Thornburg Mortgage: Attack of the verbs

Thursday February 28, 2008 • Leave a Comment

Today Thornburg Mortgage (TMA: 0.73 +0.02 +2.82%) filed reports stating they had met $300 million of margin calls on approximately $3 billion of their mortgage portfolio. The financial news services wasted no time getting out their Thesauri for snappy headlines (via Yahoo Finance):

Hit - Wall Street Journal - a little lame.
Thwacked - Forbes - now that’s a little better.
Mangle - Fortune - better or worse than thwacked?
Socked - Fortune again - above was the link, this is the headline.
Tumbles - MarketWatch - friendlier.
Woes - CNNMoney - not a verb, but always handy.
Bad to Worse - Barrons - piling on.

Thornburg had to meet margin calls earlier this month on mortgage securities that are performing well, but the market price of the securities had declined. It appears TMA has used up the majority of their ready cash to meet the requirements. If prices do not fall further, they will be OK. If not securities will have to be sold.

Thornburg has an excellent history of buying and underwriting superior quality mortgages. It is discouraging to see the fear factor in the mortgage market have such a severe effect on a company that has really stayed away from the sub-prime side of the market. Somewhere along the line someone is going to show huge profits from buying distressed, high-quality mortgage securities during these dark days.

Note: I am long TMA.

Atlas Pipeline Partners - Prospects look bright

Thursday February 28, 2008 • 3 Comments

I recently listened to the year end conference call for Atlas Pipeline Partners LP (APL: 42.60 +0.03 +0.07%). The company had an outstanding 2007 and prospects look good for 2008. APL is majority owned by Atlas America (ATLS: 70.95 +0.28 +0.40%) which manages several related companies in the natural gas business. Here is an excerpt I received as a comment on my first post concerning APL.

APL is actually owned by AHD which in turn is owned by ATLS. ATLS actually owns and manages APL, ATN and AHD.Sincerely,

Robert R. Firth
COO Atlas Pipeline Holdings (AHD)
President and CEO APLMC (APL)

Although I find the corporate structure a little confusing this is what I took away from the conference call:

They are drilling for and finding natural gas in their several exploration areas.
They are transporting natural gas.
They are processing natural gas.
They are selling natural gas.
Their prospects to make money from natural gas are excellent.

APL generates revenues in the transporting and processing stages, earning a percentage of the value on all the gas transported and processed. The $3.70 dividend for 2007 should approach $4.00 for 2008. If gas prices increase, even better.

Many natural gas watchers (??!) believe this clean energy source has remained undervalued in relation to oil. Many are projecting near term price increases. In this site’s 20 Stock Portfolio, APL and Penn West Energy (PWE: 33.69 +0.68 +2.06%) give high income exposure to this important energy source.

Note: I currently do not have a position in APL. I have a long position in PWE.

New Energy Index -NEX- Weekly Update

Wednesday February 27, 2008 • Leave a Comment

Time again for the weekly New Energy Index update. The NEX is the bogey for this site’s 20 Stock Portfolio component: the PowerShares Global Clean Energy Fund (PBD: 29.29 +0.43 +1.49%). I have been looking forward to receiving last week’s data from NEX since I read this article at Seeking Alpha. The article, dated 2/24, discussed significant weekly declines for the sustainable energy sector.

The NEX had a better, or maybe less bad week, down 0.7%. The solar sector of the index declined 2.2% vs. -5.3% quoted at Seeking Alpha. Power storage was the top sector for the NEX, up 7.4%. I think this data is an indication the broad global focus of NEX and PBD can give superior long term results. Here are the winners and losers (from the NEX companies) for last week:

NEX top gainers since 19/02/08
Itron ITRI + 22.4%
Japan Wind Development 2766 + 18.4%
Conergy CGY + 15.8%
Maxwell Technologies MXWL + 15.7%
Capstone Turbine CPST + 14.8%

NEX top losers since 19/02/08
Suntech Power Holdings STP - 23.9%
Aventine Renewable Energy Holdings AVR - 22.4%
Verenium VRNM - 18.1%
EnerNoc ENOC - 17.9%
Solaria Energia y Medio Ambiente SLR - 15.6%

As noted last week, valuations on some of the stocks in this sector had reached outrageous multiples. The solar sector in particular is up against increasing competition where only the most efficient will survive. There have been several articles on Seeking Alpha recently concerning this sector. I believe the renewable energy sector has tremendous growth prospects but picking the successful individual stocks is problematic, so I am in favor of using the ETF approach like (PBD: 29.29 +0.43 +1.49%).

Note: I currently do not have a position in PBD.

Silver Wheaton - growth slows in 2007

Tuesday February 26, 2008 • Leave a Comment

Silver Wheaton (SLW: 14.44 +0.20 +1.40%) has reported 4th quarter and 2007 results with record revenues and profits. For 2007 the company sold 13.1 million oz. of silver with net earnings of $91.9 million, or 41¢ per share. 2006 closed out with 13.5 million oz. sold, $85.2 million and 40¢ net. Fourth quarter 2007 and 2006 were both at 11¢ cents per share net with 3.5 million oz. sold each Q4.

