Permalink | Email this | Linking Blogs | Comments

Anglogold (NYSE: AU) closed at $27.47 Thursday. Gold is recently down 3.11% to $789.20 according to Bloomberg. AU September option implied volatility of 51 is above its 26-week average of 43 according to Track Data, suggesting larger movement.

Valero Energy (NYSE: VLO) closed at $33.93 Thursday. Crude oil futures are recently down 1.64% to $113.37. VLO September option implied volatility of 53 is above its 26-week average of 47 according to Track Data, suggesting larger price movement.

Southern Peru Copper (NYSE: PCU) closed at $24 Thursday. Copper is recently down 3.80% to 326 according to Bloomberg. PCU September option implied volatility of 53 is near its 26-week average according to Track Data, suggesting non-directional price movement.

Archer Daniels (NYSE: ADM) closed at $26.62 Thursday. Corn futures are recently down 3.38% to 557.75, Soybean futures are down 2.59% to 1241 according to Track Data. ADM September option implied volatility of 44 is above its 26-week average of 40 according to Track Data, suggesting slightly larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Permalink | Email this | Linking Blogs | Comments

After seven months of tracking my 2008 picks -- Wham! -- I went from beating the indices and Berkshire Hathaway (NYSE: BRK.B) to being humbled by the market. However difficult it is to display your failings, once again I will share all. This is the low point since I posted the original story Chasing Value: Final list -- 8 stocks for 2008.

Only Reliance Steel & Aluminum (NYSE: RS) remained in positive territory, down from five stocks that were up in the last report. Sometimes, the reasons for the downslide were more obvious than they were in the cases for my picks. The cutting in half of Valero Energy Corporation (NYSE: VLO) has been reported often, as the largest independent oil refiner in North America has had its profit margins squeezed.

Loews Corporation (NYSE: L) has been hurt by its insurance interests and helped by its holdings -- a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.

The gap between the Dow Jones Industrial Average, Standard & Poor's 500 Index and the technology heavy NASDAQ Composite Index is narrower than in the past.

In January, I added Newcastle Investment Corp. (NYSE: NCT) and Huaneng Power (NYSE: HNP) to my holdings. In June, I added HNP and NCT again as they hit new lows.

Through July, the average return for my eight picks amounted to a loss of -20.45% -- a major collapse from the -3.36% last reported. This substantially underperformed the average return of the indices: -14.06%. The great surprise was with this year's stalking horse, Berkshire Hathaway (NYSE: BRK.B), which was hurt like everything else, dropping further during June and July and falling way behind the indices' average: it's now down -18.27% for the first seven months.

I am including dividends for my picks -- they averaged an overall 3.91% yield through the first quarter. However, NCT reduced its dividend and the average yield is now 2.99% going forward from April. Therefore, I will be adding 0.978% for the first three months and 0.99% (2.99% / 12) for each additional month. Through July, the loss was -20.45 + 0.978 + 0.99 = -18.48%. Using 1.8% for the average dividend of the indices times 7/12 adds 1.05%, and reduces the average loss for the indices to -13.01%.

I continue to hope that 2008 does not end up being about who loses the least. The following are my eight picks with the starting share price as of December 28, 2007:

• Anglo American plc (ADR) (NASDAQ: AAUK) from $30.79 is Down to $28.56 for a loss of -7.24%.
• Bunge Limited (NYSE: BG) from $119.03 is Down to $98.92 for a loss of -16.89%.
• Huaneng Power International (ADR) (NYSE: HNP) from $41.75 is down to $28.17 for a loss of -32.53%.
• Loews Corporation (NYSE: L) from $49.35 is Down to combining $44.56 for a loss of -9.7%.
• Newcastle Investment Corp. (NYSE: NCT) from $13.08 is down to $6.08 for a loss of -53.52%.
• Raytheon Company (NYSE: RTN) from $61.51 is down to $56.93 for a loss of -7.4%.
• Reliance Steel & Aluminum (NYSE: RS) from $54.32 is UP to $63.16 for a gain of +16.27%.
• Valero Energy Corporation (NYSE: VLO) from $70.55 is down to $33.41 for a loss of -52.64%.

The Indices:

• Dow Jones Industrial Average: 13,365.87 dropped to 11,378.02 for a loss -14.87%
• NASDAQ Composite Index: 2,674.46 dropped to 2,325.55 for a loss -13.04%
• Standard & Poor's 500 Index: 1,478.49 dropped to 1,267.38 for a loss -14.28%

This year's "stalking horse" Berkshire Hathaway (NYSE: BRK.B) (I am tracking the 'B' shares, not the more expensive 'A' shares) saw its B shares down from $4,685 to $3,829.00 for a loss of -18.27%.

