominion is down more than 8% over the past one year and 13.9% YTD. Energy Information Administration expects that generation from natural gas will increase from 27.5% in 2014 to 31.6% in 2016. Utility sector forward P/E valuation has dropped to 14.9x, very close to its historical average of 14.1x. The utility stocks have remained the favorite choice for regular income seeking investors with less risk appetite. The utility stocks have posted some impressive gains over the past several years, and valuations expanded significantly. However, Fed’s indication to hike the interest rate has changed the ground and utility in S&P 500 index is now the second worst performing sector, so far this year. Dominion Resources (NYSE: D ), one of the largest utilities in the U.S., has significantly underperformed, just like other utility stocks, as investors adopted a defensive strategy. As a result, Dominion is down more than 8% over the past one year and 13.9% YTD. (click to enlarge) Source: Yardeni Research Dominion’s portfolio mix is well diversified, and it has the generation capacity of approximately 24,400 megawatts along with 12,200 miles of natural gas transmission. However, the largest natural gas storage system capacity of 928 billion cubic feet distinct Dominion from other utility companies. Dominion’s gas storage and transportation operating revenues have surged 7.3% to $1,221 million, or 13.4% of total revenue, so far this year. The storage and transportation revenue will continue to rise in the fourth quarter and next year as demand for U.S. gas in 2015 is estimated to increase by 4.6%. Coal-fired electricity generation has remained the largest component of power generation in the U.S., but the industry dynamics have changed dramatically in the recent past. In April, gas-fired power generation surpassed coal for the first time. In the near-term, Energy Information Administration (NYSEMKT: EIA ) expects that generation from natural gas will increase from 27.5% in 2014 to 31.6% in 2016 amid low natural gas prices. It bodes well for the company as low natural gas prices will reduce the fuel costs and will help Dominion to deliver 5% – 6% earnings growth in 2016. On the other hand, the significant increase in gas demand will fuel Dominion’s gas storage revenue, which will mute the unfavorable impact from the unregulated business. Currently, Dominion produces approximately 34% electricity from natural gas, and coal generation is 27%. Dominion’s 1,358-megawatt combined-cycle plant in Brunswick County, which is expected to become operational in mid-2016 and three-on-one combined-cycle plant with production capacity of 1,588-megawatt Greensville County will increase the share of natural gas generation to approximately 45% by the end of 2018. The declining cost of generation from natural gas and advanced technology will further strengthen the operating margins in the coming years. Moreover, the anticipated contribution from ongoing growth projects including The Cove Point LNG export facility will start fueling earnings growth from 2018 onwards. Thus, these factors completely justify that Dominion’s earnings will grow at an estimated 3-year CAGR of 7.3%, and growth will pick the pace in 2018 due to the addition to major growth projects. Source: NASDAQ With the low natural gas and power prices, the unregulated utility sector’s revenue stream may tumble in the coming quarters. However, Dominion is pretty secure against this headwind as it generates approximately 68.7% of total operating revenue from regulated business and only 16.5% is unregulated. It bodes well for the company as the supportive regulatory environment will enable Dominion to maintain the profit margins while generating steady cash flows. Thus, the growing gas storage business and stable outlook of regulated business will protect the operating margins on stable operating revenues, and will also improve the cash flow to debt ratio from its current level of 15.5%. However, Dominion’s cash flow to debt ratio may remain lower as compared to estimated industry average of 21% for 2016 primarily due to $8.6 billion CAPEX in 2015 and 2016. Dominion’s management is pretty confident to sustain organic growth as the company is deploying quality assets and major projects are on time and budget. The combined-cycle plants and plan for 400-megawatt utility-scale solar generation will pave the way for achieving 80% to 90% operating revenue from regulated business, which will further stabilize revenue stream. Moreover, the management has indicated the there is no need for a big merger deal as the company is well-positioned to meet the future demand while continuing profitable growth. It is a good sign from investors’ perspective because the leverage ratio will remain in its current range of 1.68 times and shareholders will receive 8% annual dividend increase over the next five years. The dynamics are quite favorable for Dominion except the slight drop in electricity demand in the U.S. Moreover, the industry-wide initiatives to reduce the nuclear power production costs by 30% by 2018 also suggests some margin gains for the major utilities. However, the rising yield on 10-year U.S. Treasury note is putting downward pressure on utility stocks, and the interest rate hike is pending yet. The Philadelphia Utility Index (UTY) is already down approximately 16% from its peak at the start of 2015 and Dominion followed the decline. Resultantly, utility sector forward P/E valuation has dropped to 14.9x , very close to its historical average of 14.1x and significantly lower than S&P 500 index forward PE of 15.6x. It is quite an aggressive reaction from investors. Fed has hinted several times that it will follow the gradual and cautious strategy to hike the rate. That said, if it happens, the rate will start increasing from a very low level that Dominion’s yield will still be attractive. Moreover, the interest rate will also increase the ROE, which will partially offset the additional finance cost burden. (click to enlarge) Source: NASDAQ The drop in stock price has pushed Dominion’s dividend yield to a very attractive level of 3.97%. And, now Dominion is trading at trading at a forward PE of 17.1x, significantly less than the 5-year historical average of 36.2x. Thus, it seems that the market has already incorporated the impact of interest rate hike and Dominion may perform well in 2016 as earnings of the company will sustain long-term growth owing to margin expansions and aggregate growth CAPEX of $14.9 billion from 2016 to 2020. That said, Dominion is still a very attractive dividend stock capable of providing upside potential once the dust settles.

