After a very quick run up from its March 10 low, Wall Street wheezed its way into the red last week.
The Dow Jones Industrial Average gave up 2.4%, on the week, finishing at 12,745.88. Investors grew worried by more losses in the financial sector and crude's continued march to record highs. Oil's runaway price surge leaves investors concerned about whether the already soft U.S. economy might weaken even further under the pressure of higher oil and gas prices.
The best performing online investors, Marketocracy's M100, have continued to emphasize energy in their portfolios. That has proven to be a wise bet. This earnings season, companies in the energy sector reported the highest earnings growth rate of any sector at 26%, according to Thomson Reuters.
Where does oil go from here? Last week, Goldman Sachs oil analyst Arjun Murti said that he thinks the price of oil could spike to $150-$200 a barrel over the next six to 24 months. Murti boasts some credibility on the issue: He was also the analyst that predicted back in
March 2005, when oil traded at around $50 a barrel, that the price would super-spike to $105 a barrel.
Longtime market pro Ed Yardeni thinks $200 oil is unlikely as slowing economic activity around the globe ratchets down demand for oil. Yardeni says it would take a fairly serious supply disruption triggered by a geopolitical crisis to drive prices up to $200 a barrel.
"Admittedly, there is one in the works as tensions mount between the U.S. and Iran," Yardeni writes.
The M100 certainly seem to think that investing in energy will continue to reward them with pleasing returns. A year ago, the M100's energy holdings made up 13% of their combined portfolios. Now their holdings are approaching 25% of their overall portfolios.
The latest buy: Continental Resources (nyse: CLR - news - people ), an oil and gas producer with
operations in the Rocky Mountain, Mid-Continent and Gulf Coast regions of the United States. Last week, the company, which has a market capitalization of about $9 billion, reported that its profit skyrocketed 64% in the first quarter as oil prices climbed to new highs.
Continental Resources said it raked in $88 million, or 52 cents per share vs. $53.8 million, or 34 cents per share, in the first quarter of last year. That was enough to beat the Street's expectations. Analysts had predicted profit of 49 cents per share.
Record energy prices continue to pad the company's .bottom line. The average price the company commanded for a barrel of oil jumped during the first quarter to $81.35 from $46.47 in the year-ago period.
The question now for the company is what to do with all this money from the boom times. Continental said it's going to use some of the cash it is generating from higher energy prices to invest in more drilling. The company forecasts its production by the end of the year to increase 42% from its current production levels.
Continental Resources had enjoyed a monster run up. The stock has surged more than 277% in just the past 12 months. But our M100 think there is still more room to the upside here.
Compared to its direct competitors, Continental Resources is much more profitable with operating margins of 48.95% for the trailing 12 months. It's also still very cheap relative to its expected earnings power, with a price-to-earnings growth ratio of just 0.47. (Anything less than one is considered a good deal.) The M100 carved out a big position.
Hedging their bets against a slowing economy, the M100 also decided it would be wise to pick up a classic recession-proof play. So the gurus looked to the consumer staples sector, where they decided it was time to push cash into candy maker Cadbury (nyse: CBY - news - people ).
Last week, on May 7, Cadbury and Dr Pepper Snapple Group (nyse: DPS - news - people ) officially parted ways and began trading under individual tickers.
Analysts following Cadbury point out bullish reasons to own the stock: They write that the company leads the worldwide confectionery industry with 10% global share and competes in all three segments: chocolate, sugar and gum. There are also a lot of candy lovers across the pond: One-third of confectionery sales are in emerging markets.
Also, analysts write, Cadbury has proved it can expand its confectionery business not only in emerging markets but also through innovation (liquid-filled, sugar-free gum), new products (Stride) and expanded distribution of existing brands (Trident in the U.K.).
Finally, and perhaps most alluringly for opportunistic investors like our M100, the recent decision of rival Mars to purchase Wrigley (nyse: WWY - news - people ) for $23 billion puts pressure on Cadbury to do a deal of its own. The Wrigley acquisition will give Mars over $27 billion in sales. The standalone confectionery division could now look ripe for a takeover.
