Money and Investing Thoughts

Brazil plans to sign oil deal with Cuba – CNN.com.

Last week I posted a link about a BBC story outlining the Cuban clames of very large off shore oil reserves. The folks at Petrobras (PBR: 31.21 +0.10 +0.32%) must be reading my blog, ’cause today I find the above article about PBR’s plan to sign and oil exploration deal with Cuba.

Brazilian President Luiz Inacio Lula da Silva has been in Cuba greasing the skids and the Brazilians may have pulled a fast on on Venezuelan President Hugo Chavez. Venezuela has become Cuba’s major trading partner including selling 100,000 barrels per day of low cost oil to supplement the 60,000 barrels per day Cuba pumps for itself.

It will be interesting to see Mr. Chavez’ reaction to Brazil’s move towards increased trade with Cuba.

I am a strong proponent of the long term viability of alternative energy stocks but recent market actions have been very hard on these stocks. If you read my weekly update on the NEX renewable energy index you will see how badly this whole sector has been hammered. I also follow two renewable energy stocks on this site, VeraSun Energy (VSE: 0.00 N/A N/A) and Green Hunter Energy (GRH: 1.33 +0.1165 +9.60%). Both companies have recent news that show diverging prospects for each.

VeraSun Energy stock collapsed yesterday from an already very low value on rumors of pending bankruptcy. I have written numerous times about how I believed VeraSun’s largest, lowest cost model would allow them to survive high corn prices and maintain at least a thin profit margin. This all came undone in the summer when the company locked in corn futures at record high prices and was hit by falling ethanol prices. My last article was based on the hope that another company would be interested in VSE’s assets and purchase the company. If this company does declare bankruptcy any interested party will get those nice ethanol plant for pennies on the dollar. I think VeraSun could easily go under.

Green Hunter Energy seems to be working towards avoiding the fate of VeraSun by vertically integrating their biodiesel refining business. This article from the DTN Ethanol Center reports the company’s purchase of a diesel fuel distributor to help distribute their product. GRH is also developing their own Jatropha plantations in South America to provide a steady, cost controlled supply of feedstock. Green Hunter is a very developmental stage alternative energy producer (they are also developing wind energy) but they seem to have a business plan that takes lessons from troubles than have hit other companies in the sector. I believe the company has excellent long term prospects.

This site’s Opportunities Portfolio has positions in VSE, GRH and the renewable energy ETF: PBD (PBD: 9.73 +0.259 +2.73%). VSE has fallen to less than 0.5% of the portfolio but will be sold out on any kind of share price rally.

Atlas Pipeline Partners (APL: 37.07 -0.31 -0.83%) has declared a 3rd quarter dividend of 96¢, matching the 2nd quarter payout. In the two trading days since the announcement the share price has dropped almost 15%. This has me quite confused. I would understand if the market was pricing the stock at a 7% yield and the price falls because the dividend did not increase, but at $19 APL is yielding 19%. Even more incredible, Atlas Pipeline Holdings (AHD: 0.00 N/A N/A) increased the dividend from 42¢ to 51¢ and that stock is off 20% to yield over 20%.  AHD operates the general partner interest in APL, receives the GP incentives and holds over 5 million units of APL.

APL, AHD, Atlas Energy (ATN: 0.00 N/A N/A) and Atlas America (ATLS: 25.79 -0.40 -1.53%) report earnings Monday, Tuesday and Friday next week. I will be paying close attention to try to find out why the market does not like these companies. I believe they are among the best managed in the natural gas arena and have some unique factors going for them.

APL is a component of this site’s hypothetical Income Portfolio. ATN is in the Opportunities Portfolio.

Each week I recap the results of the WilderHill New Energy Global Innovation Index, symbol NEX, and published by New Energy Finance Ltd. The NEX is the tracking index for the PowerShares Global Clean Energy Portfolio ETF (PBD: 9.73 +0.259 +2.73%).

Last week the NEX accelerated in its free fall, losing 27.4%. The NASDAQ and S&P 500 were also off sharply, down 14.9% and 13.9%. Amex Oil shed 19.3%. The once high flying renewable energy sector has had its wings clipped. The current index value of 152.3 is 45% below the Sept. 30 closing value of 276.75. Unbelievable! All of the sectors in the index fell heavily, led by solar energy, off 34.1% and wind energy, down 31.8%. Power storage managed to lose “only” 19.4% as the best performer of a bad lot.

I really cannot foresee what will stimulate interest in this sector again. Alternative energy sources are a lower priority as traditional energy prices fall and saving the environment seems to be taking a back seat to saving jobs and the economy. This is a shame because the renewable energy sector offers many benefits as it takes up more of the planet’s energy load.

As you can see from the chart below, even 4 out of 5 of the best performing stocks in the index lost money last week:

NEX top gainers since 21/10/08
Theolia TEO + 0.9%
BKW FMB Energie BKWN - 1.1%
International Rectifier IRF – 2.5%
Covanta Holding CVA - 2.7%
Zhejiang Yankon Group 600261 - 3.6%

NEX top losers since 21/10/08
VeraSun Energy VSE - 57.4%
Suntech Power Holdings STP – 47.4%
Vestas Wind Systems VWS - 47.3%
Renewable Energy Corp REC - 42.0%
JA Solar Holdings JASO - 41.7%

City Bank (CTBK: 0.00 N/A N/A) of Lynnwood, WA has reported it’s first quarter loss in 34 years of business. The bank recorded a loss of $10.96 million after increasing loan loss reserves by $28 million during the quarter. The loss works out to a negative 69¢ per share.

At the end of September, non-performing assets had increased to $199 million out of a total loan portfolio of almost $1.2 billion. Actual charge offs for the quarter were $6.09 million. The bank’s large percentage of construction related loans were hit hard by the ongoing credit crisis. As buyers are unable to obtain mortgages, home builders are unable to sell homes and pay their construction loans. The Seattle area where City Bank does business has had a fairly stable real estate market but it is apparent the credit squeeze is having a significant effect there also.

City Bank remains strong with a Tier 1 Capital Ratio of 16.28%, well above the 6% minimum and almost double the requirement for “well capitalized”. The banks total assets and total loans continued to grow in the 3rd quarter.

In the press release the bank’s management acknowledged the bank reliance on construction loans and expect the “high loan delinquencies, nonperforming loans and potential charge-offs to continue for the remainder of the year and likely into next year.”

CTBK is a component of this site’s Income Portfolio. I reduced the holding by about half last month when the price rallied to over $14. I will be dropping the rest of the holding from the portfolio over the next couple of days. I have noticed that share prices can drop hard on the day bad news hits the market then recover some of the loss. I think strong indications of a recovery in the new home housing market are necessary before City Bank becomes an attractive investment again.