Housing – Watchlist Moving To Recovery Status

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KB Home (KBH) reported net income of $13.9 million or 18 cents per share in the fourth quarter of fiscal 2011 as opposed to $17.4 million or 23 cents per share in the year-ago quarter.

However, excluding inventory impairments and land option contract abandonment charges of $2.3 million (non-cash) and an income tax benefit of $2.5 million, adjusted net income came in at $13.7 million or 18 cents per share, much higher than the Zacks Consensus Estimate of a profit of 3 cents per share.

Total revenue increased 6% year over year to $479.9 million, mainly driven by a 6% rise in housing revenues to $475.7 million. The improvement in housing revenues reflected a 4% growth in the number of homes delivered to 1,995 homes and a 3% rise in average selling price to $238,400.

Net orders surged 38% to 1,494 homes from 1,085 homes a year ago. As a percentage of gross orders, the company’s cancellation rate was 34% in the quarter compared with 37% in the prior-year period.

The company’s backlog totaled 2,156 homes as of November 30, 2011, up 61% from 1,336 homes as of November 30, 2010. Potential housing revenues from backlog rose 74% to $459.0 million as of November 30, 2011 from $263.8 million as of November 30, 2010, primarily due to higher number of homes in backlog.

The company’s homebuilding business (including housing and land) posted an operating income of $0.80 million in the quarter compared with $29.1 million in the fourth quarter of fiscal 2010. The drastic deterioration was attributed to lower gross profit and higher selling, general and administrative (SG&A) expenses.

elling, general and administrative (SG&A) expenses shot up 36% to $75.6 million from $55.7 million a year ago. Though the company implemented cost-containment initiatives, it was mostly offset by the costs incurred in delivering a higher number of homes, increased marketing expenses to support new community openings and higher legal expenses.

The Financial Services business, which includes KB Home’s equity interest in an unconsolidated mortgage banking joint venture, registered a 35% rise in revenues to $4.1 million. The segment reported pre-tax income of $22.8 million in the quarter, including a gain of $19.8 million related to the company’s unconsolidated mortgage banking joint venture.

Excluding the gain, adjusted pre-tax income of the segment amounted to $3.0 million compared with $3.6 million in the year-earlier quarter.

The reduction in pre-tax income was credited to lower equity income from the company’s unconsolidated joint venture. The decrease in equity income was the result of lower mortgage loan originations and lower profits per loan.

KB Home had cash, cash equivalents and restricted cash of $479.5 million and total debt of $1.58 billion as of November 30, 2011. Inventories slightly rose to $1.73 billion as of November 30, 2011 from $1.70 billion as of November 30, 2010.

Fiscal Year Summary

KB Home realized an adjusted net loss of $90.7 million or $1.18 per share compared with an adjusted loss of $12.9 million or 17 cents per share. However, loss per share in fiscal 2011 was much narrower than the Zacks Consensus Estimate of $2.45 per share.

Total revenue declined 17% to $1.32 billion mainly due to lower housing revenues. Housing revenues dipped 17% to $1.31 billion, driven by a decrease of 21% in home deliveries to 5,812 units, partially offset by a 5% increase in average selling price to $224,600.

Our Take

A depressed housing industry is the biggest concern for any homebuilder including KB Home. Besides, there is no sign of a speedy recovery. Moreover, KB Home’s high dependency on certain markets like the Central U.S. (Colorado and Texas) and the West Coast (California) makes it heavily exposed to market fluctuations as compared to other homebuilders like Lennar Corp. (LEN) or DR Horton Inc. (DHI).

However, KB Home’s efforts to improve its business are worth mentioning. To cope with the current housing situation, KB Home has started redesigning and upgrading its existing product lines. Measures include building smaller homes, reducing cycle times, lowering production costs through the adoption of cost minimizing and efficiency maximizing construction techniques.

To this has added a strong balance sheet. KB Home has no significant debt maturities for the next three to four years, implying the availability of liquidity to capitalize on potential growth opportunities.

 

Gold Production – Two On The Go For More Gold

Yamana Gold

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It isn’t just that these companies are gold producers – but their production is increasing and they have a relatively low cost of production.

Production is measured in ” gold equivalent units” –  geo.

The AMP Gold Watchlist ( as detailed in the newest edition) selects Yamana as a smaller cap pick. Here is a brief summary on it and elorado Gold.