Federal Reserve Chairman Ben Bernanke announced that the discount rate of 2% will remain constant for a while, which I think is a good thing. Inflation fears seem to have been pacified some and this is supported for the time being by a $30 per barrel drop in oil prices on lower demand, for now.

I still think investors should be looking at the defense sector Chasing Value: Raytheon says 'Game on' and I have added financials Serious Money: Wisdom or folly -- 10 financials updated.

May Recap:

• 2008 picks: -18.48%
• BRK.B: -18.27%
• Major Indices: -13.01%

I can't remember the last time "my pal Warren" was bested by the indices.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of AAUK, BRK.B, HNP, NCT, and VLO.

Permalink | Email this | Linking Blogs | Comments

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

• Aetna Inc. (NYSE: AET) net income rose on membership growth and a hike in premium rates.
• Altria Group Inc. (NYSE: MO) beat Q2 estimates, excluding charges related to its international cigarette unit.
• Arcelor Mittal (NYSE: MT) Q2 profit doubled on higher prices and it offered upbeat guidance.
• Comcast Corp. (NASDAQ: CMCSA) Q2 net income rose on higher rates but missed expectations.
• Corning Inc. (NYSE: GLW) earnings were in line with expectations, but revenue fell short.
• Exxon Mobil Corp. (NYSE: XOM) posted another record quarterly profit but Wall Street was looking for more.
• Garmin Ltd. (NASDAQ: GRMN) missed Q2 revenue estimates as fuel prices depressed growth.
• IAC/InterActive Corp. (NASDAQ: IACI) swung to a Q2 loss on a one time charge, but revenue rose.
• Kraft Foods Inc. (NYSE: KFT) beat Q2 earnings expectations on price hikes, and raised its guidance.
• McAfee Inc. (NYSE: MFE) reported healthy Q2 results and announced an acquisition.
• MetLife Inc. (NYSE: MET) missed earnings expectations and lowered its full-year guidance.
• Nucor Corp. (NYSE: NUE) reported record Q2 results and forecast a strong next quarter.
• Ryanair Holdings (NASDAQ: RYAAY) said Q1 profit tumbled on rising fuel prices and recession fears.
• Sirius Satellite Radio Inc. (NASDAQ: SIRI) said it expects a narrower Q2 loss ahead of the merger.
• Starbucks Corp. (NASDAQ: SBUX) swung to a Q3 loss on charges related to store closings.
• Valero Energy Corp. (NYSE: VLO) Q2 earnings fell 67% but still beat Wall Street estimates.
• Viacom Inc. (NYSE: VIA) posted better-than-expected earnings driven by Iron Man and Indiana Jones.

For more highlights from this week, see: General Motors, Motorola, Disney, Sony, Visa, CBS and others

Upcoming quarterly reports include Archer Daniels Midland (NYSE: ADM), Procter & Gamble (NYSE: PG), Jack-in-the-Box (NYSE: JBX), Cisco (NASDAQ: CSCO), News Corp. (NYSE: NWS), Whole Foods (NASDAQ: WFMI), Sprint Nextel (NYSE: S), Time Warner (NYSE: TWX), Freddie Mac (NYSE: FRE), and Blockbuster (NYSE: BBI).

Visit AOL Money & Finance for more earnings coverage.

Permalink | Email this | Linking Blogs | Comments

Reuters reports that Valero Energy (NYSE: VLO), the biggest publicly-owned oil refiner in the U.S., suffered a 67% decline in net income. Its bad news was that the price of its input -- crude oil -- doubled to an average $125 a barrel in the second quarter, while its product, gasoline, increased a mere 25% in price.

There is good news here for investors. Analysts expected it to earn $1.35 per share, but Valero beat estimates by two cents. Not only that but its revenues rose 51%. Reuters quotes Valero's CEO who expects gasoline margins to be weak and industry-wide refinery utilization rates to drop through the end of 2009. In simple terms, refineries have the ability to produce more gasoline than people in the U.S. want to consume.

The stronger part of Valero's business is what it calls distillates -- diesel fuel, jet fuel and heating oil -- which seem to have much more stable demand in the face of rising prices. That stronger demand translates into higher utilization rates and higher profit margins through 2009. If that demand starts to fall off, however, Valero could be in even more trouble.

