Tesla IPO Hopefully Can Boost New “Green” Economy

From Fox Business:

“Tesla Motors, maker of luxury-all-electric cars, is reportedly planning a stock offering. If the sale occurs, Tesla would be the first U.S. car company to issue shares since Ford Motor Co. in 1956.”

This is very exciting news. Not necessarily from an investment standpoint (it will likely be a while before pure electric car companies can prove to investors they have a sustainably profitable business model), but from an innovation point of view. The United States needs to promote the future of a “green” economy, not just to reduce oil imports, but even more importantly to generate a new force that can produce job growth, much like the advent of the Internet has already done. I hope Tesla has a successful IPO, as it may provide a psychological boost for other entrepreneurs out there who would like to get the “green” ball rolling.

Devon Energy Asset Disposition Plan Should Bode Well For Shareholders

Devon Energy (DVN), a leading oil and gas exploration and production company, announced yesterday an asset disposition strategy for 2010 that appears to be very accretive for equity holders should it be completed as planned. Devon announced that it plans to sell its Gulf of Mexico and international operations next year in order to focus on North American onshore energy properties. The sales are expected to bring in between $4.5 and $7.5 billion on an after-tax basis.

Devon’s stock rose $3 to $71 on the news as investors realized that Devon simply had too many properties to explore given its finite financial resources. By selling non-core assets and using the proceeds to focus on their strongest properties, Devon should be able to operate in the most efficient and shareholder friendly way.

A deeper look at the numbers shows a very attractive proposition for stockholders. Devon believes it can reap $6 billion from their gulf and international assets, which represents about 20% of the company’s current equity market value of ~$30 billion. These same assets only represent 7% of the firm’s energy reserves and 11% of current production. Since energy production companies are largely valued by investors based on reserves, selling these assets appears to be a very smart move for Devon. Clearly Wall Street is undervaluing these assets if indeed Devon can get $6 billion for only 7% of the company’s reserve base.

In addition, Devon will see its exploration expenses drop meaningfully after shedding these non-core assets. These non-core assets currently account for 29% of Devon’s annual capital expenditures. So, not only is Devon trying to unload assets that are undervaluing the company, but they are also the company’s most expensive assets to develop.

To recap, Devon currently spends 29% of its capital budget to develop only 7% of their reserves and it believes it can sell those assets for 20% of its current equity market value. This looks like a no-brainer for Devon and its shareholders.

As previously mentioned, Wall Street applauded the move, sending Devon shares up $3 to $71 after this strategic announcement. Since I am not fan of buying stocks after a big move up, now might not be the best time to scoop up the stock, but if it drops back to $65 or lower I will likely take a hard look at it based on recent developments.

Full Disclosure: Peridot Capital had a position in Devon at the time of writing, but positions may change at any time

United Airlines: How Not To Run An Airline

I came across this article by John Battelle over on Business Insider and thought I would share it with everyone. I am a loyal Southwest customer so I have managed to avoid the crazy complicated (and irrational) dynamic pricing algorithms that many of the major carriers use. Hopefully there are not too many United shareholders out there reading this…

Thanks For Flying United. Please Give Us All Your Money

Chad Brand Interviewed on “Behind The Spread”

I recently did an interview with the investment site “Behind The Spread” which focused on learning about the backgrounds of various investment professionals.  They are interviewing the genius investors on KaChing and it was my turn in line. If you would like to learn a bit more about me and my investment philosophy, you can check out the Q&A here:

Chad Brand interview on “Behind The Spread”

Analyst Silliness with Research in Motion

In recent days I have been paying special attention to shares of Blackberry maker Research in Motion (RIMM). The stock is one that had decent earnings this quarter but some investors wanted more, which prompted a pretty significant sell off in the stock. Despite the market having recently made new yearly highs, RIMM shares have dropped from the high 80’s to the mid 50’s. The stock is down several points today after the analyst who covers them for Citigroup downgraded it from “buy” to “sell.”

Skipping the “hold” rating completely is pretty rare on Wall Street, but what caught my eye even more was that the analyst lowered his price target on RIMM from $100 to $50. What happened to make the company worth 50% less overnight in his view? The upcoming release of Motorola’s Droid smart phone.

Call me skeptical of this bold call from Citigroup’s research department. The new Droid is going to be such a huge success that it will translate into a 50% haircut in the value of Research in Motion, which has a stronghold on the corporate smart phone market? Have we not seen dramatic hype surrounding new cell phones recently that only served to disappoint investors? The Palm Pre comes to mind immediately. While it may help Palm get back on the map, the Pre is certainly not looking like a genuine iPhone challenger like many were expecting. Should we believe that the Droid will similarly make a huge dent in RIMM’s Blackberry franchise?

I haven’t made the plunge into RIMM stock yet, but the odds are getting higher each day the stock continues to slide. At a current $55 quote RIMM trades at 11 times 2010 estimates ($4.85 per share), which seems reasonable even if that figure proves too high due to increased competition. Right now I might just be willing to make the bet that the Blackberry retains its lead in the corporate market for years to come. If so, the stock looks pretty cheap here.

How have this analyst’s past calls on the mobile sector turned out? Pretty lousy, which is par for the course on the sell side. Today the analyst upgraded Motorola to a buy and downgraded Palm and RIMM to sell.He initiated coverage for all three back in September 2007. Here is how the calls since then have turned out:

His track record on Palm has been decent; initiated at sell at $8, upgraded to hold at $6, and now back to sell at $11.

How about RIMM? Dismal. Recommended as a buy twice at $99 and $69, and now says you should sell in the mid 50’s.

Lastly, the Motorola record isn’t all that impressive either; hold at $18, buy at $12, hold at $6, buy today at $9.

All in all, the current negativity on Research in Motion looks overdone to me and as a result I am considering a contrarian investment. As always, please share your own thoughts if you care to join the discussion.

Full Disclosure: Peridot Capital had no position in RIMM at the time of writing, but is certainly taking a very close look at current prices.