Money and Investing Thoughts

Southland home sales up, prices down; foreclosures now half the market.

October home sales data is starting to come in for the California markets and the positive trends are continuing. I had read several articles predicting that home sale would stall as buyer’s fear was incited by the stock market crash. Southern California home buyers did not slow down as the 6 county region had October sales 5% higher than September, 66% higher than October 2007, the highest monthly sales this year and the highest monthly sales in 20 months. Buyers were taking advantage of low prices on foreclosed homes as over half of the sales were these type of properties.

An interesting fact in the report shows there is plenty of room for sales growth. Although the October sales number was the 4th straight month of year over year increases (after 33 months of decreases) the October sales number was still 12% below the 21 year average for October.

The median home price for the region fell to $300,000. I think a couple of excerpts from the Data Quick report explain it best:

Several factors explain the plunge in the median price, the point where half of the homes sold for less and half for more: Regionwide home price depreciation; much slower high-end sales; and the rising market share of foreclosure resales, which tend to be located in mid-to lower-cost areas.

Many of the region’s relatively affordable neighborhoods saw October sales more than double from a year ago. Use of FHA-insured loans allowing a down payment of as little as 3 percent represented nearly one-third of all Southland purchase loans last month, up from 2 percent a year earlier.

The data on mortgage payments was also interesting. The average mortgage payment for new October sales was $1,413. This is down 45% from the 2006 peak and, adjusted for inflation, 33.9% below the typical payments in early 1989.

California buyers are obviously seeing value in the current real estate market. If the pending government and major lender programs are successful in slowing the rate of foreclosures the market bottom is near.

Mexico Hedges All Oil Exports in ’09 at $70 – WSJ.com.

The above article from last week at the WSJ.com (subscription required) detailed how Mexico has purchased puts against its entire 2009 oil production to guarantee an minimum of $70 per barrel. They purchased puts at a cost of $1.5 billion to cover 330 million barrels of oil. My math puts (pun intended) the cost of the protection against lower than $70 oil at approximately $4.50 per barrel of oil.

When a major player in any market takes a large position against a price move in one direction, I am tempted to believe the next move will be in the opposite. Witness the locking in of corn prices by VeraSun Energy at the grain’s peak and the subsequent bankruptcy when prices fell precipitously. Fear can drive people to irrational and ill timed decisions. I quote from the WSJ article:

But the steep fall in the price of oil from last year’s highs alarmed Mexican officials.

Buying puts does allow the Mexicans to profit if oil prices rise significantly. They would just let the put expire worthless and have a loss of their initial purchase. If you are a believer that large institutions are very good at making the absolute wrong decision at the wrong time, this action would predict that oil prices will trade in a range of $70 to $75 for most of 2009.

Each week I recap the results of the WilderHill New Energy Global Innovation Index, symbol NEX, and published by New Energy Finance Ltd. The index consists of approximately 90 stocks from 22 countries. 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 returned to its losing ways, shedding 12.2%. The major market averages NASDAQ and S&P 500 were off 8.3% and 7.4%. AMEX Oil fell 7.1% along with falling oil prices.

The solar energy sector was the largest decliner, losing 20.1%. All components of the sector fell on the news of decreased demand for solar equipment.

Wind energy, co-largest sector along with solar, posted a modest loss of only 6%. Wind was only outperformed by power storage, which declined 4.7%. In the wind sector, Chinese turbine manufacturer Goldwind climbed 30.3% on news of the Chinese government infrastructure package.

Here are the top gainers and losers from the NEX for last week:

NEX top gainers since 11/11/08
Xingjiang Goldwind Science & Technology 2202 + 30.3%
Zhejiang Yankon Group 600261 + 21.2%
Power-One PWER + 12.2%
GS Yuasa 6674 + 8.3%
Cosan S/A Industria e Comercio CSAN3 + 4.4%

NEX top losers since 11/11/08
Aventine Renewable Energy Holdings AVR - 35.9%
GT Solar SOLR - 34.7%
Conergy CGY - 34.1%
Yingli Green Energy Holding YGE - 34.0%
Capstone Turbine CPST – 32.4%

Anyone watching the results of U.S. based airlines over the last 6 months know they have struggled mightily with higher fuel prices. In contrast, my favorite airline stock, Panama based Copa Holdings (CPA: 71.59 +1.79 +2.56%) has had two nicely profitable quarters in a row. For the just released 3rd quarter Copa had net earnings of $30.3 million or 70¢ per share, the same level as the 2nd quarter. The earnings are well below the $1.08 for the 3rd quarter of 2007, but very nice results considering the fuel cost environment.

Copa Holdings is the holding company for Copa Airlines and Aero Republica. They have an extremely modern, fuel efficient fleet of Boeing 737-800 and Embraer-190 aircraft. By year end they will be serving 45 cities in 24 countries, giving them the most extensive Latin America network. Copa flies to New York, Washington, D.C., Miami and Los Angeles in the U.S.

I believe economic growth in Latin America will continue to be strong and Copa is a good way to play that growth. The company is very well managed and I expect earnings to start growing rapidly with falling fuel prices. Estimated earnings of $4 per share for 2009 could be way short and $4 bucks already looks pretty good against a $25 share price.

CPA is a component of this site’s hypothetical Opportunities Portfolio.

Aegean Marine Petroleum Network Inc. (ANW: 5.44 +0.22 +4.21%) has been a public company for 7 quarters now and their growth track has been steadily progressing. The 3rd quarter results just released were no exception. Aegean Marine is building a worldwide network of ship refueling facilities and the bunker tankers that provide fuel to ocean going vessels. They have expanded into 12 ports and currently have approximately 30 bunker tankers on their way to 52 by the end of 2010.

To track their growth the company reports the total amount of bunker fuel sold and the gross spread per metric ton. For the 3rd quarter the company sold 1.34 million metric tons, up 49% from Q3, 2008 and 8.6% higher than Q2, 2008. The gross spread per ton in the 3rd quarter was $32.75, up 32% from 2007. From comments on the conference call the management will be happy if the gross spread stays in the high $20′s or better. Net income per share also increased to 25¢ for the quarter compared to 17¢ a year earlier, a 47% gain.

The growth factors that ANW are building on are still in play. The worldwide number of bunker tankers is rapidly shrinking as single hull models are forced out of service by regulation much faster than new double hull ships can be built. The industry is ripe for consolidation as many smaller players are having trouble obtaining working capital in the current financial environment. ANW is now the largest bunker fleet in the world with 29 tankers out of a worldwide total of over 1,600 (down from 3,500 at the start of 2007). Besides continuing to increase the size of their fleet, ANW has significant upside potential from the current utilization average of 550 metric tons/vessel/day. Their U.A.E. facility has had quarters with almost 1,000 ton per day utilization.

As was pointed out in the conference call, ships need the same amount of fuel no matter how much they are earning. Aegean Marine is building a worldwide network to provide fuel to all kinds of ships from tankers to dry bulk to cruise ships. A year ago this stock was over $40 based on its growth prospects. The growth has continued and the prospects are even stronger.

ANW is a component of this site’s hypothetical Opportunities Portfolio.