China – Update On The Economy

Energy and mineral resources

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China and  Commodities – what IS Happening ?

China Concerns Are  Overblown.

While speaking at the BMO Global Metals and Mining Conference in Florida, Teck Resources CEO Don Lindsay stated that he believes that concerns about a slowdown in the Chinese economy are overblown. “We are often asked about our view of the Chinese economy and whether we expect a hard landing or a soft landing. Judging by the recent economic data and the Chinese government‘s recent actions on bank reserve ratios, we think neither will occur,” Lindsay said.

Teck is a large exporter of multiple commodities to China, including coking coal, copper and zinc. Lindsay highlighted on Monday, “Keep in mind that this is a policy-driven slowdown. They want to slow down and they are targeting GDP growth in the 7% range. In absolute terms though, this is still more growth than five years ago, when the percentages were 10 or 12% on a smaller economic base.”

He added that, “Fixed-asset investment is still strong and we continue to see the growth of the consumer economy in China with strong retail sales growth. So no, we don’t see any landing, we see managed growth at a somewhat lower trajectory.”

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iPad 3 – Now On Display – only for some – Apple Friends

English: Apple iPad Event

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Apple ( AAPL) AMP Watchlist BUY  Target Price $700 plus – has invited a special few to a showing of the newest tablet model. 

Apple fans and the Big Bang set can only speculate on what features will be added to fight the Kindle Fire and other competitors.

Best Buy cut the price of Apple’s iPad 2 by $50, ahead of what many expect will be the launch of the iPad 3. The price drops -(feature on Best Buy’s web site) were introduced this past weekend, with the
Wi-Fi-only iPad 2 now priced at $449.99 and the 64 GB iPad 2 with 3G coming in at $779.99.

Neither company commented on the price cut, but techies across the internet are speculating that this is a sign that the iPad 3 will be hitting store shelves in the near future.

While Apple has not provided any details of what the iPad 3 could look like, many have made their best guess about what new features could be available. Some believe it will boast resolution that doubles the first two generations of the iPad.

Another rumour is that the iPad 3 will be compatible with 4G LTE networks provided by AT&T (T), Verizon (VZ) and Sprint (S), an upgrade from previous offerings that were limited to 3G network speeds.

The initial iPad was unveiled on January 27, 2010 and was in
stores by April 3, 2010 while the iPad 2 was introduced on March 2, 2011 by Steve Jobs before becoming available March 11, 2011, hinting at an annual release schedule.

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Qualcomm Analyst Event – BUY

qualcomm logo

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QUALCOMM  QCOM : NASDAQ : US$63.44 Target US$75.00

THESIS:Qualcomm’s analyst event  announcements made at MWC support our thesis that Qualcomm has a strong product roadmap to capture market share during C2012.

Qualcomm is well positioned to post strong earnings growth during F2012 and F2013 due to stable royalty rates, strong connected tablet and smartphone sales, increasing market share for integrated chipsets, and accelerating 3G device sales in emerging markets. rating and $75 price target.


Qualcomm updated its product portfolio of 28nm single-, dual-, and quad-core Snapdragon processors this morning at MWC with the announcement of the S4 Pro series, offering roughly 4x graphics performance with the Adreno 320 GPU, and new modem chipsets with third-generation LTE and LTE-Advanced support.

With Qualcomm’s leading modem technology and integration leadership, combined with its Atheros portfolio and strong 802.11ac offering, Qualcomm should expand its industry-leading smartphone market share while also increasing its content share and expanding into new market opportunities.

While QCT is currently at high levels of investing, we anticipate expanding operating margins longer term with the move to 28nm, increasing mix of LTE,and improving returns on its current heavy investments in new growth opportunities such as Windows.

We believe Qualcomm’s near-term trends remain positive due to strong sales of iPhone 4S and continued momentum for Qualcomm’s integrated Snapdragon solutions for smartphones, leveraging Qualcomm’s integrated MSMs in emerging markets (as evidenced by Huawei’s plans to ship 60M smartphones in 2012 versus 20M in 2011).

