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Hi All and Merry Christmas! Is anyone involved currently with stocks in the 3-4 P/E range with some growth, good balance sheets and into a stable industry? One that I like very much is Bri-Chem Corporation or BRY in Canada. It meets the P/E range that I mentioned, although being a distributor, the balance sheet is levered. It also has the issue of distributing drilling fluids which will definitely be in lesser demand over coming months with cuts from producers in their capex budgets from 25 to 75%. Although, with their sale this Summer of their steel business, they are in acquisition mode which bodes well longer term. Anyway looking forward to your ideas. Cardboard

"Could it be the Fairfax thesis starting to play out?" Well, that is exactly my point. While I agree that lower commodity prices are a boost to the consumers and to many industries, it still points to lower current demand. Also to my knowledge, it is not all commodities that are supposedly trending toward surplus production, but they are all going down except for precious metals. Also, have you guys checked the U.S. 10 year treasury yield move? It is not showing any upward movement as you would expect of a Fed that is supposed to tighten up next year and who has stopped its QE program. The yield is actually heading down. All these signs point to a global economy that is slowing down. My fear is that having suffered deeply from oil & gas equities, that I will suffer from a 2nd wave that could come even more unexpectedly than this one. Cardboard

While most if not all here are fully aware of the large and sharp decline in oil recently, it seems that copper is also on the way to weakness as well trading below $3 a pound. Coal was the first to go down and now it seems that gold and silver are catching a solid bid. What all this means? Back in 2008/2009, all commodities went down due to global demand weakness. Gold and silver also went down since they were considered as a "source" of cash or liquidity for players facing cash needs or margin calls. I am just wondering if this whole commodity debacle is not a sign of things to come in 2015, namely a global recession. Japan is already in recession, China is slowing down and who knows what the real GDP number is, Europe is neutral at best and some U.S. numbers are weak lately, although I think it will muddle through. We can also remember from 2008/2009 how global things are now so inter-connected and correlated. While I am a value investor and that is why I got trapped into some kind of value trap with my oil stocks :'( and generally avoid macro calls, I am thinking that gold and silver this time around could be a pretty good hedge against insanity or for what could be a terrible year in 2015. The reason being that this solid bid that we are seeing is in the face of rapidly declining commodities. After a brutal sell-off, precious metals are not going down anymore, but heading up. I am thinking that investors now feel what will be the response to a global recession and it will be money printing or QE on a massive scale. This was unknown in 2008/2009, but now with interest rates still near zero and with the previous crisis response, what else to expect? Could they still be a source of liquidity and head down at first or with the recent bear, are most institutions and hedge funds out of it, so they would not apply selling pressure this time around? Apple stock is another one that worries me. It is huge and looks like it is correcting. The FXI is also something else that I am watching. Finally, this oil correction has been so sharp, dramatic and unexpected that I am worried that the next financial crisis will also come as a surprise and be shocking. Should we prepare? Cardboard

Your post is a lot more misleading than the inventory numbers! http://www.platts.com/pressreleases/2014/120314c "Analysts had expected a more modest, 0.50 percentage-point increase in the total refinery utilization rate. At 93.4% of operable capacity the week ended November 28, the total utilization rate matched a level last seen during the week ended September 19. The utilization rate typically dips after the summer, as refineries enter maintenance, and then ramps up heading into the winter. That seasonal trend is evident in 2014, albeit at elevated levels. For the same reporting week one year ago, the refinery utilization rate was lower at 92.4% of operable capacity." Most at 110% utilization? Refineries that turn months ahead planned maintenance on a dime to take advantage of low prices? Is this your bear thesis? Cardboard

Which glut? http://www.marketwatch.com/Organizations/American_Petroleum_Institute U.S. oil inventories down 6.5 million barrels in the last week... Can't be much impact yet from Canadian and U.S. producers who are all and I repeat all looking at their current capex plans. Any new spending plan will be towards low cost production. With the way cost curves are, it will lead to a decline in production in NA. There is just no way around it. And it will last for a while since bankers and producers will remember for more than just a few months the kind of Fall that we are living. Cardboard

