Home / Mr. Cain Thaler (page 5)

Mr. Cain Thaler

Stock advice in actual English.

TIS Had A Decent Quarter

I’m sitting here waiting for the main event. In the meantime, yesterday Orchids Paper Products Company (TIS) reported and beat estimates. TIS is back to trading just below $30 a share.

Sales jumped 5% but earnings per share fell 7%. The company is highlighting that total earnings also rose, but they are sort of glossing over that the increase wasn’t enough to compensate for new shares outstanding. Still, TIS is growing so I will reserve judgment until I have a good look at the filing.

Anyway the market reaction is positive so the stock is up and that really matters most.

I bought TIS earlier this year.

Comments »

BAS Earnings Tonight

The moment of truth is at hand. BAS releases 3Q earnings after the bell.

As an act of good faith and offering, I have released some of my precious cash reserves, adding !% of my portfolio to BAS at the price of $3.68 a share.

It’s hard to tell what is going to happen here. On the one hand, BAS’ operation is in turmoil, along with…everyone else in the sector. But surely worse than expected earnings will send BAS screaming to Goldman’s $2 target, ending life as we know it.

But know this; BAS has short interest nearing 50% of float. You had better pray your fellow short sellers are trading on insider scoops, because if BAS even halves the loss we are expecting then you are going to watch yourself incinerate while the hollow screams of your compatriots sound all around you.

I am waiting for BAS to match the estimated loss just because I cannot stand more disappointment – surprise me.

BAS is working to fence their operations by concentrating around still profitable locations, suffocating competition there, and idling pretty much everything else. But that is a volatile process, not accomplished quickly.

They have two things working for them.

The first is that, although they will still be taking write downs on their equipment, BAS no longer has to replace it at that value. So much of their operation has been shuttered, which leaves that equipment in storage; extending the lifespan on what’s left. And when the time to replace field equipment does come, you can bet they will not be buying it new. There will be many, many carcasses to pick off of for years to come. BAS management is already positioning to eat their dead competition… washing it down with the tears of executives long out of a position.

My guess is that if we adjust depreciation to more accurately reflect this, then BAS lost ($0.70) per share last quarter, not ($1.20). And I have a feeling that number will surprise downward.

The second is that BAS cleaned up a revolving credit line in the first six months, which ate up tens of millions. But that is done now so their debt payments should decline back to the $33 million in base interest, with the next expiration coming in 2019.

That should be good for another ($0.20) per share.

If BAS’ operation was even remotely stable in the past 3 months, then we should have a loss of ($0.50) per share, from that. BUT…let’s not be crazy here. Nothing is stable right now.

I’m going to have accounts receivable and cash levels pegged. I cannot tolerate much real cash getting lost and if receivables implode much more then I’ll have to rethink my faith. Accounts receivable declined by $121 million over the first six months of the year as customers dried up.

A hard estimate of the resulting decline of revenue that accompanies such an accounts receivable decline would say we can expect revenues to fall another 20%-30% from where they stood in June. But, are accounts receivables falling entirely because business is cancelled, or is BAS understanding of their clients trouble and agreeing to release them to a pay as you go approach? That could mute the blow if it is going on.

Altogether I am nervous. But if there is any justice in the world, by this time tomorrow I will be taking a victory stride over the gristly remains of short sellers.

Comments »

Maybe China’s Selling Treasuries Because They Made So Much Money

There’s a lot of talk this morning about China’s treasury holdings dropping by a few ten billion. Most of it is panic talk but I am choosing to take away two themes from the report:

1) China made a boatload of money being long US debt

You always hear about how China is throttling the US by buying up all of our paper and holding it over our head. Or how we’re just years away from defaulting on all of it and sending half the planet to an early grave. But you rarely hear just how profitable for foreign countries keeping US paper has been.

Good for them; they’ve been investing in us for decades and it has been a huge winner. Just look at China’s holdings versus treasury rates (per Wikipedia and the US Department of the Treasury)


H T Rates

If you were up this much in such a large position, and had the perfect selling opportunity present itself, tell me; would YOU just sit still?