The AMP Richardson/ Bass Quant continues to see gold going above $1800 giving more room to run for these Canadian  producers.

 Yamana Gold (AUY) – Yamana provided 2011 operating results printing 1.1 gold equivalent ounces (GEO) of production at cash cost, net of byproducts, of $50 per geo.

2012 production is expected to be in the range of 1.2 to 1.3 million geo as Mercedes ramps up production and the Minera Florida expansion is completed this quarter.

Yamana remains on track to deliver 1.75 geo of production by 2014 and raised the dividend twice in 2011 to five cents per share giving the stock a respectable yield of 1.2%.

 Eldorado Gold (EGO) – Eldorado Gold recently made headlines by acquiring European Goldfields in a transaction valued at C$2.5 billion dollars creating the top Balkan gold producer with operations stretching from Romania through Greece to Turkey in addition to an Iron Ore mine in Brazil and operations in China.

2011 Operating Results showed 659,314 ounces of gold production at a solid cash cost of $405 per ounce. Eldorado will be paying a dividend of nine Canadian cents per share.

The European Goldfields acquisition will allow for production growth enabling Eldorado to produce 1.5 million ounces of gold by 2015.

The new Apprentice Millionaire Portfolio 2012 is available now at www.amazon.com

Makin ‘ Bakken – Arbitrage Potential

PetroBakken Energy

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Petrobank Energy* (PBG : TSX : $14.48), Net Change: 0.23, % Change: 1.61%, Volume: 1,181,413

 

PetroBakken Energy* (PBN : TSX : $15.28), Net Change: 0.03, % Change: 0.20%, Volume: 1,378,243

 

 BARRON’S

Potential of Petrobank to spin off PetroBakken

“The Trader” column reported over the weekend that Petrobank’s 59% stake in PetroBakken is valued at $1.7 billion and is worth more than the $1.5 billion total market cap of Petrobank itself. Petrobank has less than $60 million of its own debt so, the company’s enterprise value isn’t materially higher than its market cap.

A sizable chunk of Petrobank’s operating budget comes from the dividends paid by PetroBakken – Petrobank receives roughly $50 million in cash dividends from PetroBakken annually. Talk of the PetroBakken spin-out comes after a several weeks of PetroBakken getting its “house” in order by successfully executing on a number of steps to improve its balance sheet and liquidity. Several Bay Street analysts peg Petrobank, ex-its PetroBakken stake, to be worth anywhere from $2 to $5 per share.

According to Barron’s, “Theoretically, in a tax-free spinoff, the Petrobank holder would get roughly one share of PetroBakken – now worth $15.25 each – plus a stub share in Petrobank’s remaining businesses, for a total of $17.25-20.25 per share.” Petrobank is no stranger to spinning assets off.

On December 31, 2010, completed the spin out its ownership interest in Petrominerales to shareholders. Tax efficiency will be key to any potential spin off.

 

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Apple Jobs Aren’t Coming Back To America

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APPLES From China

The New York Times recently published an article entitled

“How the U.S. Lost Out on iPhone Work” and it  talks about how when  President Obama Valley-types for dinner last February, each guest was asked to come with a question for the President.

 The Times reports that Obama actually interrupted Steve Jobs  with a question ;

” What would it take to make iPhones in the United States?” Apparently, according to those at the dinner, Mr. Jobs reply was unambiguous. 

“Those jobs aren’t coming back.” 

In the article they describe the benefit of the massive dormitories and production facilities in China. They write, “Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp manufacturing just weeks before the I Phone device was due on shelves.

 Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight. A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.” ( or the wages )

AAPL is atop pick in the AMP Tech Watchlist – now available in the new Apprentice Millionaire Portfolio 2012 from amazon.com

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Bragging rights

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January 31

Hyperion Exploration ( HYX on Vancouver ) – the spec pick in the energy watchlist of the new edition of Apprentice Millionaire Portfolio  trading this morning at $1.11 was selected six months ago at .75

Trading volume two weeks ago was often less than 50,000 a day.

This morning the volume in15 minutes is 224,000

The Company has been adding oil volume and it is likely -in my less than humble opinion that good news is known to the ” inside crowd ”  – as reflected in the volume and recent price movements.

Second possibility is another aquisition .