Its stock is down 55% for the year but is up 3% in premarket -- I am guessing based on the better than expected earnings results.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Valero securities.

Read | Permalink | Email this | Linking Blogs | Comments

• Colgate Palmolive (NYSE: CL) - Colgate-Palmolive 2Q profit rises 19%,
• BP (NYSE: BP) - BP's Second-Quarter Profit Rises on Record Oil Prices - shares are over 2% higher in premarket trading
• Coach (NYSE: COH) - Weaker dollar helps Coach 4th-quarter results
• Northrop Grumman (NYSE: NOC), Viacom (NYSE: VIA), Valero Energy Corp. (NYSE: VLO), United States Steel Corp. (NYSE: X)
• Electronic Arts (NASDAQ: ERTS) will report after the close of tradin

Permalink | Email this | Linking Blogs | Comments

"The 'low-hanging fruit' on our buy list includes refiners," says resource expert Curtis Hesler in The Professional Timing Service. Here, he looks at Valero Energy (NYSE: VLO).

"Refiners enjoy a virtual monopoly. The high price of crude has put the squeeze on profit margins -- especially in the case of gasoline, even though it is selling for over $4.00 now. Gasoline always becomes a political issue during election season.

"Nevertheless, gasoline prices are generally rising. The stock market is also getting 'depression minded,' to the point of paranoia; and this fear is dragging some stocks like refiners lower with the tide.

"The current profit squeeze will not be permanent, but Valero has another arrow in its quiver. They are able to process sour crude, which is becoming more prevalent as exporters keep more of the good stuff (light sweet crude) at home and ship the heavy sour crude.

"Their stock prices have been disappointing, I know; but this still reminds me of the mood surrounding coal a few years back when all the press was negative.

"Valero has been expanding their retail operations, which is an interesting strategy during a real estate slump.

"Obviously, they make more money selling fuel at retail than wholesale, but I keep falling back on worries about availability. When will we see the day when gasoline is rationed, or simply not available through all outlets?

"Valero may take the export land model approach and channel their refinery production to their own outlets first, giving them a big advantage on the retail side/ It is also interesting that just last May, Valero increased their dividend by 25%. That is not the sort of thing you see from a company on the brink of oblivion."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

Permalink | Email this | Linking Blogs | Comments

A few days ago I posted Chasing Value: Valero -- when is a downgrade an upgrade? and since then I have become even more disturbed with our government and the stock analysts, as well as the companies they represent. Eitan Bernstein, an analyst with Friedman, Billings, Ramsey & Co downgraded his expectations for the major oil refiners Wednesday and lowered his price target for Valero Energy (NYSE: VLO) from $77 to $65.

How can this be? The stock was trading around $40 per share and closed Friday at $39.96. As a shareholder who has watched this stock go down, any signs of optimism have to be welcome I suppose, but what in the world is this guy saying. He is saying he has concerns about the sector, but believes VLO will be 61.5% higher this time next year any way!

This makes no sense. He can't be too concerned, can he? If you believed him you would buy all the VLO shares you could get hold of -- and so would he! Maybe he did? Or maybe he is trying to pump up the stock to help a big client? Or maybe he is clueless and does not know what he is talking about? What might his e-mails reveal?

Anyone can predict anything, and they have a right to be an idiot, but what responsibility does he have to eat his own cooking? VLO started the year near a high that is between Bernstein's old and new projections, and I for one have hopes of it rebounding, but I do not have the level of certainty to broadcast such an exact figure. What is the purpose?

The change in his projections of 15.5% is indicative of the silliness of this analysis. We have seen this before and will see it again ... so buyer beware.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of VLO.

.

Permalink | Email this | Linking Blogs | Comments

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of VLO.

Permalink | Email this | Linking Blogs | Comments

Although he has been maintaining a cautious stance on the refining group, energy sector expert Elliott Gue is now boosting the rating on Valero Energy (NYSE: VLO).

In his The Energy Strategist, the advisor explains, "Valero is now attractive for three reasons: superior geographic exposure, refinery complexity and a new focus on profitability."

"Our caution on the refining group was due to expectations that crack spreads would be weak through the spring, a period during which spreads tend to widen. Overall, this call was correct: Refiners have underperformed the energy patch since mid-March.

"And longer term, I have some concerns about new refining capacity expansions due to come online over the next few years. As this supply comes online, it could put downside pressure on margins.

