apc

The second quarter is now behind us and for the most part it was a positive one in terms of the market pushing higher almost 40%. This is the second review of my 2009 stock picks through June 30 (see: Chasing Value: 9 picks for 2009 -- APC, GE, ISRG, WFC and more). There was a lot of talk about green shoots this past quarter as Wall Street was looking for any small bit of optimistic data to support the market.

The federal printing presses continued to run at full speed pushing the dollar lower and oil prices higher. While the feds were printing money to cover their deficits, the States do not have that same luxury and many of them are having trouble balancing their budgets to the tune of billions of dollars.

Some of you may have heard this before if you have been in the stock market for a long time: The cheapest place to find oil is on the floor of the New York Stock exchange!

With the price of oil moving up faster than the price of oil stocks, and the high cost of exploration and developing new sources, I have been surprised that there have not been any mergers or acquisitions by the major oil companies. I would think now would be a good time to add to their proven reserves with far less risk than looking for new sources.

It also seems to me that the risks associated with exploration and developing new product would be easier to absorb by larger entities.

Why does the market just go straight down whenever the oil futures go lower? TheStreet.com's Jim Cramer says.

A market driven by the price of oil -- good when it goes up and bad when it goes down -- is way too binary to profit from. Yet that's where we find ourselves and it is so counterintuitive as to be unnerving.

I think the fact that oil is struggling and failing to take out $60 is a good sign. The purchasing power of Americans is dependent upon jobs, expenses, psyche, interest rates and the stock market. We know that the stock market isn't our friend or our enemy, interest rates are still our friend, jobs are awful, and psyche seems like a push because the love for President Obama is still in the air.

Most investors know that it's an energy-intensive world, and even though the U.S. and global recessions have led to real declines in aggregate energy usage, don't look for that trend to continue.

Further, the Obama administration's admirable goal to create a more self-reliant, energy-independent nation and the impact of efforts to first limit, then eliminate global warming from fossil fuels opens the door to alternative energy source development.

But, as Saudi Arabia reminds us and the world, barring a breakthrough technology, fossil fuels will remain a major energy source for at least the next thirty to fifty years. In other words, the reign of oil has merely paused, not ended, which is why it's prudent to review Anadarko Petroleum (NYSE: APC).

Never mind the bears and bulls or even the pigs and chickens, I think between Wall Street and Washington D.C. the goofs and ghosts are leading the charge.

What I mean by this is that the rationale for certain market activity and advisement makes no sense to me. Maybe we are not recovering from the recession but we are moving into something like a shadow economy, where people look at what is going on in the market and rationalize it after the fact, when all the real energy is in the darkness.

Today American Eagle (NYSE: AEO) was upgraded to Overweight from Equal Weight at Barclays, and Lazard Capital Markets upgraded AEO from hold to buy. Why now, after the stock has run up 65% this year, do they finally wake up and think there might be something here?

After a nine-week stock market rally it is time to tally up the winners and losers. In a market where almost everything gained, there must eventually be separation between those that went with the flow and those that had something to show.

The financial stocks, with the help of the government, were able to show some positive earnings. The banks do raise the suspicion that this is a case of "managing the numbers".
The government has helped them along by "reshaping" some accounting rules and giving them advance warning (and leaking to the public) of the results of its stress testing. Until now, they have gone with the flow as the hardest hit stocks and rallied the most.

The 2009 clock is ticking loudly. Last December I posted Chasing Value: 9 picks for 2009 -- APC, GE, ISRG, WFC and more. This is the first follow-up, four months later, through April 30 2009.

The year started off with continued turbulence. We have a new president, Barack Obama, who will boldly lead us where no man has gone before -- trillions further in debt, most likely.

Not that this is his doing, but it is his chosen calling, and right now he is calling out to the Congress to move forward on various contentious budget proposals and continued federal stimulus packages.

Last night it was reported by Reuters, following up on an interview in the Financial Times (subscription required) that James Hackett, chairman and chief executive of independent oil and gas company Anadarko Petroleum (NYSE: APC) said, "Washington's energy and environmental policy risks plunging the United States into an economic tailspin that could make it the world's cleanest third world country."

Seems he is not partial to the global warming crowd as indicated by his statement that "The histrionic and maniacal focus on carbon dioxide is intellectually repugnant to me," but how does he really feel?

The 2009 clock is ticking loudly. The year has started off with a lot of continued turbulence. We have a new president, Barack Obama, who will boldly lead us where no man has gone before -- two trillion further in debt, most likely.

Not that this is his doing, but it is his chosen calling, and right now he is calling out to the Senate minority to compromise, and get yet another federal stimulus package off the shelf and out the door.