Or would you take profits?

At some point it doesn’t make sense for China not to roll over the position, whether it’s to longer term maturities of US paper, or something else entirely. I’m not going to sit here and freak out about such common sense moves. China could particularly use the funds right now anyway, with their economy slowing down. I’ve got a good feeling those dollars will work their way back home again in short time.

2) There’s a good chance Yellen is serious about raising rates next year, and has given advanced notice to a major player of US debt that this is really happening

Conspiracy rant/

I’m supposed to sit here and pretend that the Fed doesn’t have conflicts of interest and doesn’t talk with anyone about what they’re planning. It’s complete horseshit.

We’ve had a known leaker at the Federal Reserve for years, and the only ones who seem to get targeted are the whistleblowers. China just happens to pick now of all times to drop this big of a position on the markets, and I’m supposed to play along like Yellen isn’t telling them this hike is happening sometime in January or April?

/Conspiracy rant end

Comments »

Give A Shoutout To Our Boys At Goldman

I’d like to hand some serious props to the market manipulators at Goldman Sachs The Street*. In case you missed it, GS published their top 19 positions to beat around like a domestic disturbance call at 2 am, and BAS made the cut. In fact they gave it spot 2 on the list.

What was the reason for singling out BAS – a stock which is already down 86% from its long gone highs of 2014 – over any of its other competitors?

*The good commenters of this site have justly pointed out that although The Street is piggybacking off of Goldman’s work, the Street themselves seem to be the source of the godlessness of reason that follows. In my raw hatred I missed that – but The Street should know better too. I hope for Goldman Sach’s sake that their reasoning is better than this.

The reasons given are pretty terrible. Let’s walk through them:

1) “The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Energy Equipment & Services industry. The net income has significantly decreased by 2076.9% when compared to the same quarter one year ago, falling from $2.44 million to -$48.30 million.”

Okay, first of all, I understand that business majors are business majors primarily because they can’t do math. I sat through the mandatory business statistics classes too as an undergraduate, ironically while taking real statistics classes at the same time. It’s like comparing brands of cigarettes with cigars – it just isn’t even the same league.

Here, GS The Street’s expert analytics is at play, taking $2.44 – (-$48.3) = $50.74 million. Then we divide this magnitude by $2.44 and WOALA! 2,077% decrease! That’s huge!

No. Just no.

So here’s a hypothetical. Suppose a similar company had been making $0 million in income, and then had a $1 million loss. Using this genius formula, that company would have lost INFINITY %. Is such a company worse or better off than BAS? I’d say it looks better to me.

Next consider a similar company that had $100 million in income prior…much more money than BAS. Now, suppose they lose the exact same amount of money as BAS – $48.3 million.

This second company GS The Street would say only experienced a 148.3% loss, despite being in the exact same situation as BAS.

Yes this seems like a useful metric.

You can’t freaking divide across zero, dingbats. Division in this fashion only makes sense when all the numbers are nicely contained in the set of positive real numbers. Goldman Sach’s The Street’s math tells us nothing.

2) “Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Energy Equipment & Services industry and the overall market, BASIC ENERGY SERVICES INC’s return on equity significantly trails that of both the industry average and the S&P 500.”

Uh huh…because after your first encounter with numbers, I definitely believe that now…

3) “The gross profit margin for BASIC ENERGY SERVICES INC is rather low; currently it is at 20.98%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -24.37% is significantly below that of the industry average.”

Fair enough. Now go talk to a few of their competitors who have no more clients. Period. Because I’ve seen those. I imagine they would envy a low gross profit margin.

Incidentally, net profit margins are only negative because of depreciation of equipment. In this environment, how much of that do you think they’ll be needing to buy new for the foreseeable future?

4) “Net operating cash flow has significantly decreased to $22.34 million or 65.86% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm’s growth rate is much lower.”

