Tag Archives: alt-investing

Upcoming Political Risks For TransCanada Corp And The Keystone XL Pipeline

Summary Upcoming Canadian Federal Elections present significant risks for TransCanada Corp. The proposed Keystone XL and Energy East Pipeline projects will face strong headwinds if the NDP wins a minority. Expect increased short term volatility as these events unwind and the possible outcomes become more clear to investors. TransCanada Corporation (NYSE: TRP ) is a Canadian midstream oil and gas company operating in three main business segments: Natural Gas Pipelines, Liquids (crude) Pipelines and Energy. Its pipeline operations extend from Canada to the U.S and Mexico. Revenue breakdown for 2014 between these segments can be seen bellow: (click to enlarge) ( 2014 Annual Report ) TRP currently has two large proposed pipeline projects that have created a lot of public reaction recently and have become hot topic for the media and politicians from both the U.S and Canada. These projects are the Keystone XL and Energy East pipelines. With the Canadian Federal election to be held on October 19th, 2015, it is critical to evaluate each party’s stance on these two proposed projects. Keystone XL Pipeline Overview: The Keystone XL pipeline would transport crude oil for Alberta to Nebraska, expanding the current and operational Keystone Pipeline System. The proposed pipeline would measure 1,897 km long, possess a capacity of 830,000 barrels of oil per day and is estimated to cost $8 billion with $2.4 billion already invested. The pipeline faces a difficult regulatory environment. Since it crosses international borders between Canada and the United States, it is required to obtain a Presidential Permit from the Department of State. The Permit is awarded if the proposed Project serves the national interest, which is a very broad term and requires the consideration of many factors such as energy security, environmental, cultural and economic impacts. Energy East Pipeline Overview: The Energy East Pipeline would transport crude oil from Alberta and Saskatchewan to the eastern Canadian refineries as well as other export markets. In terms of length, this pipeline would span 4,600 km, have a capacity of 1.1 million barrels per day and is estimated to cost $12 billion. The regulatory environment for this project is administered by the NEB (National Energy Board) in Canada, which likely stands to approve the project providing the environmental requirements are met and political support remains. Upcoming Canadian Elections: The outcome of the upcoming Canadian Federal Elections slated for October 19th 2015 will have a significant impact on the likelihood of the Keystone XL and Energy East pipelines being completed. While both Harper’s Conservative party and Trudeau’s Liberals support both projects, the NDP led by Tom Mulcair is currently opposed. While the NDP has yet to win a federal election, this year may be its best chance yet. After a break through election in 2011 in which the NDP replaced the Liberals as the current opposition party. To add to the fact, the Alberta NDP recently won the Albertan provincial election, widely considered a Conservative stronghold and native land of Stephen Harper. The Tory’s have called an early election with the hopes of outspending their opponents. New rules introduced increase the spending limit for longer campaigns. The hope is that this will allow them to outspend the NDP and Liberals on advertising during the critical final weeks leading to the election. While still extremely early in the race, it is worth noting that the NDP currently holds a small but growing lead over the Tories. (click to enlarge) Source: CBC.ca . United States Political Front: As for the U.S political front, Obama has strongly opposed the Keystone XL project and it is extremely unlikely this position will change during the remainder of his term in office. TRP’s hopes lie with the next administration from which they can expect a better odds that they will receive support. Hillary Clinton recently refused to provide a direct answer to whether or not she supports the Project, stating that her current position and the potential for he involvement in a possible lawsuit prevents it. While she is unable to provide any comments at this time, her refusal to offer outright support for Obama on this issue signals that she may be more supportive of the project. As for the Republicans, Jeb Bush tweeted his support : “Keystone is a no-brainer. Moves us toward energy independence & creates jobs. President Obama must stop playing politics & sign the bill.” The economic benefits of the project throughout the U.S would make it difficult for any Republican candidate to oppose it. Conclusion: The impact of an NDP victory in the upcoming Canadian Federal Election presents a significant risk for TransCanada Corp. Two of TRP’s flagship pipeline projects, Keystone XL and Energy East, currently supported by the Tories, are strongly opposed by the NDP. While TRP appears to be a sound value play in the midstream O&G market, offering a juicy 4.31% yield and stable operating cash flows, the upcoming political risks should not be underestimated. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