"But over the next six to nine months, the refiners look like a compelling play. Gasoline inventories are now back in line with seasonal norms; it's likely gasoline prices will now rally further relative to crude oil. In fact, we're already seeing an obvious spike in crack spreads.

"Valero remains an outstanding play on a recovery in refining margins. Unlike most energy stocks, the company has been weak this year, and in an improving margin environment, I'd expect to see the stock play catch-up with the rest of the energy patch.

"As noted, from a company-specific standpoint, Valero is attractive for three reasons: superior geographic exposure, refinery complexity and a new focus on profitability.

"To the first point, Valero has refineries located all over the US; because refining margins can vary greatly between regions, this ensures the company has exposure to the most-profitable markets.

"Second, Valero has some of the most complex refineries in the US. I explained complexity at some length in the March 21, 2007, issue, Looking Refined.

"To summarize, not all crude oils are alike. Some grades known as sour oils have a high sulphur content and others, known as heavy oil, are more difficult to refine. Lower-quality grades of crude can trade at a huge discount to West Texas Intermediate (WTI), the benchmark crude in the US used as the basis for the New York Mercantile Exchange futures contract.

"Therefore, refiners with complex facilities can purchase heavy, sour oils at a considerable discount to WTI prices. This allows those refiners to earn higher profit margins. And the spread between WTI and sour crude oil is unusually high right now. This plays right into the hands of Valero.

"Finally, Valero is executing its plans to sell off smaller, less-profitable operations and focus on investing in its most-profitable facilities. Management has been using the cash to buyback stock and increase dividend payout.

"These are both shareholder-friendly moves. I'm now recommending Valero Energy as a buy under 60. If crack spreads continue to rise, as I expect, the stock could easily rally to the $70 region over the next few months."

Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.

Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

It's a mouthful: non-destructive testing (NDT). Yet, it's a big market - and it is growing fast. Basically, NDT helps assure the structural integrity of critical infrastructure.

A top NDT operator is Mistras Group. This week, the company filed to go public.

Mistras has a strong team of scientists, engineers and technicians. There is also a suite of sophisticated software solutions.

Essentially, Mistras helps to extend the useful life of infrastructure, as well as minimize repair cost and increase productivity. At the same time, the solutions meet the varied compliance requirements.

No doubt, Mistras has a stellar client list, which include biggies like ExxonMobil (NYSE: XOM), GE (NYSE: GE), Valero (NYSE: VLO) and Shell. In fact, seven of to ten customers have been using the company's services for at least ten years.

In fiscal 2007, Mistras posted revenues of $122.2 million, which was up from $93.7 million (a year prior). EBITDA is $18.8 million.

The lead underwriters on the IPO include Credit Suisse (NYSE: CS) and JPMorgan (NYSE: JPM). Also, you can find the prospectus at the SEC website.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

Permalink | Email this | Linking Blogs | Comments

After five months of tracking my 2008 picks, it is rewarding to finally have a breakthrough -- topping the three major stock indices and Berkshire Hathaway (NYSE: BRK.B) too. It has been painful to have to report each month that I was being bested. However, since I have not seen anything contradicting my original rationale for my eight picks I stood my ground.

This past month saw great improvement. For the first time since I posted the original story Chasing Value: Final list -- 8 stocks for 2008, five of the eight stocks are up:

Moving into positive territory by pennies was Loews Corporation (NYSE: LTR). Among its holdings is a 51% stake in Diamond Offshore Drilling, Inc. (NYSE: DO) that has been doing well as the world remains desperate for more oil and natural gas.

Bunge Limited (NYSE: BG) was the other stock to cross the line into the black, while Valero Energy Corp. (NYSE: VLO), although improving, remains my worst performer. It is still down almost 28% after five months.

The gap between the Dow Jones Industrial Average, Standard & Poor's 500 Index and the technology heavy NASDAQ Composite Index narrowed substantially so that the three are tracking each other very closely. Stocks like Apple, Inc (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) continue to gain significantly and their outlooks have not been shaken amid overall pessimistic economic forecasts.

Most of my picks improved. Last month's three winners stayed on track with continued higher energy and commodity prices along with the war. Raytheon Co. (NYSE: RTN), the high tech defense contractor, Reliance Steel & Aluminum (NYSE: RS) and Anglo American plc (ADR) (NASDAQ: AAUK) do not show any signs of wavering. All three continue to be mentioned in M&A conversations with RTN on the buying side, AAUK on the selling side and RS on both.