Even though the stock price has rallied strongly on the news, I find the relatively flat year over year sales and earnings a little disconcerting for a stock sporting a 40 PE. The average estimate for 2008 is 55¢ in earnings, for a forward PE of around 30. With the company forecasting to sell 25 million oz. by 2010 I calculate a compounded annual growth rate of about 25%. The shares look fully valued to me.

Silver Wheaton is a uniquely structured precious metal company with excellent growth prospects. They contract with mines to purchase a portion or all of their silver production at a set rate (currently around $4/ oz.), then are able to resell the silver at market rates. These mines have another metal (like gold or zinc) as primary production and the silver is a by-product. SLW has worked to add future silver production since the company started in 2004. The company has very low overhead and currently pays now taxes. Earnings growth can come from increase production at current mines, future production from recently contracted mines and higher silver prices.

Although this company’s earnings will be growing over the next couple years, there could be setbacks. The biggest hurdle is having silver production come on line when forecast. There have been delays in the past and I expect there will be more in the future. SLW’s prospects are also, obviously, tied to market silver prices.

The bottom line for me is, I think the share price is fully valued at this time and does not allow for any disappointments. If someone was looking to buy or add shares, I would wait for some sort of pull back, on challenging company or market news. Silver Wheaton was an early component of this site’s 20 Stock Portfolio. Share price was $11.16 when it was added. The share price has been quite volatile, and I am sure there will be buying opportunities in the future.

Note: I currently do not have a position in SLW.

Ship Finance - Steady and Profitable

Friday February 22, 2008 • Leave a Comment

Ship Finance Ltd. (SFL: 31.78 +0.49 +1.57%) is so far under the radar that the latest earning release and conference call are not listed on either Yahoo Finance or MarketWatch under recent news. These events happened on 2/14, and just today I tracked them down on Ship Finance’s website.

As my headline indicates, SFL had a very nice 4th quarter. Net income was 71¢ per share and cash flow from ongoing operations was $1.49 per share. The profit sharing agreement with Frontline (FRO: 62.59 +1.03 +1.67%) chipped in another 22¢. A dividend was declared of 55¢, where it has been for several quarters.

Because of the charter structure and bookkeeping rules of Ship Finance’s fleet the cash flow number is a better indicator of the company’s profitability. The growing cash flow bodes well for future dividend increases.

SFL had a busy 2007. Several ships were sold to reduce single hull exposure, or just for nice profits. Others were acquired and placed in service on long term charters. Due to the company’s strong financial position they are able to obtain financing at very favorable rates and re-lease ships at excellent ongoing cash flow. The size and value of the fleet has tripled over the last 4 years, and should grow by another 1/3 over the next two years.

This company has the unique combination of very conservative financing to protect cash flow and aggressive growth to increase said cash flow. They do not increase the dividend until they are sure they can maintain it indefinitely. And this is a company whose average charter length is over 13 years, so indefinitely is a pretty long time.

With the current yield at 8% it is hard to see much downside to SFL. Of course the market will hammer the stock when it gets a wild hair about shipping or tanker companies, but that will just be a buying opportunity. I consider this stock an excellent long term investment.

Note: I have a long position in SFL.

Flat earnings for Aegean Marine Petroleum Network

Thursday February 21, 2008 • Leave a Comment

Aegean Marine Petroleum Network (ANW: 42.71 +0.53 +1.26%) is an international company of the growth persuasion that I have been positive about and is a component of this site’s 20 Stock Portfolio. The company has just released 4th quarter results and the stock is down over 10%. The primary reason is that earnings per share were down (15¢ vs. 19¢) from Q4 2006. It is disappointing because the share price had been recovering nicely since the January drop off.

I listened to the conference call, read the news release and have these thoughts about ANW. First of all, the company is still in a strong growth mode for their business. Here are a few facts:

Sales volume grew at a 42% rate through 2007, including the 4th quarter.
The company has 27 new double hull bunkering tankers on order for the next 3 years, which will bring the fleet to 44.
They acquired 2 companies doing business in the North Sea, Baltic and British Isles areas.
A new facility serving West Africa recently started service.

My read on the earning shortfall is that it is from 2 sources: First, the number of shares outstanding grew by 80% during the year thus diluting the net on a per share basis. And we do care about the per share! Second, expenses involved with opening new facilities, acquisitions and moving assets had a bigger than expected toll on the net earnings.

Aegean Marine Petroleum provides fuel for ships at 8 locations throughout the world. The fuel bunkering business is very fragmented and many small suppliers will be (or unable to) required to take their single hull tankers out of service in the next few years. ANW’s global reach also allows them the service large ship fleets world wide as a single source provider.

I believe ANW can be a double or triple play over the next few years. My average cost is a little over $36 per share and I may add to my position at these price levels.

Note: I have a long position in ANW.