Article by Investment U
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In focus today: Canada’s oil is bypassing the U.S., underestimated industries, a tech play other than Apple (Nasdaq: AAPL), and the SITFA (in fact we have several quick SITFAs today)
Seagate Technology (Nasdaq: STX) is undervalued, shareholder-friendly, dominant, and boasts a big dividend. Could it be the best tech play outside of Apple (Nasdaq: AAPL)?
Almost all of Canada’s crude oil is exported to the U.S., for now anyway, but that’s going to change as soon as 2017.
In 2011, just 1.65% of Canada’s crude was exported to countries other than the U.S., but Kinder Morgan has initiated a $5-billion pipeline project that’ll redirect Canadian oil to the West Coast for export to Asia.
According to the Journal, this decision was accelerated by Obama’s decision to shelf the Keystone pipeline project that would have sent the crude south to the U.S.
This new pipeline will increase the amount of oil piped to the West Coast of Canada from 300,000 barrels per day to almost 850,000 per day, and since, according to the Journal article, the expanded pipeline will follow the route of an existing line, they expect little if any objections from native people or environmentalists.
Obama has stated that he will reconsider the Keystone pipeline project if the Canadians will reapply for a new permit, but not until after the election. But Canadian officials were quoted in the Journal as saying they are looking to expand their exports outside of the U.S.
If Canada shifts its export emphasis away from the U.S. markets, we here at home will have to rely on the less stable parts of the world for more of our oil imports. That will add a volatility factor to the price of our imports and that’s not good news.
Canada is our single largest oil supplier and having them focus on Asia instead of the U.S. could have a significant affect on the U.S.
Watch this one!
Underestimated Industries
Next up, analysts are underestimating the oil and natural gas industry.
According to Barron’s, the estimates for the first quarter for oil companies don’t include the increased prices we have seen for the past few months and they expect earnings and revenue to come in ahead of estimates.
The names Barron’s likes the best in the first quarter that will benefit most from the low estimates: Pioneer Natural Resources, Rosetta Resources and Oasis Petroleum.
Barron’s also thinks these three have the best asset bases and are top takeover candidates.
They also expect the oil names to beat expectations and natural gas to fall short in the first quarter.
But do not expect much of a drop in natural gas names from their current prices. They see expectations as being at the bottom of the range.
Julian Jessop, the Chief Global Economist at Capital Economics, said in a recent MarketWatch interview that he sees natural gas prices suffering from an unusually warm winter and expects them to run up to the $3 range by the end of the summer, and as high as $4 by the end of 2012. He attributed the move to more fundamental supply and demand by the end of the year.
Both look to have real upside potential.
A Tech Play Other Than Apple (Nasdaq: AAPL)
Seagate Technology (Nasdaq: STX), the drive manufacturer, is one of the dominant players in that industry, but trades for a ridiculous P/E of four times this year’s estimates and only three times 2013’s expectations.
And, according to the Journal, besides the super low valuation, it’s shareholder friendly, has a strong market position, a 3.8% dividend, plans to cut it shares by 25% this year, and it’s estimated to generate over $20 billion of the whole industry’s total of $30 billion a year.
Richard Kuegle of Needham has a strong buy rating on the stock and a target of $45. He thinks the current valuations are absurd!
There has also been a huge consolidation in the disc industry in the last few years, which has resulted in just two names, Seagate and Western Digital, holding 86% of the business. That bodes very well for pricing and margins going forward.
This is an industry in transition. The advent of tablets and mobile devices have altered for ever how the drive business does business, and that usually means it is undervalued. Kugele called it the best tech play outside Apple (Nasdaq: AAPL).
This one definitely needs to be on your screen.
Finally, the SITFA
This week, three quickies!
First up Buffett, yes the so-called sage of Omaha, gets the slap. I’m really tired of Buffett stories, but this one is funny.
It seems an Omaha charity auctioned off a dinner at his childhood home and there were no bidders. Really?
A chance to have dinner where he ate as a kid and no one bid. But you got to see a video of him, too. Still no takers, no stock tips either.
Gee, I’m stunned.
What are these folks thinking of?
Next, an update on the presidential election in France gets the nod, again!
As I mentioned a few months ago, a person named Hollande is running for the office and now it looks like he will in fact win, beating Sarkozy.
Here’s the funny part, he is a staunch socialist whose only real experience in politics was as mayor of a town of about 35,000 people.
He promises to increase government employment, lower the retirement age, and spend their way out of the Euro mess. Oh, and rewrite the agreement Sarkozy has with the Germans, which is essentially keeping the whole Euro thing together.
This one could be real mess.
And finally, Thailand has to get a cheek smacker. The Thais think they have found the solution for drunk driving and a way to reduce the injuries and fatalities associated with excessive drinking.
Dancing police women; I’m not making this up!
Here’s a little bit of the video.
That looks really effective. I’m sure Budweiser is shaking in their boots. Can you imagine your local or state police dancing to stop drunk driving?
Stay close, it’s getting crazier out there.
See you next week.
Article by Investment U