In January, I added Newcastle Investment Corp. (NYSE: NCT) and Huaneng Power (NYSE: HNP) to my holdings. In April, as HNP hit new lows, I acquired more stock, happy to collect the 5.6% dividend yield. I did not add anything in May.

Through May, the average return for the eight picks amounted to a loss of -3.36%; a major improvement from last month's -8.96% or March's -15.96% depressing lows. This outperformed the average return of the indices: -5.47%. This year's stalking horse, Berkshire Hathaway (NYSE: BRK.B), while gaining a little during May and still besting all the indices, is down -4% for the first five months. I can't remember the last time I was ahead of 'my pal Warren' -- oooh, maybe I'm learning something!

I am Including dividends for my picks, that averaged an overall 3.91% yield through the first quarter. However, this is being adjusted because of NCT's reduced dividend to 2.99% going forward. Therefore, I will be adding 0.978% for the first three months and 0.249% (2.99% / 12) for each additional month. Through May, the loss was -3.36 + 0.978 + 0.498 = -1.88%. Using 1.8% for the average dividend of the indices times 5/12 adds 0.75%, and reduces the loss to -4.72%.

After five months I have overtaken all of the indices and BRK.B, to my surprise, even without the help of the dividends . BRK.B does not pay a dividend.

I continue to hope that 2008 does not end up being about who loses the least. The following are my eight picks with the starting share price as of December 28, 2007:

• Anglo American plc (ADR) (NASDAQ: AAUK) from $30.79 is Up to $34.28 for a gain of 11.33%.
• Bunge Limited (NYSE: BG) from $119.03 is Up to $119.37 for a gain of 0.29%.
• Huaneng Power International (ADR) (NYSE: HNP) from $41.75 is down to $33.74 for a loss of -19.19%.
• Loews Corporation (NYSE: LTR) from $49.35 is Up to $49.57 for a gain of 0.45%.
• Newcastle Investment Corp. (NYSE: NCT) from $13.08 is down to $9.92 for a loss of -24.16%.
• Raytheon Company (NYSE: RTN) from$61.51 is UP to $63.86 for a gain of +3.82%.
• Reliance Steel & Aluminum (NYSE: RS) from $54.32 is Up to $67.97 for a gain of +25.13%.
• Valero Energy Corporation (NYSE: VLO) from $70.55 is down to $50.84 for a loss of -27.94%.

The Indices:

• Dow Jones Industrial Average: 13,365.87 dropped to 12,638.32 for a loss -5.44%
• NASDAQ Composite Index: 2,674.46 dropped to 2,674.46 for a loss -5.68%
• Standard & Poor's 500 Index: 1,478.49 dropped to 1,400.38 for a loss -5.28%

This year's "stalking horse" Berkshire Hathaway (NYSE: BRK.B) (I am tracking the 'B' shares, not the more expensive 'A' shares) saw its B shares down from $4,685 to $4,498 for a loss of -4.0%.

After our Federal Reserve Chairman Ben Bernanke announced a cut in the discount rate of a quarter point to 2% last month, he changed his stance and intimated it would probably be the last cut. Now we are hearing noise there actually could be a raise in the rate depending on inflation fears. The market seems to believe that story in the long term, but not the short term one.

I still think investors should be looking at the defense sector Chasing Value: General Dynamics & Raytheon: The defense does not rest.

May Recap:

• 2008 picks: -1.88%
• BRK.B: -4.0%
• Major Indices: -4.72%

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I currently own shares of AAUK, BRK.B, HNP, NCT, and VLO.

Permalink | Email this | Linking Blogs | Comments

Merrill Lynch upgraded Dell (NASDAQ: DELL) to "buy" from "neutral," according to Briefing.com. The news service also reports that Citigroup began coverage of Valero (NSYE: VLO) with a rating of "buy."

Costco (NASDAQ: COST) was cut to "neutral" at Piper Jaffray, according to 24/7 Wall St. The financial website also reports that NASDAQ (NASDAQ: NDAQ) was raised to "overweight" at Lehman Brothers.