One possibility is that Hershey (nyse: HSY - news -people ) will feel the pressure from the Mars deal and reconsider a merger with Cadbury. Although the two firms have chatted about teaming up in the past, the Hershey Trust's refusal to dilute its 78% control of voting rights in Hershey was an apparently insurmountable roadblock. (See: " Cadbury Climbs On Wrigley Deal".)
Still, the M100 clearly believe that a deal getting done here remains a real possibility. They
aggressively committed capital to the candy maker.
Other major buys for the M100 included silicon wafer maker MEMC Electronic Materials (nyse: WFR - news -people ), oil and gas company Rosetta Resources (nasdaq: ROSE - news - people ) and CryoLife (nyse: CRY - news - people ), a biomaterials, medical device and tissue processing company.
Analysts explain that Sigma creates chip designs that power set-top boxes that receive, decode and reassemble IPTV signals. IPTV, which stands for Internet protocol television, delivers video to peoples' homes via standard telephone lines. IPTV is common across the pond, in Europe and Asia, where there are low levels of cable TV penetration.
Morningstar analyst Eric Kobayashi-Solomon, who covers the company, notes that Sigma was one of the early pioneers in this specialized field, and it maintains more than 75% global market share in these semiconductor chips.
However, the analyst warned clients in a research note .that he has twin concerns about Sigma: First, he says there are worries about whether Sigma, which has a market capitalization of just $540 million, can really compete against larger rivals like Broadcom (nasdaq: BRCM - news - people ).
Also, he points out that Sigma has been hindered by questions about options back-dating and has had to employ two different auditors and three different chief financial officer's since early 2007.
"Our discussions with management lead us to believe that these issues are not deeper signs of malfeasance, but we recommend potential investors to consider their individual risk tolerance before investing in this firm," Kobayashi-Solomon wrote.
Sigma's stock hasn't been an investor-pleaser. It's down about 30% in the past year and 60% in the past six months. The M100 decided it was time to move on.
Nothing in this article is, or should be construed as, investment advice.
The Dow Jones Industrial Average gave up 2.4%, on the week, finishing at 12,745.88. Investors grew worried by more losses in the financial sector and crude's continued march to record highs. Oil's runaway price surge leaves investors concerned about whether the already soft U.S. economy might weaken even further under the pressure of higher oil and gas prices.
The best performing online investors, Marketocracy's M100, have continued to emphasize energy in their portfolios. That has proven to be a wise bet. This earnings season, companies in the energy sector reported the highest earnings growth rate of any sector at 26%, according to Thomson Reuters.
Where does oil go from here? Last week, Goldman Sachs oil analyst Arjun Murti said that he thinks the price of oil could spike to $150-$200 a barrel over the next six to 24 months. Murti boasts some credibility on the issue: He was also the analyst that predicted back in
March 2005, when oil traded at around $50 a barrel, that the price would super-spike to $105 a barrel.
Longtime market pro Ed Yardeni thinks $200 oil is unlikely as slowing economic activity around the globe ratchets down demand for oil. Yardeni says it would take a fairly serious supply disruption triggered by a geopolitical crisis to drive prices up to $200 a barrel.
"Admittedly, there is one in the works as tensions mount between the U.S. and Iran," Yardeni writes.
The M100 certainly seem to think that investing in energy will continue to reward them with pleasing returns. A year ago, the M100's energy holdings made up 13% of their combined portfolios. Now their holdings are approaching 25% of their overall portfolios.
The latest buy: Continental Resources (nyse: CLR - news - people ), an oil and gas producer with
operations in the Rocky Mountain, Mid-Continent and Gulf Coast regions of the United States. Last week, the company, which has a market capitalization of about $9 billion, reported that its profit skyrocketed 64% in the first quarter as oil prices climbed to new highs.
Continental Resources said it raked in $88 million, or 52 cents per share vs. $53.8 million, or 34 cents per share, in the first quarter of last year. That was enough to beat the Street's expectations. Analysts had predicted profit of 49 cents per share.