Here are some highlights from this past week's earnings coverage from BloggingStocks:

• Anadarko Petroleum Corp. (NYSE: APC) reported that its Q4 profit tripled but it fell short of estimates.
• Biogen Idec Inc. (NASDAQ: BIIB) met earnings estimates but it is getting more pressure from Carl Icahn.
• BP (NYSE: BP) surprised Wall Street with a multibillion dollar Q4 loss due to lower oil prices.
• Cisco Systems Inc. (NASDAQ: CSCO) beat Q2 estimates but warned that incoming orders have declined.
• Dick's Sporting Goods Inc. (NYSE: DKS) reaffirmed its previous Q4 guidance, which pleased investors.
• Estee Lauder Companies Inc. (NYSE: EL) topped Q2 earings estimates and it announced job cuts.
• Humana Inc. (NYSE: HUM) Q4 earnings fell on higher claim expenses and lower investment income.
• JDS Uniphase Corp. (NASDAQ: JDSU) adjusted earnings were in line with estimates but revenue fell.

There has been little to cheer about this earnings season, and even mediocre news has brought hope to some. However, today Anadarko Petroleum (NYSE: APC), one of my long time favorites, has reported that profits rose three-fold to $824 million, or $1.79 a share, versus $264 million, or 56 cents a share, from last year.

This result is in good part due to the sale of a Brazilian oil field and non-cash hedging gains related to derivatives.

Mattel (NYSE: MAT) reported that its fourth-quarter profit fell 46% to $176.4 million, or 49 cents a share, on sales of $1.94 billion from $2.19 billion as it was hurt by the stronger dollar and the weakest holiday season in decades. This was much lower than analyst estimates for the toymaker of 72 cents of profit on $2.2 billion of sales, according to Thomson Reuters. MAT shares declined over 18% in premarket trading.

Humana (NYSE: HUM) reported that its fourth-quarter net income fell 28% to $174.1 million, or $1.03 a share, on higher claim expenses, lower investment income, and a 12% income decline in its government segment business. Analysts polled by FactSet had expected fourth-quarter earnings of $1.07 a share. HUM shares declined nearly 4% in premarket trade.

Oil prices have come down over $100 a barrel in the last six months, and so have oil stocks. How many people out there would have lost their house, not due to the reasons we've become accustomed, but due to betting the wrong way on oil? How many out there thought oil would stay near $147 a barrel rather than drop to the mid $30s in six months? I admit I might have been one of those people. Oil is currently trading in the mid $40s.

I have been paying about $2 a gallon for premium gasoline in Southern California -- sometimes a little higher, sometimes a little lower -- but a far cry from the $4.85 I paid in the summer. I can't even believe my eyes or my wallet relief. Five dollar gas is but a memory. We should all keep that in mind because we all know it is coming back to a gas station near you. We just don't know when.

This week's cover story in Barron's, "Big Oil's a Buy" (subscription required), highlights seven companies with varying degrees of support. The author, Dimitra Defotis, discusses companies with depressed stock prices, which may go lower; and with: relatively solid dividends; the possibility that mergers and acquisitions might be on the horizon; and stock buy-backs options. The four key stocks Defotis likes are XOM, TOT, BP and PBR. For example, XOM was chosen because of superior management and stacks of cash; PBR because of its reserves. Defotis questions the debt levels and access to new reserves of COP and RDS.

Anybody have capital gains to show this year? I didn't think so. Not unless you were shorting the market, and in particular financials. I got clobbered with everyone else. There were not many places to hide. Picking winners was like guessing where each piece of debris would land after the tornado moved through town.

The average crystal ball is looking quite foggy about now, nevertheless I have rummaged throughout the stock market to select nine stocks that I think offer more reward than risk. The market is priced for the worst in so many cases that I think the list could have included 50 companies without too much trouble.

In 2007 and 2008 I owned some but not all of the picks for the year. This year I own all of the stocks and they were all acquired in the latter part of the fourth quarter for a new portfolio.

Two years ago I assembled a list of stocks for 2007 and last year I did the same for 2008. The first list remains ahead of the market while the latter did poorer than the market at last check. In both cases I owned many of the stocks. In putting together the 2009 list I am doing something different. I own all the stocks in a new portfolio aggregated in the last quarter of this year.

All of them have been written up already. I discussed this in Chasing Value: Annaly Capital Mgmt -- from watch list to buy and later in Chasing Value: Add General Electric to the list. Now I am adding four more stocks to the list which will be completed before the last trading day of this year. All of them have appeared in my Chasing Value column.

Anadarko Petroleum Corporation (NYSE: APC) and Diageo plc (NYSE: DEO) were discussed in Chasing Value: Oil & Booze -- Anadarko & Diageo.

For my view of Anglo American ADR (NASDAQ: AAUK) See: Chasing Value: Anglo American on sale and Chasing Value: Inflation protection with gold & platinum (AAUK).

I have written about Wells Fargo (NYSE: WFC) many times. In the first quarter I wrote Chasing Value: Wells Fargo may look like a steal in 12 months and most recently I wrote Chasing Value: Wells Fargo the pogo stick.