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Sell United Continental

posted on February 10, 2016 at 7:44 pm
airlines

Why haven’t airline stocks done better during the collapse in oil prices?

Cheaper oil has certainly slashed the cost of jet fuel. For UAL Continental Holdings (UAL), for example, fuel costs fell by $4 billion in 2015. You’d think–I thought when I added these shares of my Jubak Picks portfolio on February 10, 2015–that UAL Continental shares would have done better. But instead the shares, which climbed today February 10, 2016 by $1.22 are down 29.47% since my purchase a year ago.

It seems to be an industrywide problem. Even American Airlines Group (AAL), an airline with more exposure to falling fuel costs and one that has been much better run lately than UAL Continental, is down 22.02% for the 12 months ended   on February 10, 2016.

Chalk it up to worries about the global economy and fears of lower traffic and falling ticket prices in the United States and markets across the Pacific and Atlantic.

And add a big dash of skepticism about the airline industry and its history of expanding capacity in good times–like now–so that everyone bleeds red ink not too far down the road. Morningstar analysts estimate that the industry could see a return to its 2007 peak in capacity sometime in the next 12 to 18 months.

UAL has tried to demonstrate that this time it’s different by returning huge amounts of cash to shareholders in the form of share repurchases. UAL Continental has committed to buy $750 million in shares in the first quarter of 2016 and Credit Suisse estimates that the company could buy back as much as 15% of its shares in 2016.

I don’t think this is a secret–certainly the first quarter buyback plans aren’t–and yet it hasn’t done much to push the shares upward.

With the market in a consolidation phase that I think we resolve into new market leadership–shares of companies that you will really want to own at then depressed prices–I’m going to sell UAL Continental tomorrow morning to raise cash for those future–and better–opportunities.

Glug, Glug, says the Global Oil Glut

posted on February 9, 2016 at 7:38 pm
Oil rigs - land

The global oil surplus is larger than estimated earlier, the International Energy Agency reported today. Supply is likely to exceed consumption by an average of 1.75 million barrels a day in the first half of 2016 as Iran raises production at a higher than anticipated pace, as Saudi Arabia continues to increase production, and as Iraq delivers record production. A month ago the International Energy Agency estimated that supply would exceed consumption by 1.5 million barrels a day in the first half of 2016.

OPEC production climbed by 280,000 in January to 32.63 million barrels a day. That’s about 900,000 barrels a day more than needed from OPEC to meet global consumption, the International Energy Agency estimates.

At the same time, the agency lowered its estimates for global oil demand for 2016 by 100,000 barrels a day from its projections in January. Projected demand growth for 2016 of 1.2 million barrels a day is far below the five-year peak in growth of 1.6 million barrels a day in 2015. The International Energy Agency estimates demand in 2016 to average 95.6 million barrels  day.

Oil inventories in developed countries, the agency calculates, rose in December by 7.6 million barrels to 3 billion barrels.

The International Energy Agency did project that non-OPEC production will fall by 600,000 barrels a day in 2016. That’s not enough to bring global supply and demand into balance given the growth in OPEC production.

In today’s trading U.S. benchmark West Texas Intermediate fell 4.31% to $28.41 a barrel. The Brent benchmark fell 6.54% to $30.73 a barrel

 

On my paid site: 2 takes on how far the current market breakdown will go

posted on February 8, 2016 at 7:44 pm
Technical_analysis

On Friday, in the weekly Friday Tricks and Trends post exclusive to my subscription site JubakAM.com http://jubakam.com/2016/02/friday-trick-or-trend-a-pattern-in-a-pattern-less-market-its-called-a-consolidation/ I argued that there’s actually a pattern to this seemingly patternless market. It’s called “consolidation” and it’s characterized by extreme volatility and rotation among sectors as traders look for leadership in  market where the old leadership has broken down.  A consolidation is also characterized by selling of high-PE, high momentum stocks that were winners in the last upwardly trending market. Certainly traders and investors could see that today, February 8, as the NASDAQ Composite moved back toward a bear (down 18% from its high as of the close) and as stocks such as Facebook (F), Netflix (NFLX), and Amazon (AMZN) continued to sell off.

This morning I added a post summarizing technical analysis from Chip Anderson’s Chartwatchers newsletter at StockCharts.com that reached a similar conclusion from a different angle. Anderson’s conclusion is that we’re in what he calls a “rounding top” with stocks in a range of 16500 to 16000 on the Dow Industrials and looking like they’re going to test 16,000. There’s important support at 15,500 but after that things get rocky.

