BlastInvest
Blast Investor Real-time Plus           by Henry Lu

Commodities, WLL SOHU USG Earning

04/30/2005


Stock market continues its struggling this year. S&P500 index is down -4.5% year to date, NASDAQ is down -11.7% year to date. Many stubborn people who still can not be detached from expensive Tech stocks are disappointed for the past 1 year. Value investing strategy continues to work well and BIRTP model portfolio out-performed S&P500 index by about 4% year to date in 2005.

In latest eGazette article titled Struggling Stocks, Booming Commodities, I predicted that the struggling of US stock market may take very long time, possibly for another decade. There is a Sea change in this market, where hard assets and commodities are booming while stock market in general is stagnant. This change will be painful for many unseasoned investors or speculators for a long time.  So please read that article if you have not done so.

In my opinion, this fundamental shift of economy and market is creating one of the greatest money-making opportunities for prudent value investors. BIRTP model portfolio has been making big money in this commodities bull market since inception. In fact, I personally profited significantly in this bull market from 2001 with my first hard asset stock pick New England Realty Associate (Ticker: NEN) and later on with steel stock Metals USA (Ticker: MUSA) before the inception of BIRTP newsletter. You can expect my continuing interest and more stock picks in commodities and hard assets area.

Value Investing is Best Method to Profit in Commodities Bull Market


Value investing is best and safest method to participate in this commodities bull market. In this Jan 15, 2005 issue of BIRTP, I explained the difference between oil stock value investors and commodity E-mini speculators. Value investors can afford to wait on oil stocks (WLL, CHK) investment. Even if oil and natural gas prices stay flat for next few years, WLL or CHK investors are likely to make 20% annual return because their organic per share earning yield has been 20% in recent years. This 20% plus annual earning yield is a significant margin of safety cushion for long term oriented investors.

Further more, are we likely to see flat oil price over next 5- 10 years? Here I would agree with Jimmy Roger's opinion that it is more likely to see higher oil price from here rather than lower price. Therefore, long term investment return of  CHK or WLL is likely to be larger than 20% per year.

In comparision, oil future holders or investors do not make money if the oil and gas prices stay within current price range for couple of years.  Trading oil future on high leveraged margin is suicidal that any sensible investor should all avoid. Oil price in short term is anyone's wild guess so that trading on short term movement certainly will not be good for your health, maybe not good for your pocket book as well. For sure I am not good trader and I do not know how to make money from trading on short term oil price movement.

WLL Excellent Earning Report

Whiting Petroleum (Ticker: WLL) reported excellent earning report recently. Even with production level short fall due to short term issues, WLL per share cash flow is up significantly due to higher oil and natural gas price.

WLL biggest asset is oil and natural gas reserve, or oil/gas below the ground owned by the company. WLL compounded 20% per year per share reserve since 2001. Part of reason that WLL stock price or oil stock price in general is still so cheap is that oil reserve is still priced in cheap oil price scenario. Private acquisition price of reserve is actually pretty stable compared to oil price. Although per reserve acquisition price is up gradually in recent years, it is still priced as if oil price is in $30's a barrel world. With current world oil demand surpassing world oil supply, there is only one way that private acquisition price of oil reserve can go: going UP.

Currently, WLL re-deploy the profit from the oil production into acquiring more oil reserve. With current strong earning, WLL can support 20% dividend yield if it wants to.  Its latest fair value, or 10x price to owner's earning per share is still around $60 per share.

Conclusion on WLL earning report: I continue to stay invested in WLL for the long term. WLL is still dirt cheap.

SOHU turnaround earning report

SOHU reported pretty good earning recently. Its wireless division turned corner with positive double digit growth. Internet Ads revenue is up 35% year over year.

Although Chinese government has been cooling off its economy, I do not expect that SOHU's ads business will be affected that much. Internet portal business enjoys quasi-monopoly status. If a Chinese company wants to advertise on TV, it would have go to CCTV or its local TV stations. Similarly, if a Chinese company wants to advertise on Internet, it would have to go to SINA or SOHU.

Recent gloomy articles on SOHU from China is unwarranted. The gloomy articles declared that SOHU's portal business strategy is failing and Tom.com or Netease is going to surpass SOHU soon. The ads business largely depends on internet traffic. Other small players such as Netease, or Tom.com have been trying to catch up with SOHU or SINA for quite a while, but still without much success. Reading news is still the number one reason for visiting portal's web site in China. If we compare Alexa traffic rating of their news channel page, the smaller players' news channel traffic is still negligible compared  to that of SINA's or SOHU's. Here is latest Chinalabs internet traffic (CITI is based on Alexa traffic data) on Chinese news web site:
rank
 ticker
 CITI
(1)
 SOHU
 124
(2)
 SINA
 120
(7)
 NTES
 38
(9)
 TOMO
 27


Small players such as Netease (ticker: NTES) or Tom.com (ticker: TOMO) news Channel internet traffic has only 1/3 or 1/4  of SOHU's traffic. The fact is that SOHU news channel's internet traffic surpassed that of SINA since last year and it has stayed in No.1 position for many months. On the other hand, the small players have no hope of surpassing SOHU or SINA in this business in my opinion. Internet portal ads business is not a commodity business that anyone can set up a web page and collect ads money immediately.