This whole debacle looks to me like hedge funds piling on each other while many exit the trade. While there are real factors explaining the oil price decline such as: QE end, USD strength since June, European and Chinese economic weakness, new strong production from the U.S. and the desire from Saudi Arabia to take down U.S. shale, the speed and depth of the decline just does not seem to add up with data from inventories. When one looks at forward pricing for WTI, they are clearly in the $80 range despite current spot at around $65. So any company can hedge forward its future production at $80 if need be. It is only current, unhedged production that is delivered at $65 or below depending on the region. Is your company capable to survive oil at $65 for a quarter or two? The picture looks even better for Canada, considering that you need to add about 13% to these prices accounting for the exchange rate. So IMO, the people who are gonna suffer the most are the ones who are panicking now and dumping cheap equities. And the ones who are facing margin calls on equities and oil futures being forced to get out. Things are now priced like 2008/2009 with oil at $30 and there is no visible economic crisis. At least yet. If there is a global depression then all bets are off, but many stocks are pricing that already. Cardboard

http://www.reuters.com/article/2014/11/17/russia-rosneft-conference-idUSL6N0T744Z20141117 Russia has many ties to many OPEC members and would love to stick it to the West. That could come as a big surprise to many traders. Cardboard

I think guys that we need to go back to the analogy that Buffett has highlighted previously and sorry if it is not exact wording: "When someone enters a room, you should be able to tell right away if he or she is fat or not." The names here have been beaten up to death. There is room for more than a little bit of reserve inflation even if none of them have been accused of it other than by certain posters here. Cardboard

Another deal goes down in the oil patch: http://finance.yahoo.com/news/chesapeake-energy-corporation-announces-sale-110100527.html This time it is for U.S. gas assets at a whopping $96,000 U.S./boe/day. If one is to look at the recent EnCana-Athlon deal, Chevron-Kuwait and this one, they have all been done at pretty high prices. It is hard to imagine that some of the beaten up players that we keep talking about have not been approached with offers. I suspect that because they are in a perceived weaker position due to their debt and recent share price plunge that prices offered were too low and rejected. This may change with some tweaking from both sides. Cardboard

The S&P has now corrected 9.0% from top to bottom as of this morning. It is now rebounding strongly. This could be it. There is no recession on the horizon. No housing collapse. No Euro collapse as in 2011. Yet when you look at so many charts over the past couple of weeks, it is correcting more violently than in 2008... WTI oil was even positive for a little while and is not dropping as much in % terms as the S&P this morning. I take that as an encouraging sign. This whole energy debacle could turn into one of the biggest unfounded panic ever. Cardboard

http://www.bloomberg.com/news/2014-10-13/bakken-drillers-poised-to-curb-exploratory-spending.html?cmpid=yhoo In NA, this is the hardest hit area so far or U.S. based Bakken oil producers. They are already getting below $80 U.S. per barrel produced vs WTI at $85. I had mentioned that Continental Resources had significantly increased its cost forecast for its newer wells. This will get cut. The pressure to curtail 2015 activity will significantly alter overall U.S. production. Everyone is starting to freak out and being more careful about spending. Combined with inventories that are not at all higher or even below 12 months ago and WTI should hold around the $85 mark. Of course, that is unless Brent goes below $80 and at that point, most OPEC members will look for cuts which will please the Saudis and make prices rebound anyway. They can't play the game very long, they need to balance their budgets. And accessing the debt market for these countries during a liquidity crisis, which they could be contributing to by instilling global growth fears by playing with the crude price, makes it unacceptable. The message has been sent and oil production will now flat line. Canadian light oil producers on the other hand are benefiting from the strength in the USD and the need for diluents to ship bitumen into pipelines. So you have Edmonton light pricing in the $95 CDN range. They could now re-hedge at these levels and still make very good money. Cardboard

