Monday, May 31, 2010

A Market That Will Drive You To Drink

Amidst all of the gloom, doom and boom in the world these days, there is one inevitable constant. People drink. People drink to celebrate, to mourn, to console, to toast, and sometimes, just to pass the time. Though no business is truly immune to economic conditions, investors can look towards alcohol companies as a relative source of stability in very unstable times. 

(NYSE:ABV), a subsidiary of Anheuser-Busch InBev (NYSE:BUD), is not only the dominant brewer in much of Latin America, but one of the most profitable beverage companies in the world. