Many years ago I was hiking in the woods with some friends. We eventually got lost (it was probably my fault - I have a notoriously terrible sense of direction). While we were meandering about, trying to find our way, I noticed what smelled like a delicious roast. Upon further investigation, it turned out that I was totally mistaken. Ultimately, everything worked out fine but even to this day I'm embarrassed about how I thought there was a delicious roast just hanging out in the forest and that it was free for the taking. Of course it's easy to admit things like "there's no such thing as a free delicious roast" and "if it seems too good to be true, it probably is," but in the excitement of the moment when you're presented with such an opportunity it's extremely tempting to go for it.
My pick for this week is Terra Nitrogen Company, L.P. (NYSE:TNH) at roughly $145/share.
I bought shares of Terra Nitrogen a few months ago and it had been one of my favorite stocks. While the price was fast approaching $200/share I often lamented the small number of shares I had purchased. All of a sudden I smell a delicious roast - shares of TNH had dropped by about 30% in the last couple of weeks; and I'm forced to recall the embarrassing episode in the woods. Before I initially bought shares of Terra Nitrogen, my research began by asking "What's so great about this company?" this time around I've been trying to find out "What's wrong with this company?". My conclusion is: * This is the same company that I believed in when I first invested: 10% annual distribution, solid management and the intent to grow* The fertilizer industry is still poised to benefit from agriculture commodity growth as the world's population continues to expand.
* Although CF Industries Holdings Inc. (NYSE:CF) (Terra Nitrogen's general partner) probably has enough cash to buy the remaining 25% of TNH's shares they don't own (as stated in CF Industries SEC 10-Q filing) – they have not announced they plan to do so and I don't see why they would. [more]
When I started this "stock of the week" project, my hope was to pick up solid companies whose stock price had fallen as a result of the global economic pressures that are affecting the market at large. The stock price of the company I’d like to talk about this week has been on my watchlist for months, but didn't appear on my "bargain" radar because the price hadn't dropped significantly. That's not to say the company isn't a great investment for the price. [more]
There's a guy I know who seems nice enough at first, but the more I watch him, the more I wonder about him. For example, one time he was trying to charter a flight for a long and expensive trip. The representative from the travel company quoted him an extremely high price, so he decided to try to haggle. The counteroffer was as follows: he'd pay 20% of the asking price upfront (basically the amount he got for pawning some poor orphan's used car) then, after he reached his destination, he would pay 1.5 times the total quoted asking price. The charter pilot must have thought this guy was the worst negotiator of all time, but he didn't dare question this stoke of luck, that extra money could really save his neck.
This guy I know is pretty old (and probably senile) and the elderly are common targets for fraud, so I wouldn't have even given the situation a second though except for something this old guy mentioned during the flight. He said, "In my experience, there's no such thing as 'luck'." It wasn't the fact that he hadn't held a job in over 20 years that struck me when he made this comment, it was the concept that luck simply didn't exist. Perhaps he meant everything happens for a reason or maybe all events that occur throughout the universe, even though they may seem random from one perspective, were caused by tangible (if not always rational) forces. Anyway, when they arrived at his destination, the place he was going wasn't there anymore – so he didn't have to pay the second portion of his agreement to the pilot.
My questions is, did this old guy KNOW something was up to be able to take advantage of this 80% discount? Perhaps there were other things he could see; other places, the future, the past, old friends long gone. Maybe that's why he struck a deal that initially seemed to be a disadvantage to him, but financially it worked out to be a sweet bargain.
[A coincidental side note: the pilot met his future wife on that trip and the poor old guy?... he kicked the bucket soon after the flight only to end up a ghost who haunts his friends probably to this day.]
My stock pick for this week is Apple (Nasdaq: AAPL) at roughly $385 / share.
Soon after Steve Jobs announced that he would be stepping down as CEO of Apple, I read someone describe it: "as if millions of voices suddenly cried out in terror and were suddenly silenced." When the market opened the next day, I half expected to find Apple's stock price totally blown away. Obviously the world didn't end, shares of Apple didn't plunge and allegedly Apple has more cash than the US government. But unlike the US government, Apple has no debt. Lately, when the US's most valuable corporation isn't Exxon (NYSE: XOM), it's Apple. This is the perfect type of company to hold on to while in the midst of a wild market. Steve hasn't left the company, he has only stepped down as the big chief (maybe he was unhappy with his salary). I cannot foresee Apple's destiny, but I can tell you that Steve Jobs is a visionary and everything he puts the letter "i" in front of, turns to gold. [more]
Has there ever been a dude who frequently shows up when you and your friends hang out, yet no one likes him? He never gets the subtle hints that he's unwelcome, yet you and your friends are too polite to straight-up explain to him that everyone thinks he's a total d-bag. This happened to me once, the guy must have been a friend of a friend because nobody seemed to like him. Behind his back we used to call him "Dorothy Downer" because he had a negative attitude about everything all the time. Anyway, one time my friends and I had just finished a huge project. We were really psyched because this project was totally unique and we thought it had the potential to be a real game changer. While we were congratulating our selves and talking up how awesome this technology we created was, in walked "Dorothy Downer". Upon seeing us all patting each other on the back, Dorothy said something to the effect of:
"Don't be too proud of this technological terror you've constructed"
What a buzz kill. And when one of my friends tried to tell old Dor'th (we sometimes called him "old Dor'th" for short) to stuff it, "Dorothy Downer" started to choke him. Seriously, who chokes people?
Despite Dorothy's negativity, we tested the project and it was a huge success and we received a lot of publicity as a result.
I was recently reminded about that feeling we had before Dorothy Downer killed the mood: knowing that we had a unique piece of technology that would give us the edge against our competition. What reminded me was the state-of-the-art process of creating urea ammonium nitrate from petroleum coke as opposed to doing so using natural gas. Petroleum coke is the solid, dry byproduct of refining oil and currently only one company in North America uses it to make their nitrogen fertilizer.
My stock pick for this week is CVR Partners (NYSE:UAN) at roughly $23.00 / share.
In April of this year, CVR Partners was spun off of CVR Energy (NYSE:CVI) - an oil refiner, which is where CVR Partners gets all their cheap petroleum coke. The facility that produces the ammonia and urea ammonium nitrate (UAN) fertilizers is located in Coffeeville, Kansas – not far from their customers: North American farmers. The company is currently working on a plant expansion that will increase production by 50% in 2013.
CVR partners is a Master Limited Partnership, so they're legally obligated to say things like "unit holder" and "distributions" when they're talking about "shareholders" and "dividends". But more importantly, to qualify for their special tax treatment, they have to pass most of their income on to unit holders. I'd buy CVR Partners just for their commitment to growth, the proximity to their customers and their massive cash distributions – but with a buy-and-hold strategy, I'm curious to see what happens when their competition has to raise fertilizer prices if natural gas were to get more expensive. [more]
Well, one month of blogging and four weeks of picks are in the books. I figured I should kick out a monthly summary in case someone doesn’t want to read my weekly posts but is otherwise curious as to what’s going on.
This is what I bought (the commission is factored into the price per share): [more]