http://www.zerohedge.com/news/2014-10-13/what-happens-when-someone-desperate-sell-750-million-stocks

http://online.wsj.com/news/articles/SB10001424127887323527004579077290810607968 Repsol has been looking for a $5 to $10 billion acquisition in North America for over a year to diversify into more stable producing regions. They have made their asset sales already and have the cash in hand. They have rejected a full takeover of Talisman and instead are looking at shale assets and companies with a large percentage of their production in oil. Seems to me that they can cherry pick at the moment and I doubt that they have changed their strategy. It seems to be just a matter of the seller agreeing to a lower price than a few months ago. Unless of course, they don't want to look like fools by Wall Street and buy assets at cheap prices... Cardboard

Despite some legitimate concerns regarding the sector and the fact that some of these companies are too levered (PWT, LTS, SD and others), I continue to believe that some heavy shorting has been going on forcing a mass panic. While the S&P 500 has corrected about 5%, we already have Alcoa and PepsiCo having handily beaten earnings expectations. I assume that we will get the usual and that the large majority of companies will beat earnings expectations over the coming 2 or 3 weeks. This will likely end the correction. If multinationals do this well, then it will be a big reassurance on a global basis. Also, Draghi will likely increase QE and Germany will have to wake up and do something to help their own economy. If I am right at all, then I cannot foresee how oil could remain this weak. If it stabilizes at all around $85, then I would expect a major rally into these highly beaten up names. Then after they rally back, idiotic CEO's will make acquisitions. It will look better for them and to the investment community than buying cheaper now... Cardboard

What have we missed here or are we missing? Cyclical stocks will trade at a 30 to 80% of book value during a recession or when earnings and positive cash flows have disappeared. To my knowledge, WTI is still at $85 per barrel and all these companies are still generating positive cash flows and some have very respectable earnings. Indeed price received for light oil by Canadian producers is well north of $90 CDN at the moment. My latest visit to the U.S. indicates quite strong activity. Canada is slower but, still generating new jobs per today's report. China is still growing. Japan is not doing too bad. Europe is weaker, but we are talking 0% growth and not negative so far. Is it just a massive panic based on fear of $50 oil? And the impact on debt covenants? And how long would that pricing last if economies are still moving along? And at current share price levels, are we not trading already per these conditions or a very bleak future? How much discounting should be applied to a PWT, LTS, LEG, LRE, SD, etc. for a condition that I have described above or $50 oil and a worldwide recession which we see very little sign whatsoever of materializing? In 2008, lending problems and housing weakness were visible since late 2005. What in the world is justifying such fear at the moment? Cardboard

Looking at the charts this morning, might as well commit suicide. Cardboard

Don't forget that the CDN $ has dropped like a rock vs the USD recently and is now at 88.8 cents. This makes these names big bargains for U.S. producers who also get better valuations than their Canadian counterparts especially on an EV basis since analysts and investors don't punish them as much for a high debt to cash flow ratio. Something will happen here. It just makes no sense. Cardboard

Alertmeipp, Yes, I am still bullish and I have been adding to PWT and LTS very recently. I did cut down on LTS in the $8 range but, nowhere near enough based on the large decline that we have seen afterwards. Both companies have improved vs a year ago and the share price is still in the same range. Brent and WTI are also in the same range by the way as they were in the Summer of 2013. I firmly believe that $100 oil is here to stay with OPEC countries needing these prices. Not to mention Russia. Interestingly enough, the U.S. now also need $100 oil to maintain its oil & gas activity which has been a very large driver of economic growth. The latest release from Continental Resources also shows that Bakken wells are not cheap and going higher and this glut of cheap North American oil as portrayed by the media is nothing but a joke. I have also been keeping my eye on copper prices and other metals to see if that oil price weakness is related to China or global economic activity. It does not appear to be as they remain firm with copper in the $3.10 - $3.15 range. My conclusion is that we have some temporary economic weakness in Europe that may get resolved with their latest QE, we have more NA production that in the past, but it is not cheap oil and most countries are not increasing production and we are also IMO one little crisis away from jumping right back above $100 oil. Cardboard

