I certainly do. I’m talking about Hess Oil. HES. Let’s revisit the stock checklist. Hess Oil scores a 8, the highest rating I’ve yet to see any stock achieve. Not only do I believe it will come back but double within 3 years or less. Also check out Barron’s Article May 21st.
This is a checklist I use to quickly come to a conclusion on a stock. I score a stock, each line getting a 1, 0, or -1. A stock that scored 1 on each line would be a perfect 10. Unlike Bo Derek was, it may be impossible to score a 10. For example if a company were to have a low PEG ratio, it might be because the company’s historic growth rate was low and scored a -1 with the analyst community. Put it another way, I’ve never found a perfect 10.
Some of these items are quite subjective. For example how would I score Cash Flow? If a company’s cash flow is much lower than it’s reported earnings, that raises a flag and I would score it a -1. If there are more insiders buying than selling, I would score it a 1. If there are no apparent catalysts in the near future I would score it a 0 but on the other hand if there is a pending secondary that will put more stock out on the market, I would score it -1.
- CHART- know how to read charts. I firmly believe I can improve the price of buying or selling from an understanding of chart action. +1 positive divergence. I think HES is bottoming right here. Unlike the market which I think is headed lower. After all HES has dropped faster and harder than the market so it’s due at least. It’s been an extraordinary performer for 30 years so there’s little logical reason to doubt it will continue to do so. Current CEO John Hess has been CEO since 1995
- ANALYSTS- read analyst reports but come to your own conclusions. Yahoo Finance has 5 Strong 9 buys 6 holds +1
- INSIDERS- if the people that know the company the best are not buying it, why should you? +1 Almost $4 million in the past three weeks
- MANAGEMENT DISCUSSION 10Q AND 10K- this is the only truthful thing you will read about a company. It’s composed by management, the auditors, and the firm’s lawyers. If all three of them can agree on the verbiage, it’s passed a big hurdle. Read it carefully. Pay particular attention to the Risks, Litigation, and Related Transaction sections. These are the things you will wish you had taken the time to read if something goes bad with your investment. In February 2012, the Corporation reached an agreement to sell its interests in the Bittern Field (Hess 28%) in the United Kingdom North Sea. How much is the sale worth? It’s expected to close in the 4th quarter. Hess sold a 3% stake in the Snhovit Field for cash of $132 million resulting in a net gain of $36. So does selling a field where your ownership interest is nearly 10 times as great result in ten times the profit, $1.32 billion cash and I have no idea of the profit because I don’t know the price or what they had it on their books at. But considering Hess made $545 million in the quarter, so even just $250 million addition could be a gigantic lift to Q4. +1
Feb 23 (Reuters) – South Korea’s state oil firm Korea National Oil Corp (KNOC) said on Thursday its British subsidiary Dana Petroleum Plc had agreed to take a 28.3 percent stake in North Sea offshore oil field Bittern from Hess Corp .The deal will raise Dana’s stake in the field to 33 percent and add 5,500 barrels of daily production to oil reserves held by South Korea, the world’s fifth-largest crude importer.KNOC, which plans to invest between $3 billion and $4 billion this year to acquire oil assets, declined to reveal the value of the deal.South Korea, which depends almost entirely on oil imports, has around 220,000 barrels of daily production, or a 13.7 percent self-sufficiency rate–the percentage of production it owns against total requirements.Other key shareholders of the oilfield are Royal Dutch Shell with a 39.6 percent stake and Exxon Mobil Corp with 25 percent. I’m not sure anyone knows the price butHess deal boosts Dana’s stake in North Sea field
By Ross Davidson
Published: 24/02/2012
OPERATING ASPIRATIONS: The Triton floating production vessel, which is used on the Bittern fieldNorth Sea oil firm Dana Petroleum has added to its share of the Bittern field after a multimillion-pound deal with Hess.
The acquisition of Hess’s 28.3% stake in Bittern, believed to be for about £125million, means Dana now has a 33% share of the development.
- RELATIVE PERFORMANCE- If the stock has a superior relative performance to the market in the short term – 1 Hess is considerably weaker than the market underperforming by under 33%or more.
- SECTOR OUTLOOK- buying a good stock in a bad sector can be a humbling experience -1 Oil and Gas have been the worst performing sector for weeks
- CASH FLOW- cash flow is more accurate than earnings. Earnings can be more easily manipulated. +1 Athough cash flow weakened in the 1st quarter versus 2011, cash flow appears consistently stronger than reported earnings
- PEG RATIO- it’s good to find a company growing faster than it’s multiple. +1 PEG is .86
- VALUATION- contrary to popular opinion, it does matter what you pay for a company. Check its discounted cash flow value. Buy it for less than what it’s worth, a 1, less a -1, about the same 0. +1 operating margins have risen from 2009 to 2011
8.94% 2011 8.63% 2010 6.51% 2009 Once the inputs are corrected and adjusted I assume DCF on 7 year terminal growth rate, 3% risk free rate of capital at $95 valuation. I would be shocked if anyone could buy this company for less than that. They are just too good a trophy property.
- CATALYST- what’s going to change the status quo? Could be the sale of assets closing in the 4th quarter, consistent earnings most of 2012 production is hedged. Also to a lesser degree, HES Hess is exploring the sale of its St. Lucia crude oil and refined products storage and transshipment terminal in the Caribbean; co has retained Goldman Sachs as financial advisor in connection with the potential sale
Trading the markets is a humbling experience. I hope this handy checklist makes it less so.