How To Catch A Falling Knife

Summary The “falling knife” stock is increasingly common. The current economic environment increases risk in falling stocks. One long-established investment technique can minimize the risk. Falling knife: A security or industry in which the current price or value has dropped significantly in a short period of time. A falling knife security can rebound, or it can lose all of its value, such as in the case of company bankruptcy where equity shares become worthless. –Investopedia Remember Boston Chicken? Inspired by the heady days of the late ’90s and my personal effort to improve their top line, I watched BOST decline in price and finally made a major share purchase when it was so low I could not resist. To this day I maintain that no company can go broke trying to sell too much fat, salt, and sugar to the American public. This axiom was overcome by BOST’s incestuous finances and the practice of selling one dollar of chicken for 95 cents, which led to bankruptcy in 1998. A $50 check from the subsequent class action lawsuit did little to assuage my five figure loss. There were many lessons to be had from this experience. The one I want to concentrate on is the value of dollar cost averaging, or DCA, in purchasing stocks that are declining in price. DCA refers to planned purchases in multiple increments over time, in contrast to a one time purchase of the full investment. If I had used DCA with Boston Chicken, my loss would have been much less severe. DCA is useful in many circumstances, but its benefits are magnified in cases where a stock is in a significant decline. The Falling Knife Scenario The classic falling knife scenario consists of an abrupt price change. Yelp is a particularly hair-raising example: A broader definition of “falling knife” is any stock that is in a clear price decline over a period of time. Under this definition there are many falling knives among today’s investment choices. Every day articles appear on Seeking Alpha enthusiastically recommending a purchase because stock X is N per cent off its high. Readers will often note that such articles have appeared since a decline began. Here are three companies in the falling knife category that have had bullish articles all the way down: American Capital Agency (NASDAQ: AGNC ), Emerson Electric (NYSE: EMR ), Chevron (NYSE: CVX ): How long and how severe these declines will be no one knows. At losses from 52 week highs of 22%, 19%, and 30% for EMR, AGNC and CVX there could still be a lot of air underneath them. Other widely held falling knives include: Exxon Mobil (NYSE: XOM ). Intel (NASDAQ: INTC ), Caterpillar (NYSE: CAT ), Freeport-McMoRan (NYSE: FCX ), BHP Billiton (NYSE: BBL ) (NYSE: BHP ), National Oilwell Varco (NYSE: NOV ), and 3M (NYSE: MMM ). The DCA Effect Using Chevron as an example the usefulness of DCA is clear. An investment of $30,000 when CVX had declined 10% from its high of $130 would buy 256 shares: Date Price Investment Shares 10/02/2015 $117 $30,000 256 Value 08/01/15 $88 $22,528 256 An investment in three increments over equal time periods would buy 293 shares: Date Price Investment Shares 10/02/2015 $117 $10,000 85 03/01/2015 $105 $10,000 95 08/01/20015 $88 $10,000 113 Value 08/01/15 $88 $25,784 293 The DCA approach buys 37 more shares, $3,256 more in value, and $159 more in annual income. If CVX returns to $130, the price at which it started, the difference in total value rises to $4,810. It is true that there is a possibility of losing out on some gains if a stock rises in value between purchases. But as Daniel Kahneman wrote in classic book Thinking, Fast and Slow : Losses loom larger than gains. The “loss aversion ratio” has been estimated in several experiments and is usually in the range of 1.5 to 2.5. For the average investor, the good feelings you get from gains are more than wiped out by the bad feelings from losses. Perhaps humans have an instinctual aversion to loss of capital. Why is DCA important now? DCA has strengths that apply to all circumstances, such as reducing risk and replacing emotion with discipline. In today’s markets its benefits are particularly important. After six years of almost uninterrupted rise in stock prices, recency bias is very strong. Recency bias causes investors to believe trends and patterns have observed in the recent past will continue in the future. Investors look at where a stock has been, not where it is going. Complacency among investors is high. New investors have with no experience of a declining market have an inflated sense of their stock-picking ability. Older investors, with six years of mostly positive experience, may think that their prowess has improved more than it has. Price declines reflect changes in the macroeconomic situation. Global growth estimates continue to be lowered. Money is no longer being added to the US system through quantitative easing, and as shown by Eric Parnell and others there has been a strong relationship between QE and stock market performance. In addition, numerous indicators have been flashing warning signs for some time. DCA is agnostic concerning market projections but economic changes do affect results. Conclusions The falling knife conundrum — what to do when a stock we like is falling — is increasingly common. The angel on one shoulder tells us to buy and the angel on the other shoulder tells us not to lose money. Dollar cost averaging is a way to resolve these different impulses. DCA is helpful in many situations, but particularly today when uncertainty is increasing and six years of successful stock-picking may have inflated both our confidence in the market and the perception of our abilities. DCA takes away the pressure of having to make a one-time purchase decision, allows us to act independently of market noise, and reduces risk. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in XOM EMR over the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Gold M&A Outlook Changes, The Direxion Shares Exchange Traded Fund Trust Lower