The ebook is available at amazon.com

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Forest Oil – Watch For THE OIL Production – then Buy

 The e-book Apprentice Millionaire Portfolio 2012 is now available from Amazon.com
Data source Gas Gross Withdrawals and Production''
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Thesis: The ability to come in and ramp up production by spending heavily on drilling and infrastructure is what allows for the economics to work well. Substantial crude production is coming, just not yet.

Forest Oil continues to spend big dollars to produce too much natural gas – ” shooting themselves in the foot ” as I have said for the other producers like CHK.

Forest does have big league oil shale acreage positions with 118,000 acres in the Eagle Ford and 51,000 acres in the Wolfcamp. Forest intends to work hard on the science in these two plays . The Eagle Ford is further along than the Wolfcamp in this respect, but the company still needs to crack the code in the Eagle Ford and get IPs higher. Further, Forest is open to joint venture the Eagle Ford which would provide the needed capital to ramp up development. Forest Oil’s excellent oil properties can be described as immature in getting development roaring.

Third quarter 2011 results were a seven well IP average of 15MMcfe/d of which 45% was liquids. These results are strong However, natural gas is . Hthe majority and liquids command half the price of crude oil. with Apache’s announced purchase of Cordillera the value of this asset in Forest with the stock responding by rising 6%.

In the Haynesville Forest has 169,000 acres. In a surprise move last fall Forest moved one rig here. The idea behind resuming drilling is the production results being so strong from the restricted rate program from 2010. Perhaps the capital efficient capex helps to inflate production numbers, but the economics were skinny last fall. With the continued deterioration in natural gas pricing the program must be uneconomic.

Forest Oil has a depressed stock price, down some 65% from the 52 week high. Perhaps the chief reason is the manner in which Forest did a crazy IPO and dividend of Lone Pine Resources (LPR) in 2011. Forest’s large asset base does have a high debt load, though expect them to grow into the debt nicely without any solvency concern and no worrisome debt maturities until the end of this decade.

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Green Mountain Is Red Hot And Starbucks Green

Green Mountain Coffee Roasters

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Apprentice Millionaire Portfolio 2012  e-book is now available at amazon.com

 

Green Mountain (GMCR : NASDAQ : US$52.52)
Starbucks (SBUX) reported its fiscal Q1/2012 earnings on Thursday and the company credited its successful roll-out of Green Mountain Coffee Roasters’ K-cups as a major driver of its 72% growth in the consumer
product group (CPG) and reported its K-cup success is running ahead of plan. Starbucks shipped over 100 million K-cup in only
two months since their introduction on November 1, and noted that the shipments were not representative of simple pipeline fill.
Starbucks noted that Green Mountain has met expectations in terms of providing initial capacity, but that supply constraints remain. During calendar Q1, Starbucks branded K-cups will be rolled out into the Canadian CPG channel and the newly introduced blonde blend will be available in the K-cup format by the middle of the quarter.

Green Mountain shares sold off on Thursday after reports that Wal-Mart (WMT) would introduce a lower-end single-serve beverage system from Esio at some point this spring. The current Esio beverage system offers both hot and cold beverages by mixing concentrates with water.
The product has broad applications well beyond just coffee, but Canaccord Genuity Consumer Products Analyst Scott Van Winkle don’t see it as competition for the core coffee consumer and thinks it shouldn’t be considered a risk for Keurig’s prominence.

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Watch Nat Gas – DO NOT BUY

Chesapeake Energy

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The New Edition – Apprentice Millionaire Portfolio 2012 e-book is now available at  www.amazon.com

Thesis : Producers have ” shot themselves in the foot ” and only now are planning to produce less – too early to buy into a recovery in the sector – this is why we have a Watchlist .

The very steep recent selloff in natural gas can certainly be blamed on an extremely warm winter across all of North America. The longer term natural gas doldrums can obviously be blamed on the surge in natural gas supply from shale gas.

Here are the steps that Chesapeake is taking:

First, Chesapeake plans to further reduce its operated dry gas drilling activity by 50% to approximately 24 rigs by the 2012 second quarter from 47 dry gas rigs currently in use and by 67% from an average of approximately 75 dry gas rigs used during 2011.

