Special Situation Investing News - 7/30/2012
1) Lately I have been extolling the virtues of Philips 66 (PSX). essentially the special thesis here is that the company has so many hidden and undervalued assets in chemicals, pipelines, etc that when buying the stock one is getting its refining operations practically for free. As someone who traditionally has not been a big fan of the refining sector, this is music to my ears and I currently own PSX.
Lately it seems that more people are becoming bullish on refiners. Any value that can be wrung out of PSX's refining operations is icing on the cake for this thesis. Check out this blurb from Barclays that came out the other day:
Analyst, Paul Y. Cheng, said, "We believe the U.S. refining sector has been undergoing a major three-phase multi-year structural improvement, the return of a new golden age, which has not been fully reflected in the market. We think this new golden age will be more sustainable than the industry's last strong cycle from 2003 to 2007. In our opinion, the previous "golden age" was cyclical in nature, while this cycle is driven by structurally lower North American natural gas/oil prices compared to the international benchmarks."
Barclays on U.S. Independent Refiners: New Golden Age Emerging
2) Speaking of upgrades by analysts, a stock that I mentioned in this blog just yesterday, PetroLogistics (PDH), soared nearly 10% this afternoon on the back of an upgrade by Citigroup. Here's what Citi had to say:
“We upgrade Petrologistics to Buy based on our thesis that: 1) market propylene prices, which currently trade at a discount to Brent crude oil, will correct higher in the near term; 2) propane supplies remain ample due to shale gas fracking and higher propane prices have not yet affected the propylene market; and 3) we expect the propane-to-propylene spread to rise back above 30c/lb in 2013 on higher anticipated propylene prices.”
Upgrades PetroLogistics LP to Buy (PDH)
As I mentioned yesterday, any improvement in propylene would be excellent for this high yielder.
3) Here's what a super investor that I follow, Davie Einhorn, has to say about one of his recent purchases, Cigna (CI) (courtesy of gurufocus):
CI is a managed care company with three primary divisions: Cigna HealthCare, Cigna Group Disability and Life, and Cigna International. Cigna HealthCare, which comprises about 70% of CI's profits, offers medium and large companies traditional risk-based insurance, in addition to administering plans for those that prefer to self-insure. Cigna HealthCare recently bought HealthSpring to enter the fast-growing Medicare Advantage market. Cigna Group Disability and Life is a low-growth, stable business. Cigna International, which provides insurance policies for individuals, as well as insurance and administrative services for multinational companies and governments, is growing at more than 20% per year. We believe that CI deserves a higher multiple because the plan administration business is a service business that doesn't take risk, and the other divisions do not warrant discounted values. Our purchase price of $45.42 per share valued CI at less than 8x estimated 2012 EPS and approximately 6x our forecast of post Obamacare 2014 EPS. CI shares closed the quarter at $44.00 each.
David Einhorn On Cigna (CI)
Thanks for reading everyone. Have a great evening!