IMO, absolutely nothing of significance will come out of the PWT restatement. Remember that this is accounting from the past and that current cash flows are real and unaffected as mentioned by the company nor is the debt or assets. Some numbers will be shifted from one place to another and you may see a charge to the book value which by the way is well well above the current share price. This whole thing is a side show. PWT declined, like the other unloved oil & gas stocks, because Brent and WTI have come down due to a slowdown in Europe. The people in charge are still competent and still on track to make it the best operator in the three plays that they have selected. Cardboard

Although I have no position in MEI, that is a very good point rohitc99. I have seen the exact same thing with Bellatrix earlier this year, then a few weeks later they came out with a share issue for no real purpose. I got out and glad I did. When you see something like that it means incompetence or trying to hide things for a while neither being good. Cardboard

It does look cheap. However, one concern for me is the reserve life index at 6.7 years which is rather low if I compare to other Canadian E&P with most between 10 and 15 years. That is why the discount to NAV is attractive at 36% but, no where near as mouth watering as the 2.5 cash flow multiple. The EV/DACF is also very attractive, and I would say more important than the P/CFPS multiple. Many Canadian E&P's have gotten in trouble when their debt to cash flow approached 2 times. Their target not to exceed 1.25 times is right on. If you are looking for comparisons, here are the multiples that have been paid in recent transactions for oily Canadian E&P's: $85,000 per boe/day $20 per 2P boe 2P reserve life index of 13 years On the boe/day metric, MEI would be over a double. Although, on the reserve life index metric, it would only go up 18% from here. Cardboard

Call David Tepper. Cardboard

One of the best books ever written on investing. While it may appear simplistic to some, I have yet to see how it failed to perform in most if not all situations. Chapters 7, 8, 11 and 13 are a near perfect recipe on how to analyze stocks. There is a reason why Warren Buffett invited Peter Lynch to Omaha after reading this book. How many authors have received similar invitation? Cardboard

I quickly looked at Spyglass and passed. Debt levels being pretty high, large dividend (poor capital allocation), John Wright on the board, gassy. After investing into Lightstream there was already too much similarity. I may tune back into it later but, I think I will wait for my current names to workout first We have seen a very interesting turn in sentiment for Canadian oil & gas since mid last year. The Ukrainian situation certainly puts a premium on stable Canadian energy, although very few are talking about that now. The XL pipeline will likely be built and with the amount of time that Obama has wasted trying to please his constituency, other shipping routes have or are being developed (East, West pipelines and oil on rail). This means a lower discount for our products going forward. The Canadian dollar has dropped a full 5 cents vs the USD => better margins, more attractive to foreign buyers. There is some rotation away from momentum stocks into undervalued, boring investments. Natural gas price is also much higher and it may stick. All of this has also improved markedly the market for asset sales which is great news for LTS and PWT. When you look at some of the metrics from recent sales, it is hard to say that we are still in a buyer's market. Cardboard

These are tough investments. Whenever something is experiencing some secular decline you are in for a rough ride. You may make a double or more but, the headaches that come with it... I have had my share of them. I was just reviewing some stocks this week-end and looked at companies like Magna. A 10 bagger since the 2008-2009 crisis. That is a stock that always had a net cash balance and no sign of secular decline whatsoever, actually the opposite. If the world did not end and cars were to be sold again, this was a great place to be. CCL Industries, doubled its earnings in two years in the quite boring: labels and specialty packaging industry. The stock has simply exploded. Growth in earnings combined with decent P/E expansion. Leon's Furniture keeps getting better every year. It was very smart for Watsa and team to buy into The Brick. By the way, I did not own any of these stocks. What I wanted to highlight is that paying a good price is the start but, if the business is also growing then that is where big money is made. And these are not Coca-Cola type stocks. They are boring with average margins but, well managed and their service or product is in demand. Cardboard