Second, the company plans to immediately curtail approximately 0.5 billion cubic feet (BCF) per day, or 8%, of its current operated gross gas production of 6.3 bcf per day, which is about 9% of the nation’s natural gas production. If conditions warrant, the company is prepared to double this production curtailment to as much as 1.0 bcf per day

Third ,Chesapeake plans to defer completions of dry gas wells that have been drilled but not yet completed, and also plans to defer pipeline connections of dry gas wells that have already been completed.

Fourth, the company intends to reallocate the capital savings from reduced dry gas drilling, well completion and pipeline connection activities to its liquids-rich plays that offer superior returns in the current strong liquids price environment.

Fifth, Chesapeake plans to further reduce its undeveloped leasehold expenditures, the majority of which have been focused on liquids-rich plays during the past three years. The company is now targeting to invest approximately $1.4 billion in undeveloped leasehold expenditures in 2012 (net of joint venture partner reimbursements), of which approximately 90% will target liquids-rich plays and 100% will be in plays where the company is already active.

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Starbucks Makes Bucks

Original brown logo, used from 1971–1987.

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Thesis : Pay for your latte with the market profits.

I have just read ” Onward ” . This is the second book by Howard Shultz , the CEO who returned in the dark days to take Starbucks out of its lethargy and return to its roots of personal service and innovation . The market only cares about the money – but the money is flowing like latte.

Starbucks (SBUX) that reported record fourth quarter results on Thursday afternoon. Earnings came in at $0.50 per share, an increase of 11% over the comparable quarter a year ago. Revenues came in at $3.45 billion, a 16% increase over the 14-week period in the 2011 fiscal year. This comfortably beat analyst estimates on both the bottom and top lines.

Starbucks has been riding the baby boomer trend in the 1990s that created the need for a “third place,” an “affordable luxury” where people could share and enjoy a cup of coffee with friends and colleagues, away from work and home. The chain has inserted itself into the American urban landscape more quickly and craftily than any retail company in history, and has forever changed the way Western companies market themselves to consumers.

Starbuck’s stock has been a highflier, gaining 60% in the last year alone, compared to a 30% gain of its closest competitor, McDonald’s (MCD).

  1. Market segmentation: The company has stayed with the upper-scale of the coffee market, competing on comfort rather than convenience, as is the case with its closest competitors, McDonald’s and Dunkin Donuts .
  2. Execution: The company continues to focus on its original product bundle that includes good coffee, quality services, and a nice environment to hang around.
  3. Leadership: as noted in the introduction
  4. China Expansion: Starbucks “third place.” Last year, Starbucks opened 500 new stores in China, bringing the total to 1500.www.jackbassteam.com

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Bank of America – Return To Glory Days ?

Barchart Hysteria

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Thesis on B of A

 So many have plunged in too soon – Factors To Consider :

Barchart technical indicators:

  • 80% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20, 50 and 100 day moving averages
  • 13 new highs and up 31.93% in just the last month
  • Relative Strength Index 68.53%
  • Barchart computes a technical support level at 7.11
  • Recently traded at 7.24 with a 50 day moving average of 5.92

Fundamental factors:

  • 24 Wall Street brokerage firms have assigned 29 analysts to monitor the bank’s numbers
  • Although analysts predict revenue will still decrease by .70% this year they predict an increase of 3.60% next year
  • Earnings estimates are an increase of 7,200% this year (looks big but coming off a loss), an additional increase of 53.40% next year and wind up with an annual increase of 15.50% over the next 5 years
  • These consensus numbers result in 5 strong buy, 8 buy, 15 hold and 1 under perform recommendations to their clients
  • Analysts predict that if their projection of increases in revenue, earnings and P/E are met then investors at this point could see an annual total return of 23% – 27% over the next 5 years
  • The bank is still in a cost cutting mode and rebalancing its revenue business plan
  • General investor interest:
    • I still read the opinions of the readers of Motley Fool to gauge the individual investor. Their opinions are very mixed, some have been burned and others have had faith and held on through it all.
    • I note that the investors who have made money have been short sellers
    • 10,931 readers have voted 88% that the stock will beat the market
    • The more savvy All Stars voted a similar 87% for the same result
    • About 92% of the articles about the bank’s prospects have been positive
  • The New Edition Apprentice Millionaire Portfolio 2012 is available as an e-book at www.amazon.com

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Twitter @jack25bc

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