Read | Permalink | Email this | Linking Blogs | Comments

Today was a very gloomy day in the stock market with Oil reaching new highs and everything else losing -- almost. Among the few winners, and I mean very few, Apple Inc. (NASDAQ: AAPL), oil, and specialty steel were up. I went through my watch list and found this very short list of winners:

Anadarko Petroleum (NYSE: APC) $78.49, up +$0.95 or 1.23%

Apple Inc (NASDAQ: AAPL) $185.90, up +$2.30 or 1.25%

Halliburton (NYSE: HAL) $49.92, +$0.85 up +$1.73%

Precision Drilling TR (NYSE: PDS) $27.90, up $1.13, or 4.22%

Reliance Steel and Aluminum (NYSE: RS) $67.37, +0.$52, or 0.78%

Valero Energy (NYSE: VLO) $50.12, up +$0.43 or 0.87%

Every day people are asking how high oil prices will go and every day someone guesses much higher. Those folks will continue to be correct until they are wrong so I will stay out of the prediction business. Of course the "guess" is my choice of words, for there are plenty of people who would like you to believe they actually "know" something.

I was wondering lately why oil prices have shot up 500% for a barrel during a period of time when demand has not even doubled. The best I can figure is the collapsing dollar is a third of the increase, demand is a third of the increase and speculation is the last third.

When things like this happen the conspiracy theorists come out of the woodwork, and they join ranks with the politicians to bad mouth "big oil" and all kinds of taxes and penalties and new regulations are threatened. How about, conservation, alternative energy, and allowing carefully planned off-shore oil exploration. Here's a BIG idea -- how about having any kind of cohesive energy policy at all.

Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

Reuters reports that ExxonMobil (NYSE: XOM) CEO Rex Tillerson went on The Today Show this morning to discuss the price of gasoline. Why? I think it's because he wants to diffuse political pressure to raise taxes on oil companies. Tillerson said that the price of gas is so high that people are using less of it.

But the subtext, in my opinion, was to put a face on the industry in the mind of the public so that it would be harder for politicians to harness public anger into higher taxes. Some big oil companies now have "too much" money coming in, with oil prices as high as they are. One of them has recently been in low-level debates with investors over what to do with all their cash as in "they can't spend it fast enough," an irony when gas prices are so high.

But as I posted yesterday, not all oil companies think that they have too much money coming in. Many such as Exxon and Valero Energy (NYSE: VLO) have reported disappointing earnings in the first quarter because the price of a barrel of oil has doubled while the wholesale price of gasoline has risen only 39%.

Many oil companies could not care less about the social angles of high gas prices. The industry may be happy if Tillerson can succeed in diffusing public anger against the oil companies by answering questions and getting its position across to the public. While I doubt the public will sympathize with its economic problems, Exxon is clearly gambling that putting a face to the company is part of a multi-pronged PR battle to keep the industry's taxes low.

As far as the financial angle - the oil companies have at least six options for the excess money including:

• pay it out as dividends,
• invest it in exploration for more energy,
• create alternative energy products,
• acquire other energy companies or get into a completely different industry - to diversify earnings,
• buy back their stock,
• buy stocks and bonds for short-term investment purposes.

The oil companies perceive that they have an obligation to shareholders, but not to the public and they could care less about irony. They are in business to make a profit and they only care about how much that profit-making squeezes the public if citizens' frustration translates into higher taxes for their business.

If they can appear to care, they may be able to diffuse that threat to their net income.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Read | Permalink | Email this | Linking Blogs | Comments

The New York Times has turned into a crying rag for oil refiners. It reports that these defenseless creatures are not making as much money as they did last year. Their profit margins have dropped to an average of $12.45 per barrel of oil, down 60%. The reason? Oil prices have doubled in the last year but the refiners have only been able to raise wholesale gasoline prices by 39%.

I've posted about the problems at ExxonMobil (NYSE: XOM) and Valero Energy (NYSE: VLO), here and here. And the Times has done us a service by calculating these industry averages. It even quotes a a sobbing Lynn Westfall, the chief economist at Tesoro Corp. (NYSE: TSO), "We're just not able to pass along the increased cost of crude oil on the gasoline side." Someone hand Lynn a crying rag!

Thanks to declining U.S. demand -- it's down 300,000 barrels a day -- refiners are reacting by trying to reduce their refining capacity. That's right -- even though many people are paying over $4 a gallon for their gasoline, oil refiners are not making enough money so they are going to cut back on their refining capacity. The utilization rate has dropped from 90.4% last year to 81.4% now -- and if they take refineries off line, they can go back up above 90%.

If the oil refiners get their $8.53 a gallon wish, you'll pay $171 every time you fill up -- if you have a 20-gallon tank. And then the oil refiners can toss away their crying rag. But you'll probably need to supply your own vomit bag as you watch the numbers run into the three figures.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Read | Permalink | Email this | Linking Blogs | Comments