The real reason behind the gloomy articles on SOHU is because of cheap SOHU stock price under-performing its peers in the stock market. But the low stock price is a bullish reason rather than a bearish reason.

USG Excellent Earning

USG reported blowout earning recently. Its earning per share is up 33% year over year. Market paid little attention to USG earnings because the action is on the asbestos Congress bill rumors or news. However, the higher the earning, the higher the total enterprise value of USG, and eventually the higher equity value for USG shareholders. While the market may not care about USG earning right now, I am excited on USG's recent excellent earning report.






Blast Investor Model Portfolio Update

(as of 04/30/2005)

Model Portfolio - Performance


Portfolio inception date
 12/31/2003
Portfolio inception value
 $89,000
Portfolio 12/31/04 value
 $141,981.00
2004 SP&500 Performance 8.78%
2004 Portfolio Performance 59.53%
2005 SP&500 YTD Performance -4.54%
2005 Portfolio YTD Performance
 -0.37%


Model Portfolio - Open Positions
Symbol Last Shrs Value Paid Gain
ADGO.OB 1.26 9,000 $11,340.00 0.78 $4,310.00 +61.31%
CEI 16.80 1,500 $25,200.00 16.63 $235.00 +0.94%
CHK 19.24 1,100 $21,164.00 13.90 $5,864.00 +38.33%
EXX-A 1.28 6,500 $8,320.00 1.638462 -$2,350.00 -22.02%
GKIS 15.93 1,500 $23,895.00 15.68 $365.00 +1.55%
LIBHA.PK 5.10 1,200 $6,120.00 5.10 -$10.00 -0.16%
NRG 31.10 335 $10,418.50 23.05 $2,686.75 +34.75%
SOHU 17.15 700 $12,005.00 24.882857 -$5,433.00 -31.16%
USG 41.99 950 $39,890.50 18.425789 $22,366.00 +127.63%
WLL 30.27 600 $18,162.00 22.683333 $4,532.00 +33.25%
$$CASH -35,056.3 -$35,056.30 - - -
11 symbols Total(USD):
$141,458.70




Model Portfolio Transactions
Date  Type Symbol Shares Price Comm Amount Notes
Feb 28, 2005 Buy GKIS 1,500 15.68 10.00 23,530.00
-
Feb 28, 2005 Sell NTES 150 41.88 10.00 6,272.00 +14.22%
Feb 25, 2005 Buy CEI 500 16.39 10.00 8,205.00
-
Feb 25, 2005 Sell NRG 335 38.42 10.00 12,860.70 +66.57%
Jan 31, 2005 Buy CEI 1,000 16.75 10.00 16,760.00
-
Nov 24, 2004 Sell HRB 350 47.35 10.00 16,562.50 - 12.31%
Nov 4, 2004 Sell NTES 100 46.50 10.00 4,640.00 + 27.05%
Oct 19, 2004 Buy EXX-A 1,500 1.60 10.00 2,410.00
-
Oct 6, 2004 Buy EXX-A 5,000 1.65 10.00 8,260.00
-
Oct 6, 2004 Sell NEN 100 80.00 10.00 7,990.00 + 48.15%
Oct 5, 2004 Buy USG 250 18.75 10.00 4,697.50
-
Oct 5, 2004 Sell NTES 100 39.12 10.00 3,902.00 + 6.9%
Sep 30, 2004 Buy USG 700 18.31 10.00 12,827.00
-
Sep 29, 2004 Sell NEN 100 79.65 10.00 7,955.00 + 47.5%
Aug 5, 2004 Buy WLL 250 23.50 10.00 5,885.00
-
Aug 2, 2004 Sell NEN 100 69.95 10.00 6,985.00 + 29.5%
Jun 17, 2004 Sell HCA 250 40.30 10.00 10,065.00 - 4%
Jun 17, 2004 Buy NRG 670 23.05 10.00 15,453.50
-
May 24, 2004 Sell ADGO.OB 13,000 1.55 10.00 20,140.00 + 98.7%
May 10, 2004 Sell HCA 250 39.97 10.00 9,982.50 - 4.8%

Date  Type Symbol Shares Price Comm Amount Notes
May 10, 2004 Buy SOHU 200 15.59 10.00 3,128.00
-
Mar 5, 2004 Buy WLL 350 22.10 10.00 7,745.00
-
Jan 26, 2004 Sell WRP 700 17.40 10.00 12,170.00 - 5%
Dec 31, 2003 Buy CHK 1,100 13.90 10.00 15,300.00
-
Dec 31, 2003 Buy NEN 300 54.00 10.00 16,210.00
-
Dec 31, 2003 Buy HRB 350 54.00 10.00 18,910.00
-
Dec 31, 2003 Buy NTES 350 36.60 10.00 12,820.00
-
Dec 31, 2003 Buy SOHU 500 28.60 10.00 14,310.00
-
Dec 31, 2003 Buy LIBHA.PK 1,200 5.10 10.00 6,130.00
-
Dec 31, 2003 Buy ADGO.OB 22,000 0.78 10.00 17,170.00
-
Dec 31, 2003 Buy HCA 500 42.00 10.00 21,010.00
-
Dec 31, 2003 Buy WRP 700 18.30 10.00 12,820.00
-
Dec 31, 2003 Cash In -
-
-
-
 89,000.00 Inception