4 Country ETFs To Shun If Oil Hits $20

Now that OPEC has announced that it will continue to pump out more oil despite piling-up supplies and falling demand, traders have set a new bottom for the long-exhausted commodity oil of $20 which is way below the psychologically resistant level of $40. OPEC terminated the production limit after the December 4 meeting. Though the investing was expecting in the same line as the OPEC top brass Saudi Arabia and other Gulf countries are more concerned about market share, per CNBC , rather than falling oil prices. Goldman Sachs viewed the outcome of this meeting as a serious threat to future oil prices and commented that this ‘leaves risks to their forecast as skewed to the downside in coming months, with cash costs near $20/bbl ‘. However, all are not as bearish as Goldman since HSBC expect non-OPEC supply growth to decrease from 2.3 mbd in 2014 to 0.9 mbd in 2015, before turning negative in 2016. HSBC also projects Brent crude to average $60 per barrel in 2016, $70/bbl in 2017 and $80/bbl in 2018. While nobody knows where the bottom is, one thing for sure is that oil is due for a wilder or a rather sluggish run in the coming days. At the time of writing, oil prices are hovering around the $40 level and are giving no signs of a near-term recovery. While a WTI crude oil ETF like United States Oil Fund (NYSEARCA: USO ) lost over 9.8% in the last five trading sessions, there are other corners as well which are linked to the commodity oil and are equally at risk if black gold slips to $20 or remains stressed. Those corners are key oil producing and exporting countries which have been exhibiting a downtrend, as revenues earned from this commodity account for a major share of their GDP. We have seen this trend in a number of countries so far this year. Market Vectors Russia ETF (NYSEARCA: RSX ) The Russian economy contracted 4.1% year over year in Q3. The economy shrunk for the third successive quarter with stubbornly low oil prices being mainly responsible. Among the other reasons for the deterioration are the ban on Russia by the West on the Ukraine issue and sky-high inflation. Oil – seemingly the main commodity of the nation – posed huge risks to the nation. The plunge in oil prices forced investors to think twice before investing in Russia even at bargain prices. In fact subdued oil prices and a stronger U.S. dollar on the Fed lift-off bet put pressure on the Russian currency ruble which lost about 17.2% in the last one year against the greenback (as of December 4, 2015). RSX is the most popular and liquid option in the space with an asset base of $1.83 billion and average trading volume of more than 8 million shares a day. The energy sector accounts for about 43% of RSX, which charges 61 basis points as expenses. The Zacks ETF #4 (Sell) fund advanced 5.9% but lost 6.5% in the last five trading sessions (as of December 7, 2015). Global X FTSE Norway 30 ETF (NYSEARCA: NORW ) Norway is among the top 10 nations famous for oil exports and with its comparatively low population, oil forms the key part of the country’s GDP. As per U.S. Energy Information Administration (EIA), Norway is the biggest oil driller in Europe. The most popular way to play the country is with Global X ETF NORW. The product tracks the FTSE Norway 30 Index, a benchmark of 30 companies that focus on Norway, charging investors 50 basis points a year in fees. The ETF is heavily concentrated on energy stocks, as these make up for nearly 45% of the portfolio. In fact, Norwegian oil giant Statoil accounts for one-fifth of the portfolio alone, suggesting a heavy concentration. Thanks to a slump in oil prices, NORW has lost about 11.3% in the year-to-date frame and was down 2.9% in the last five trading sessions. iShares MSCI Canada ETF (NYSEARCA: EWC ) Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector make up about over a quarter of the Canada’s economy. Its currency plummeted to an 11-year low level after the disappointing outcome of the OPEC meeting. Canadian currency lost about 15% year over year while jobless data spiked last month. The best way to invest in Canada is the iShares MSCI Canada ETF, a product that has nearly $1.89 billion in assets. The fund tracks the MSCI Canada Index, which holds just under 100 stocks in its basket. Energy makes up a huge chunk of assets accounting for one-fifth of the total. The fund was off about 19% in the last one year. The fund has lost 22.7% this year and has a Zacks ETF Rank #4. The fund lost over 4.4% in the last five trading sessions. Global X Nigeria Index ETF (NYSEARCA: NGE ) Nigeria – an OPEC member – is one of the biggest net crude exporters in the world. An option to invest in Nigeria is a Global X ETF, NGE. This new product follows the Solactive Nigeria Index, giving exposure to about 25 companies and charging investors 68 basis points a year in fees. Though financials actually take the top spot in the ETF, making up about 45% of the holdings, energy has about 10% exposure. That is why, it is important to see how the fund fared during the recent oil price downturn. NGE shed about 31.1% during the last one year and is down 30.8% so far this year. NGE retreated 1.4% in the last five trading sessions. The fund has a Zacks ETF Rank #4. Original Post

Are You Ready To Invest Like Rothschild?

