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A Shell Game

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July 07, 2007 – Comments (2)

Yesterday, Royal Dutch Shell Group (NYSE: RDS-A) closed at $85.18. Also yesterday, Shell Transport and Trading, Inc. (NYSE: RDS-B) closed at $87.20.

The reason these two Royal Dutch stocks have been on such an upward trend is because it was reported last week that Royal Dutch and BP PLC (NYSE: BP) are in merger talks.

One of my personal pet peeves about Royal Dutch was the number of shares they had outstanding, at one time in the billions. Over the past year, the company has been actively purchasing shares for retirement.

What I thought was odd about all of this was that the markets have set the pricing for Royal Dutch shares as noted above, but the company thinks its shares are only worth about $41.

And how do I know this. Because the company has been paying on average, slightly less than 30 Euros (1.375 euros to the dollar) per share for the shares they plan to retire.

So if the company thinks the value of its stock is $41, why would anyone want to pay $85 for the same stock?

Things that make you go hmmmmmmmm.

Wax 

 

 

 

2 Comments – Post Your Own

#1) On July 10, 2007 at 5:21 PM, SammyG77 (66.90) wrote:

Wax,

I am looking at the following companies in order and would like your opinion

 

1) WDC-$21.20 PPS, PE-9, PEG-0.91.  I have a DCF of $52-$56 PPS at a 12% discount.  I believe this market will continue to grow and I like WDC distribution channels through COSTCO and Best Buy.

2)LNCR-($39.92 PPS, PE-17, PEG-0.98).  This company seems to print money, and has gone through an expansion era over the last few years, but I don't like the fact that MEDICARE is the primary bill payer.  What I do like, is the fact they seem to be more of a distribution company than a health care provider, and we all know most of the money is in distribution.

3) BJS-profitbable high-growth-high risk company.  If oil gets cheaper or there is a poltical unrest in S. America could be trouble. 

4) JAKK-Good value move, but litigation fears have struck down the share price. 

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#2) On July 11, 2007 at 7:11 AM, wax (97.14) wrote:

Sammy;

While I'm not really smart enough to have an opinion, I'm always happy to share what I do have.

A few years ago I thought owning a toy manufacturer would be a good thing. Folks were waiting longer before having kids, which meant that they had more disposable income available. JAKKS Pacific was the company I settled on. The problem was the price never got low enough to make an investment worth my risk.

I have them on my watch list with a reasonable value of about $66. I have an initial buy target of $33, a first sell target of $65 and a close at target of $71. The stock closed yesterday at $28.79 with overhead resistance at $29.04, first support at $26.33, and second support at $22.98, leaving the stock with a 1% upside, and downside anywhere between 8.5% and 20%.

BJ Services is also on my watch list with a reasonable value of $60. I have buy target of $30, a first sell target of $60, and close target of $65. The stock closed yesterday at $28.30 with overhead resistance first at $29.16, again at $29.20, and a support at $25.55, leaving the stock with an upside of about 3% and a downside of almost 10%.

While conflict in oil producing countries, or just a general pull back in the price of oil would initially not be good for stock, the company has a very clean balance sheet with debt of about $2 a share, something easily manageable in the event of an oil field slow down.

Lincare Holdings is in the home oxygen business. My source of wonder with this company is how long before the government and private insurance companies "pull the plug" so to speak on paying for this service.

Regardless, I have them on my watch list with a reasonable value of $56, a buy target of $28, a first sell target of $55, and a close target at $60. The stock closed yesterday at $39.86 with overhead resistance at $41.91, first support at $39.45, and second support at $38.11, leaving the stock with an upside of about 5% and downside anywhere between 1% and 5%.

The company as you noted may indeed print money, but if that's the case, I would have expected their free cash flow to be higher than $1.60 a share.

Hard drive/data storage maker Western Digital is, in my opinion, simply the best at what they do, with sound fundamental management and a balanced approach to product development. I have them on my watch list with a reasonable value of $31, a buy target of $15.50, a first sell target of $30 and a close target of $33. The stock closed yesterday at $20.98 with overhead resistance at $21.70, first support at $18.89, and second support at $18.86, leaving the stock with an upside of about 3.5% and a downside risk about 10%.

Hope this helps...

Wax

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