And yet, management has pegged outgoing cash flow so that net cash remains stable. They even made an extra debt repayment to shore up their position. Provided they don’t make another, cash levels should increase. Which is all that matters at this point. You need to have money to play the game. Not better stats…poorly calculated.

5) “Although BAS’s debt-to-equity ratio of 3.42 is very high, it is currently less than that of the industry average. Even though the debt-to-equity ratio is weak, BAS’s quick ratio is somewhat strong at 1.46, demonstrating the ability to handle short-term liquidity needs.”

Just stop there. Then put this bullet point at the top, because it’s the only one that matters.

The game is chicken, gentlemen. Nobody cares how fast you were going once you’ve gone over the cliff…

But hey I hope their shorts can close out with this 10% spike lower. Thanks a lot for that. I’m almost tempted to buy, save that I think I have more than enough skin in this game already.

Aside from Goldman Sachs The Street (glory days obviously behind it), here’s an update from BAS management that perhaps explains why the most recent numbers have been so volatile.

“Recently, in a few selected markets, stimulation pricing has fallen to levels where cash margins at the field level do not support regular maintenance capital expenditures on equipment. In these instances, we have either temporarily stacked our equipment or relocated frac spreads to other markets.”

The company is refusing to play in environments where operation is equivalent to suicide. They are moving assets to respond to weak pricing, situating around a core business, and doing all they can to toe the line between maintaining clients and making enough cash to justify keeping the doors open.

But you don’t just pack up and move instantaneously. It takes time and so yes their operation is going to gyrate. If you’re a shareholder like I am, you’d better learn to live with it.

This is the second worst environment for oil we have seen in 100 years. The worst happened just five years ago. The company is doing great all things considered. I would be much more worried if I was anybody else.

Comments »

Japan Restarts Second Nuclear Reactor

(CNN) — Japan has restarted its second nuclear reactor since the Fukushima disaster in 2011 shut down the country’s nuclear energy program.

The Kyushu Electric Power Company told CNN that it restarted the Dai-ni reactor at Sendai Nuclear Power Plant Thursday morning as planned and the reactor is scheduled to be fully operational and producing power by October 21.

The move comes despite widespread opposition to the use of nuclear energy in Japan.

Japan today restarted the second nuclear power plant since the crisis in 2011. Abe’s push continues; albeit severely constrained by the blind opposition of dumb animals that make up environmentalist ranks.

Abe understands that Japan needs these reactors up and running. It’s not a matter of wanting; they have to have the long term sustained power generation of a nuclear fleet or China will suffocate their civilization through superior positioning and blockades. The US is growing weak and Japan can’t count on us anymore – the wavering of the Obama Administration has made that much clear to our allies. Japan can’t gamble its future on one segment of the US political class not retaining power.

His goal is to get 20-22% of Japans power supply from nuclear again. And he’ll have it too. The restarts have been opposed so the restart timeline has basically doubled…but it proceeds ahead nonetheless.

Nuclear power will eventually catch a big rebound. Even in the US, where panicking over little is something of a past time, opposition to nuclear power never quite took off the way anti-nuclear activists would have hoped; considering how the Fukushima crisis was the second worst disaster since Chernobyl.

At least one bright side of the Climate Change movement is that they are too wedded to an inexplicable fear of entropy to worry about last century’s boogey man anymore.

Comments »

See, It Wasn’t 9 Million

There you go, the 9 million barrel estimate was too high. The real number was …7 1/2 million barrels!?

What the fuck is that, America?

Alright so the API was more right than not on this one. That is awful…just God awful. I don’t know what the hell is going on here; if it’s production ramping up or demand dying down or even just dark storage pools of oil finding its way back to market. I don’t know, but that is a terrible outcome for oil markets right now.

So, with that in mind, let us proceed to end game.

If you are in this industry and you are not positioned in the top three quarters of the field, you are going bankrupt. Bu-bye.

Comments »