In other words both methods say we’re not in a bear yet, could maybe not get to a bear, and that the next few weeks are going to be an important test.

That’s what I’m working on at my subscription JubakAM.com site. I think there’s some value to you in passing on the direction of my thinking about the market on that site. Hope so anyway.

Of course, there’s an ulterior motive to sharing this with you: If you decide that you’d like more of my thoughts on the market in my JubakAM.com posts, I’m hoping that you’ll subscribe to my site at JubakAM.com for $199 a year. (By the way, you can get a full refund during the first seven days if you change your mind for any reason.)

Apologies for a rough few days on the site

posted on February 8, 2016 at 7:29 pm

Beginning at the end of last week and into the weekend JubakPicks.com wasn’t loading especially well. I was getting the page only on about one of five tries.

I think we’ve fixed the problem. Turns out somebody was trying, via a robot program, to scrape all the content from JubakPicks to their own site. When the software at Amazon Web Services, our hosting service, prevented that, the result was something equivalent to a denial of service attack.

I think that’s fixed as of this a.m.–until the next “event” in the wonderful world of the Internet.

Buy Alibaba (soon-ish) for the long-term

posted on February 8, 2016 at 7:22 pm
Emerging_Markets

On Thursday, January 28, Alibaba Group Holding (BABA), reported December quarter earnings of 73 cents a share beating the consensus estimate of 70 cents a share. Revenue climbed 35% year over year to $5.36 billion, above the estimate of $5.08 billion.

In today’s (February 8) trading  the New York traded ADRs (American Depositary Receipts) were off another 2.46%% at the close. Alibaba ADRs are off 24.8for 2016 to date.

Welcome to the wonderful world of Alibaba, which is a the same time one of the world biggest and fastest growing e-commerce companies–and a trading vehicle for anyone who wants to buy or sell China. This year selling China has been a big play as Shanghai stocks have sunk into a bear market and are very close to giving back 50% of all the huge gains in the rally that peaked in June 2015. And that has pretty much overwhelmed the growth that Alibaba has recorded.

It’s way easier said than done to advise you to look past the short-term volatility in China’s markets–Hey, Shanghai is up 100%, down 50% regularly, it seems–and remain focused on Alibaba as it extends its grip on China’s domestic markets and breaks into overseas economies. But Alibaba is down 12.19% since I added it to my Jubak’s Picks portfolio at $76.25 on October 26, 2015, and with growth in China’s economy slowing, you certainly shouldn’t overlook Alibaba’s role as the easiest way to buy and sell China for many investors.

As of today, though, I think the Shanghai market at 2763 on the Shanghai Composite is relatively close to a (perhaps temporary) bottom at 2500. (That level is likely, in my opinion, to  bring out support from the People’s Bank. The People’s Bank will probably withdraw cash from the financial system after the Lunar New Year holiday ends this week. That could be tricky.) I’m keeping Alibaba in my Jubak’s Picks portfolio with a target of $95 a share and also adding the ADRs to my long-term Jubak Picks 50 portfolio in the emerging markets trend silo with a timeliness rating of Good to Buy Now. (And even better in a week or so.)

Alibaba’s quarterly report wasn’t perfect. Gross merchandise value, an important measure of the value of the stuff that Alibaba moves through its various e-commerce sites grew by just 14% year over year at the Taobo Marketplace and by 37% at the somewhat smaller Tmall. That worked out to a total increase of 23% year to year, less than analysts had expected. If you were looking for signs that Alibaba was slowing along with the Chinese economy–and many traders and investors were–this is where you could find it.

But other growth metrics that I think have more significant long-term effects pointed in strongly positive directions. Active buyers in China grew to 407 million in 2015, a 22% year over year growth rate. Gross merchandise value via mobile climbed 99% year over year to 68% of total Chinese gross merchandise value for Alibaba. Gross margin climbed to 68.3%, up 46 basis points from the prior quarter, but down 2.98 percentage points year over year. That is to be expected as Alibaba spends more to expand into international markets and further into rural China–operating expenses climbed 16% year over year.

International revenue grew by 14% but at just $97 million retail business revenue from international markets remains a tiny percentage of overall Alibaba revenue. Cloud computing, another important future business (ask Amazon.com,) grew by 126% year over year but still made up just 3% of total revenue.

Your timing decision on buying Alibaba depends on your sense of when the current bear in Chinese stocks will end–and how long it might be until we get the next downward trend in Chinese markets. The adjustments necessary to move China from an export to a consumer driven economy will take more than a few months. But I think Alibaba will be a key part of this adjustment and of the expansion of e-commerce across Asia.



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