WASHINGTON, May 21, 2013 — The price of oil fell to near $96 per barrel Tuesday as investors waited for the Federal Reserve’s latest views on the U.S. economy. By early afternoon in Europe, benchmark crude for June delivery was down 60 cents to $96.11 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained 69 cents to close at $96.71 on Monday.
Tomorrow, Fed chairman Ben Bernanke will appear before Congress and the central bank will release minutes of its most recent policy meeting. Traders will be looking for hints on what the Fed might be preparing to do in light of recent data that has pointed toward a sustained economic recovery. Given the wait, futures are showing a slightly lower open this morning as nervous investors await the latest news from Washington’s answer to the Oracle at Delphi.
There is ongoing speculation that the Fed might want to scale back or modify its super-loose monetary policy and its massive, $85 billion-a-month program of bond purchases intended to keep interest rates low and prop up the recovery, a prospect somewhat accurately described by Wall Street’s latest cliché: “tapering.”
Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending May 17 is expected to show draws of 1.2 million barrels in crude oil stocks and of 200,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department’s Energy Information Administration — the market benchmark — will be out on Wednesday.
Brent crude, a benchmark for many international oil varieties, was down 76 cents to $104.04 a barrel on the ICE Futures exchange in London.
BREAKING: CNBC has just reported (9:25 a.m. EDT) that JP Morgan CEO and Chair Jamie Dimon appears to have narrowly avoided defeat in a shareholder vote to determine whether he should step down from one of these positions. So-called activist shareholders and others, possibly motivated by Dimon’s turn against the current Administration in last fall’s elections, were trying to oust him from one of the slots in the name of good corporate governance.
–AP contributed to this report
Today’s stock idea: The World of IPOs
Today is likely to be a case of “same old, same old.” Futures, down most of the morning, are now tracking back up as Tuesday markets lately have been the antidote for Monday blahs. With the Fed not scheduled to give its latest official tea leaf reading until tomorrow, expect light volume and unpredictable price moves today.
All averages are more or less overbought and calling for a decent correction. But sometimes corrections simply don’t happen as overbought markets can stay that way a lot longer than you’d think.
We continue to avoid gold, dabble in high-dividend MLPs, and wait for a new prophet (yes, we spelled that right) to emerge.
New issues (IPOs) have been a pretty good bet lately, although not universally so. There have been a few dogs recently, mostly among new REITs and MLPs which, while historically high-yielding, don’t generally give you a nice pop on opening day and, in fact, often slip downwards.
Last week, we actually missed getting shares in two of the best of 2013’s IPOs, Tableau (DATA) and Marketo (MKTO) both tech-y, data driven software platforms for business that each popped well over 30%. Such pops are rare, but we’ve had a pretty good one in slo-mo for the last couple of weeks. Coming from an unexpected quarter, the insurance industry, the recent IPO of ING Insurance (VOYA) has been in a slow-motion pop recently. At over $26 per share, we’re already up nearly 35 per cent on this offering, and analysts are looking for at least 30-40 per cent more upside on the stock.
ING Insurance is being spun off in stages from Dutch banking giant ING. Having run into serious financial trouble at the height of the 2007-2009 banking crisis, The Netherlands bailed this big bank out. But one of the bailout’s eventual conditions was that ING would need to sell off some assets to pay the Dutch government back. And that’s what put their substantial international insurance subsidiary on the block.
Rather than look for a bidder, ING chose to divest itself of its insurance business as one of many difficult choices it has had to make as it recovers. The recent offering of the subsidiary’s stock, roughly 25 per cent of the mother ship’s interest, will likely be followed by more shares later this year as the company completely exits this business.
What’s been interesting, though, is that, unlike its parent bank holding company, ING Insurance is solvent, immediately respectable and profitable, and was offered at a substantial discount to what it is likely worth in the real world. Goldman and others put the figure somewhere between $31 and $41 per share. But the stock, as we’ve already indicated, currently trades closer to $26, leaving considerable upside.
With all the excitement generally accorded tech and biotech IPOs, even from companies that have never turned a profit, it’s not surprising that the richly rewarding IPO of ING Insurance was largely overlooked. But people are discovering it now and the stock, which didn’t really pop on the day of its opening trade, has been creeping upward ever since and is likely still an excellent value, made more so by the fact that it’s already an established company with a great-looking balance sheet.
We already own and are continuing to hold shares in this stock. On any pullback in the market, we’re likely to pick up some more as a company like this, still selling below book, is an incredible rarity in this market.
BTW, its ticker symbol, VOYA, is not as weird as it looks. For identity purposes, after about a year, ING Insurance intends to gradually shed its ING connection and rename itself Voya. So the stock’s symbol is based on its upcoming new name, not the old one.
Another odd lucky play for us in the IPO arena was our serendipitous pickup of some shares of West Corp (WSTC), a longtime player in the telecommunications industry headquartered in Omaha, Nebraska. The stock got off to a bad start, overpriced at $20 per share by greedy underwriters, led by Goldman and Morgan Stanley, and, no doubt, by the greedy vulture capitalists, led by Lee Partners and Quadrangle, who took the company private in 2006 near the peak of the stock market and real estate assets bubble. Out the gate, it promptly dropped $1 per share and languished for a while in the doldrums.
As we’ve lamented here before, our otherwise great discount brokerage house, Schwab, more or less coerces IPO buyers to hold their shares for at least 30 days after purchase, preventing clients like the Maven from flipping successful offerings in order to quickly pocket the profits. So when an IPO fails to attract, we’re still stuck holding a dog for at least a month as it declines, although these are the pitfalls of regular IPO investing. You can’t win ‘em all.
But we’ve been getting a pleasant surprise from WSTC, which we’ve been holding now since late March. The stock has steadily improved, no doubt due at least in part to its uncommonly big regular dividend pegged currently at nearly 4 per cent of its current share price of $22 and change. Which, of course, is a now a robust 13+ per cent over what we paid for it. Given that WSTC is actually in a fairly conservative business—telecommunications—and given its strong, well-supported dividend, it’s likely we’ll hold onto it during any downturn since its yield will protect it at least somewhat from a stock price decline.
Both VOYA and WSTC are two happy examples for us of boring IPOs of essentially boring companies that nonetheless turn out to be great values since they lack the sex appeal of tech IPOs like DATA and MKTO. But bargains are where you find them, which is why we always comb the list of IPOs available to us at Schwab (which can’t participate in every listing as it’s not an underwriter).
We’re currently in the queue for three new IPOs this week, including Ply Gem Holdings (proposed ticker PGEM) and Global Brass and Copper (BRSS), both allied with the building trades and possibly good bets; and ChannelAdvisor Corp (ECOM), another firm specializing in software that helps increase corporate profitability, an area that’s seen a number of IPOs lately, as with DATA and MKTO. There’s not a lot of indication as yet as to how much interest these three IPOs are attracting. But they will price some time after tomorrow’s close, so we’re still trying to dig up enough research to decide whether or not they’ll offer us a compelling value.
We’ll let you know if we dig anything further up on these companies prior to their likely opening day trades on Thursday, May 23. Stay tuned.
Other than this, however, we remain tepid on this overvalued stock market, even though thus far this May, we’ve been almost entirely wrong about that “sell in May” correction we keep waiting for.
–AP contributed to this report
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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