The Direxion Shares Exchange Traded Fund Trust (NYSEARCA: NUGT ) was down on Wednesday as the market for the metal remains rocky as traders look for clues about the Federal Reserve’s decision making in the months ahead. Meanwhile some firms in the industry are seeing the collapse in the price of the metal as a reason to go on a spending spree. Oceana Gold Corporation ( OTCPK:OCANF ) announced a $900m offer to acquire Romarco Minerals ( OTCPK:RTRAF ), on Tuesday. Larger gold makers are looking at weaker share prices as a reason to consolidate the industry. Mick Wilkes, CEO at Oceana Gold, says that “You have to stay at the dance and engage with opportunities as they come up.” Gold makers buy gold Last Friday Metals X Limited said that it would buy gold projects from RNI and Panoramic Resources. The firm’s CEO Peter Cook says that “When the market caps of some of the juniors are very low, that’s the time to make a corporate takeover.” Mr. Cook said that the costs and time associated with buying out smaller firms was the major factor keeping him from taking in more. “I’ve got five companies I’d like to have a crack at … but as soon as I do one I am paralyzed for six months from doing anything else,” he says. For those holding onto gold as a metal, the deals aren’t going to do much good. The price of the commodity has fallen massively in recent months as traders in the U.S. try to guess when the Federal Reserve will hike rates , and traders in China sell out in order to pay for the massive stock market declines. It also doesn’t seem to making much difference to those exposed to the metal through NUGT. The Direxion Shares Exchange Traded Fund Trust down Despite the spurring M&A movement in the gold world, there’s seems little chance of the NUGT moving higher. The number one factor that weighs on the shares of gold miners is the price of the metal, and that isn’t shifting higher. On Tuesday, as gold prices inched higher, Ira Epstein, a broker with Linn & Associates told the Wall Street Journal that “certain Fed members are getting hawkish.” He reckons that “The Fed wants to get aggressive and raise the rates, and that is going to give a bid to the dollar and that is going to be negative gold.” No one is able to tell where the price of gold, or that of the NUGT is going to head in the coming months. Recent price moves have, however, made traders much more wary of putting the metal in their portfolios. Calls for the price of gold to hit $800 or even $350 haven’t helped matters, but it seems that there are big issues in the market. Firms like Oceana Gold Corporation, and Metals X are going to take advantage as long as prices stay low. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.