Investors often overlook SEC filings, and it is the job of the 10Q Detective to dig through businesses’ 8-K and 10-Q SEC filings, looking for financial statement ‘soft spots,'(depreciation policies, warranty reserves, and restructuring charges, etc.)that may materially impact Quality of Earnings.
Tuesday, February 03, 2015
Energy Stocks Surge on Expected Bottoming in Crude Prices
Nordic American Offshore (NAO-$11.11) management has repeatedly stated that the fundamentals
of its PSV (platform supply vessel) leasing business are “not directly exposed
to the price of oil to a significant extent.”
“The best liar is he who
makes the smallest amount of lying go the longest way.” ~ Victorian-era English
author Stephen Butler
The company announced a
$1.7 million loss in net-income for fourth quarter 2014. Management now attributes
the disappointing results to weakening demand for new drill projects in the
North Sea – tied to a decline in the price of oil!
stocks of all stripes (including speculative E&P companies with highly-leveraged
balance sheets) have climbed more than 10% in just the last two trading
sessions: The 10Q Detective's diversified energy portfolio has also benefited
handsomely from surging oil prices. That said, it is our view that the worst is
not yet over in the oil patch – as drillers slash capex budgets, look for further downward revisions in profit
outlooks to be announced on conference calls this month.
Given the continued imbalance
between expectations and reality, we sold most of our positions as the markets
rallied today. Where it was possible to obtain “reasonable” bid prices
(depending on option activity), we did write covered calls on a few remaining
positions, such as Seadrill Partners (SDLP-$15.04),
to provide some down-side insurance as we wait for ex-dividend dates. We will look to repurchase previously discussed stocks on any market pullback.