Finally, with leading handset OEMs announcing an increasing portfolio of LTE smartphones, we believe this will drive strong QCT ASPs and market share gains and also drive strong QTL results.

Valuation Our $75 price target is based on shares trading at roughly 18x our F2013 pro forma EPS estimate.

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Hyperion Exploration ( HYX) Jumps


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Event : Exploration and takeover  potential has finally attracted some attention to this producer. Cannacord has given HYX several updates to its clients which no doubt accounts for some of the increased volume – a million shares Tuesday from a stock that often had no shares trading a month ago.

Hyperion rallied after Garrington peer Midway Energy (MEL) agreed to a friendly takeover from Whitecap Resources (WCP).

HYX recently released its 2012 budget, which estimates average production of 1,600-1,700 BOE/d and exit rates of 1,800-2,000 BOE/d based on a $43-million capital program. The program is to include 14
gross (9.94) net wells of which 9 (5.75 net) are planned in Q1. Two of these wells are currently being completed, three rigs are
currently drilling (one non-operated) and a fourth will be in the field imminently. The program will include the following wells
by area, with all of them targeting light oil in either the Cardium (12 gross/7.94 net) or the Glauconite (2 gross/2 net). The
Glauconite activity at Garrington will be a new play for HYX but an old one relative to the numerous offsetting vertical producers to HYX’s acreage.

The company cites potential IP30 rates of 400 BOE/d and well EURs of 500,000 BOE, which would be excellent (providing the company its highest ROR at a forecast 80%), though until drilled we have yet to credit any significant volumes as there is inherently more risk in the play.
Analysts would note that the three closest vertical producers (which are located on HYX land, just not land where HYX has the Glauc
rights) came on in the mid-1970s and have individually produced 14,564 Bbls, 44,123 Bbls and 174,797 Bbls, respectively.

The company will have half a dozen potentially catalytic net wells drilled in Q1/12.

Valuation, HYX is currently trading at a low 4.0x EV/DACF multiple and $56,225 per BOE/d (2012E), both below the junior peers average of 6.4x and
$59,846 per BOE/d, despite HYX having a 65%-plus oil weighting.

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Gran Tierra Energy – Drilling In South America ( Oil of Ole)

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Gran Tierra Energy Inc. 
GTE : TSX : C$6.03  Buy , Target C$9.00

THESIS:  Gran Tierra has diversified
from a one-block focus in Colombia to a diversified asset base with opportunities across Colombia, Argentina, Peru, and Brazil.
• Q4/11 results in line:

Gran Tierra reported

Average quarterly production of 18,522 bbl/d,
 Cash flow was reported at $91 million,
representing a 25% increase over Q3/11 cash flow of $73 million due to a 6%
increase in realized oil prices, and an improvement in q/q operating costs.
Ramiriqui1 test results near term: Llanos-22 is located in Colombia’s high impact foothills region and adjacent to the prolific Cusiana/Cupiagua fields, which have produced over 1.2 billion barrels of light oil to date. With 130 feet of gross thickness indicated by logs at Ramiriqui-1, successful flow tests could potentially represent a relatively important catalyst for the company.
Brazil: Gran Tierra announced that it will not enter
the second exploration period of Block BM-CAL-10 with Statoil. –
removed risked exploration
Proven plus Probable (2P) reserves value of C$4.92/share, plus C$3.85/share for the risked exploration upside potential
Gran Tierra has reservoir risk associated with producing reservoirs, and
exploration risk associated with drilling in Colombia, Peru, and Brazil

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Buffett’s Mistakes – Housing , Natural Gas and

President Barack Obama and Warren Buffett in t...

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 THESIS: We can all learn from success and from failure . The only real failure is in not learning from our mistakes.

Hear are some lessons learned by Warren Buffett – cited in the latest Berkshire letter ( referred to in recent posts in this market letter ):

Mistake #1. A few years back, I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake – a big mistake. In large measure, the company’s prospects were tied to the price of natural gas, which tanked shortly after our purchase and remains depressed…I totally miscalculated the gain/loss probabilities when I purchased the bonds.