Record energy prices continue to pad the company's .bottom line. The average price the company commanded for a barrel of oil jumped during the first quarter to $81.35 from $46.47 in the year-ago period.
The question now for the company is what to do with all this money from the boom times. Continental said it's going to use some of the cash it is generating from higher energy prices to invest in more drilling. The company forecasts its production by the end of the year to increase 42% from its current production levels.
Continental Resources had enjoyed a monster run up. The stock has surged more than 277% in just the past 12 months. But our M100 think there is still more room to the upside here.
Compared to its direct competitors, Continental Resources is much more profitable with operating margins of 48.95% for the trailing 12 months. It's also still very cheap relative to its expected earnings power, with a price-to-earnings growth ratio of just 0.47. (Anything less than one is considered a good deal.) The M100 carved out a big position.
Hedging their bets against a slowing economy, the M100 also decided it would be wise to pick up a classic recession-proof play. So the gurus looked to the consumer staples sector, where they decided it was time to push cash into candy maker Cadbury (nyse: CBY - news - people ).
Last week, on May 7, Cadbury and Dr Pepper Snapple Group (nyse: DPS - news - people ) officially parted ways and began trading under individual tickers.
Analysts following Cadbury point out bullish reasons to own the stock: They write that the company leads the worldwide confectionery industry with 10% global share and competes in all three segments: chocolate, sugar and gum. There are also a lot of candy lovers across the pond: One-third of confectionery sales are in emerging markets.
Also, analysts write, Cadbury has proved it can expand its confectionery business not only in emerging markets but also through innovation (liquid-filled, sugar-free gum), new products (Stride) and expanded distribution of existing brands (Trident in the U.K.).
Finally, and perhaps most alluringly for opportunistic investors like our M100, the recent decision of rival Mars to purchase Wrigley (nyse: WWY - news - people ) for $23 billion puts pressure on Cadbury to do a deal of its own. The Wrigley acquisition will give Mars over $27 billion in sales. The standalone confectionery division could now look ripe for a takeover.
One possibility is that Hershey (nyse: HSY - news -people ) will feel the pressure from the Mars deal and reconsider a merger with Cadbury. Although the two firms have chatted about teaming up in the past, the Hershey Trust's refusal to dilute its 78% control of voting rights in Hershey was an apparently insurmountable roadblock. (See: " Cadbury Climbs On Wrigley Deal".)
Still, the M100 clearly believe that a deal getting done here remains a real possibility. They
aggressively committed capital to the candy maker.
Other major buys for the M100 included silicon wafer maker MEMC Electronic Materials (nyse: WFR - news -people ), oil and gas company Rosetta Resources (nasdaq: ROSE - news - people ) and CryoLife (nyse: CRY - news - people ), a biomaterials, medical device and tissue processing company.
Analysts explain that Sigma creates chip designs that power set-top boxes that receive, decode and reassemble IPTV signals. IPTV, which stands for Internet protocol television, delivers video to peoples' homes via standard telephone lines. IPTV is common across the pond, in Europe and Asia, where there are low levels of cable TV penetration.
Morningstar analyst Eric Kobayashi-Solomon, who covers the company, notes that Sigma was one of the early pioneers in this specialized field, and it maintains more than 75% global market share in these semiconductor chips.
However, the analyst warned clients in a research note .that he has twin concerns about Sigma: First, he says there are worries about whether Sigma, which has a market capitalization of just $540 million, can really compete against larger rivals like Broadcom (nasdaq: BRCM - news - people ).
Also, he points out that Sigma has been hindered by questions about options back-dating and has had to employ two different auditors and three different chief financial officer's since early 2007.
"Our discussions with management lead us to believe that these issues are not deeper signs of malfeasance, but we recommend potential investors to consider their individual risk tolerance before investing in this firm," Kobayashi-Solomon wrote.
Sigma's stock hasn't been an investor-pleaser. It's down about 30% in the past year and 60% in the past six months. The M100 decided it was time to move on.
Nothing in this article is, or should be construed as, investment advice.
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