For many getting started, understanding how to invest can be a challenge. Knowing what to invest and where can seem daunting. For the very wealthy it is business as usual, and they have devised strategies and tactics to make sure their wealth can really work for them, but it is harder for smaller or new investors. According to Richard Dyson (2012), reporting for This Is Money , the very wealthy have focused on creating portfolios and organisations where generally they own a large share. However, in most cases, small investors were not aware that they could invest in these. However, in recent years, changes to regulations have been made such that these sorts of investments are more suitable for smaller investors as well. According to Dyson, one such company to invest in is RIT Capital Partners (“RIT”) ( OTCPK:RITPF ), in which the Rothschilds, an extremely rich family, has a large share. As explained: “Lord Rothschild and his family own 18% of what began in the early 1960s under the name of Rothschild Investment Trust.” It is cited that growth has been achieved to the position where RIT is now worth £1.8 billion, and the Rothschilds own £324 million of that. This has been extremely attractive as a proposition for investment to other private investors, especially as the investment has a superb record over a long history. The assets included are property and hedge funds, among others. History of Wealth The Rothschilds have been growing their wealth for a time span of more than 200 years, and they are considered one of the richest families of all time. Investor Network explains that the family originally made money from the Napoleonic Wars by supporting the side of the English in battling Napoleon. Rothschild was aware that the battle was lost for Napoleon, and he knew this ahead of other investors. This enabled him to purchase much of the stock market at a very favourable price, and when the news came out about Napoleon’s defeat, the market grew tremendously. In addition, the money lent was repaid, and overall, the family did really well out of the war. They continued to do well, and by 1825 they were in such a strong position that they were able to prop up the Bank of England when there was a financial crisis faced. Following this, the family invested in stocks and made shrewd investments and financial decisions that have led to the wealth accrued today. RIT Capital Partners is a good opportunity because small investors have gained significantly over the time it has been up and running. It is reported that the trust has delivered returns, on average, of 12.4 per cent per year. The approach taken is to make sure that investors’ capital is safeguarded as far as possible in the event of stock market crashes. This is beneficial in terms of risk, as there is lower exposure, but it is detrimental when the stock markets rise rapidly, and the investment will be likely to not perform as well as other opportunities in the markets at those times. Investing in RIT will help you invest like the Rothschilds. The cost of the fund is 1.25% per year. Experts say that it is a particularly good investment for pensions. Alternatively, you can learn from the way they operate. The family uses a multi-asset approach, which spreads the wealth across a range of different investments. This includes anything from gold, to shares in a range of high performing companies like eBay (NASDAQ: EBAY ), Walt Disney (NYSE: DIS ) and Samsung ( OTC:SSNLF ). It has also invested in gold, and it has funds that are focused on commodities, including BlackRock Gold and General and Baker Steel Precious Metals. In taking the approach that it does, it holds onto liquidity appropriately, and focuses on long-term benefits rather than short-term gains. Golden Rules of Contrarian Investing The approach taken by the Rothschilds is known as contrarian investing. Basically, those who follow this approach buy when there is bad news and sell when there is good news. It is thought that this is wise, because when there is good news on the stock market, investors are likely to pay a high price for it. On the other hand, when there is bad news, investors are more likely to get a good deal, as others are in fear of buying at those times. There are 5 golden rules of contrarian investing : When you read about it in the newspapers or see it on the news, it is already all over. Buy when everyone wants to sell, and sell when everyone wants to buy. No one sees a bubble when their income depends on it. Don’t take tips or advice, and don’t believe research notes. What is obvious to you is not obvious to others. Rationality and Risk Although it seems like extremely risky investment strategy, it is based on the principle of “rationality” . It might seem a bit contradictory, but it has a sense, as rationality is based on healthy evaluation of any financial decisions apart from current trends or experts’ advice. The latter, in turn, might be over-reliable, or under/overpriced. Not Contrarian Investment Strategy Contrarian Investment Strategy While efficient market hypotheses are based on stock prices reflecting the financial situation of industry, company or economy in question, the contrarians believe that the market can be beaten by keeping a rational investing viewpoint. They do it by being independent thinkers and controlling their optimistic and pessimistic feelings. To become a contrarian investor, you’ll need to go against the market trends, against the crowd and against social pressures. You’ll need to go for an optimism visible to yourself only. Uncertainty is a right time for investment for a contrarian investor, who will need to have a lot of patience as well as time for such a risky long-term strategy. 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.