In tennis parlance, this was a major unforced error by your chairman.

Mistake #2. Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead wrong.

We have five businesses whose results are significantly influenced by housing activity…Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies)…People may postpone hitching up during uncertain times, but eventually hormones take over.

And while “doubling-up” may be the initial reaction of some during a recession, living with inlaws can quickly lose its allure.

Meanwhile, Buffett continues NOT to like gold.

He writes this, “Gold, however, has two significant shortcomings,being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

“In God We Trust” may be imprinted on our currency, but the hand that activates our government’s printing press has been all too human.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See’s peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce. Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens.

Metaphorically, these commercial “cows” will live for centuries and give ever greater quantities of “milk” to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk.”

Buffett On share Repurchases:

“[We] favor repurchases when two

conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second,

its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated. We have

witnessed many bouts of repurchasing that failed our second test. Sometimes, of course, infractions – even serious ones – are

innocent; many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted. It

doesn’t suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company

has excess cash. Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another.”

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Lowes Companies – shows home and economy improvement

Lowe's at Aramingo Crossings3

Lowes Companies (LOW : NYSE : US$27.34 0.6

The second-largest U.S. home-improvement retailer reported fourth-quarter profit that beat analysts’ estimates on Monday, after warmer weather encouraged outdoor projects.

 Net income in the quarter ended February 3 rose 13% to $322 million, as same-store sales grew by 3.4%. Gross margin weakened to 34.2% from 35.6% in the period, although margin of overhead costs to sales improved to 74.1% from 73.6%.

Analysts note CEO Robert Niblock has equipped employees with iPhones and added online merchandise to catch up to larger rival Home Depot’s (HD)

. Lowe’s also benefited from the fourth-warmest January on record and a drop in the unemployment rate to a three-year low last month. The company is in the early stages of reviewing all its product lines, which so far has reduced both costs and product units per store while increasing offerings available online.

 Lowe’s also expects an increase of higher-margin private branded products in its mix this year.


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House Builders – Tempting Me On

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Thesis: The potential is so great – but they used to say the same thing about me. The potential for profits is why the Apprentice Millionaire Portfolio has Watchlists – the stocks to watch across all sectors.

Consider the optimistic outlook for 2012 that Lennar‘s management recently expressed:

So 2 days ago on CNBC, Jamie Dimon of JPMorgan highlighted that he believed that housing was at or nearing the bottom of this downturn, and I believe he’s correct. I previewed in our third quarter conference call 3 months ago that we were beginning to see evidence of a genuine turn in residential and the residential housing market, and that this could be a harbinger of market stability. Last quarter, I was not ready to conclude that a real trend had been identified. This quarter, I’m feeling somewhat more confident that the market is, in fact, changing.

As I noted earlier, we have just completed our 2-day review of all of operating divisions across the country. We’ve looked back at our 2011 results, and we’ve looked ahead to 2012 expectations. The consistent message is that the general environment is different this year than it has been in the past. There are discernible fundamental shifts appearing in the home market, and there are empirical compliments that are to date confirmatory that the market is showing signs of stability.

Lennar is the third biggest domestic home builderand I anticipate that it will more than double the homes sold to around 25K in 2014 – this being only half that achieved at the 2005 peak. Management has done a terrific job slashing building costs by one-third to $40 per square foot. With operations in just 14 states and comfortable financial shape, Lennar

also has strong room for domestic, let alone international, expansion. The company also maintains a distressed real estate investment business, Rialto. Investors should recall that the last business of this kind that Lennar operated was eventually acquired for $4.2B in 2005 after being spun off.

Consensus estimates for Lennar’s EPS forecast that it will grow by 60.4% to $0.77 in 2012 and then by 70.1% and 41.2% in the following two years. Assuming a multiple of 20x and a conservative 2013 EPS of $1.29, the rough intrinsic value o the stock is $25.80, implying 15.3% upside.

