Archive for September, 2006

Wine Review – Merlot Vintage 2004

Jacob’s Creek, South Australia

This wine tasted tart from the beginning and didn’t improve.  Shallow body and rough texture.

Add comment September 28th, 2006

Taking Stock of Dot Hill (HILL)

Who knows what the future holds for Dot Hill.  Certainly the CEO and CFO don’t as they somewhat unexpectedly departed a few months.  Other issues, such as the overdependence on their main customer Sun Microsystems (which to a certain extent dictates pricing and A/R days) and a delayed 10Q filing, have further added weight to the anvil weighing this stock down over the past two years.  Turn the page though and you see a company with extraordinary revenue and income growth guidance (albeit, provided by the now departed management), an R&D engine generating some impressive patent IP, and new OEM partnerships that will hopefully spread the revenue mana in the year to come. 

ROIC should pick up very nicely even if guidance isn’t fully met and the company doesn’t require much capex spend allowing for significant FCF leverage when a revenue breakout does finally occur.  An additional reason for taking a long position is the increase in big/smart money positions on decent volume.  The risks? Not meeting guidance and the likelihood the market will have a correction soon.

Add comment September 27th, 2006

Taking Stock of Nabors Industries (NBR)

I think we all know by now that the energy sector has lost its momentum investor excitement.  I have to even wonder if the growth investors are now leaving this sector as economic slowdown becomes more tangible and the high cost of energy continue to push alternative energies into the mainstream.  I do not believe energy prices will fall too much further as much of the recent price fall was driven by speculative investors fleeing the commodity play (and crushing the likes of Amaranth Advisors LLC), and prices around $55+ should reflect fairly stable oil demand.  I would definitely avoid slim margin companies like the refiners as well as E&P companies whose cost of extraction is $40+ a barrel.

As with most of the Street, I am trying to come to terms with the prospects for this company two years down the line, especially if energy prices continue their nosedive as they recently have.  This company is making money hands over fist as high rig day rates continue to stay high and new rig contracts are booked for years in advance.  The problem with this company though is the capex spend that basically neutralizes the free cash flow and makes the DCF results look a lot less attractive than income based valuation techniques such as P/E, P/B and EV/EBITDA would suggest.  ROIC is improving marginally, though probably not enough to compensate for potential earnings risk.  At $30 a share, I am neither a seller nor a buyer, but this is the time to write some covered call options.  The risk is that the CEO ‘hinted’ at taking the company private if the stock remains low.  But at what take-out price: $35?

Add comment September 27th, 2006

Book Review – “The New Economy of Nature – The Quest to Make Conservation Profitable”

by Gretchen C. Daily and Katherine Ellison

This is a must read for those who wish to understand the status of the environment in our current capitalist system and the almost disregard capitalism has in quantifying and valuing environmental benefits.  If you think capitalism has evolved to its most advanced state, books such as this will help clarify that many elements of our society are not correctly valued by the simple supply/demand equation of current economics.  Countries like Costa Rica are beginning to recognize true environmental benefits from the policies they have enacted to protect their natural resources.  Our environment and our ecosytems are not limitless, though human kind has been living under that premise of ‘limitless nature’ since our dawn.  In the near future, new business opportunities will emerge in the valuing and trading of environmental benefits.  We already see this process starting with the carbon trading system and the New York watershed protection.  Environmentalism may finally develop a name for itself as a capitalistic enterprise…and none too soon. 

“As the saying goes, a woman’s work is never done-nor fairly compensated-and this is nowhere truer than in the case of Mother Nature.  Much of Nature’s labor has enormous and obvious value, which has failed to win respect in the marketplace until recently…

Historically, all these labors of Nature have been thought of as free. And with the exception of the production of a few specific goods, such as farm crops and timber, the use of Nature’s services is actually quite startlingly unregulated.  Despite our assiduous watch over forms of capital-physical (homes, cars, factories), financial (cash, savings accounts, corporate stocks), and human (skills and knowledge)-we haven’t even taken measures of the ecosystem capital stocks that produce these most vital of labors.  We lack a formal system of appraising or monitoring the value of natural assets, and we have few means of insuring them against damage or loss…

Even more striking is how rarely investment in ecosystem capital are rewarded economically.  Typically, property owners are not compensated for the services the natural assets on their land provide to society.  With rare exception, owners of coastal wetlands are not paid for the abundance of seafood the wetlands nurture, nor are owners of tropical forests compensated for that ecosystem’s contribution to the pharmaceutical industry and climate stability….

As Stanford University biologist Peter Vitousek has said, ‘we’re the first generation with tools to understand changes in the earth’s system caused by human activity, and the last with the opportunity to influence the course of many of the changes now rapidly under way [as human society and the environment reach critical thresholds].’ ”

See more at Amazon.com – The New Economy of Nature

Add comment September 18th, 2006

Book Review – “The Satanic Verses” by Salman Rushdie

A bit of a slugfest given Rushdie’s remarkable knowledge and use of the English language, but all-in-all a good read.  If you have the patience to sit through a 500 page novel spanning past, present and fantasy interludes, interspersed with religious history that leaves you wondering what is fact versus fiction, then this is your book.  Best way to read this novel?  Don’t try to establish a point of reference but simply go with Rushdie’s fantastical, sardonic and compelling flow.

See more at Amazon.com -

The Satanic Verses: A Novel (Bestselling Backlist)

Add comment September 12th, 2006


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