KB Home has made progress in its own rights. The company’s liquidity, especially in light of litigation, was previously a major headwind to value creation. Having exited 2011 with $480M in cash – even after making a payment more than half that amount to resolve the South Edge Complaint – and issued $350M worth of debt financing, the company has improved its capital position. As we advance into the spring season inflection point, KB Home is carrying forward momentum from a backlog y-o-y gain of 74%. As selling prices improve while SG&A is trimmed, KB Home is further well positioned to improve margins.

Consensus estimates for KB Home’s EPS forecast that it will improve to -$0.35 in 2012, turn positive at $0.38 in 2013, and then soar to $1.07 thereafter.

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Posiden Adventure – Attracting Attention


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Poseidon Concepts* (PSN : TSX : $16.44

Poseidon Concepts has been a stellar performer since its spin-out from Open Range Energy (ONR)

A Bay Street analyst recently issued a bullish note saying he believes the outperformance of the shares will continue. Central to their argument is the fact that an increasing portion of the company’s fleet is dedicated to long-term storage, which suggests that day rates may be higher for longer, utilization may be higher and the market may be larger than their initial 5,000 tank estimate.

 The analyst also noted that 60% of the company’s current fleet is under long-term contracts, with 70% of PSN’s pending tank growth also under long-term contract. This further reinforced the analysts view that day rates will be higher for longer.

The research note also highlights a looming regulatory shift that may see environmental agencies begin to curtail the use of inground open pits for well site fluid storage. This would also be very beneficial for PSN, as their products are able to easily handle the large amounts of fluid used in fracing and completion services. PSN’s current 240 tank fleet represents approximately 5% of the 5,000 tank total market.

The analyst ended his note by saying that “The growing size of the market combined with the limited competition the company has experienced to date gives us increased confidence with PSN’s revenue and margins over the coming periods.” PSN currently has a 6.5% dividend yield.

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Giant Exxon May Boost Little Sterling Resources ( SLG)

English: To create this SVG-format logo, I too...

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Kevin Shaw of Casimir Capital published , “Game-Changing Discovery By Exxon

Discovery by Exxon/OMV Shows Up to 3.0 TCF OGIP

Nearby SLG’s Midia XV Block & Sets the Stage for High- impact Drills at Ioana and Eugenia”.

He writes, “Latest discovery by Exxon/OMV bodes well   for SLG’s Midia and Pelican Blocks: In what could be one of  the Black Sea’s largest offshore gas discoveries to date, OMV has provided an update on the recently drilled Domino- 1 exploration well, with an estimated 1.5 to 3 tcf of gas in-place. Located in the Neptun Block, the Domino-1 resides ~170 km offshore and nearly 1 km deep.

The 70.7m net gas pay discovery will undergo further seismic prior to a final determination of commerciality.

With Sterling’s Ioana and Anca prospects only ~30 to 50 km away, and in much shallower waters, this discovery sets the stage for exploration in the Midia XV and Pelican XII blocks. SLG is moving ahead with offshore Romanian highimpact wells targeting Ioana and Eugenia in the Q2 to Q3 2012 timeframe.

 We estimate Ioana at Midia XV having 109.2 mmboe recoverable, valued up to $2.25/sh on a successful prove-up ($0.67/sh risked) with Eugenia at the Pelican XIII worth up to $2.30/sh on success ($0.23/sh risked).

With upcoming catalysts for Cladhan South Channel Exploration, and Breagh production expected around July ‘12, alongside ’12 Romanian drilling, we see Sterling as an attractive proposition at current levels.

Following the recent contracting of a semi-submersible drilling rig, Sterling expects to kick start explor’n in Cladhan’s Southern Channel in March. Beyond Cladhan’s already commercial area, the first explor’n well in the southern channels could prove-up further material resource pot’l.

Breagh phase one is expected to begin production in July 2012, bringing on ~27.7 mmboe of 2P reserves.


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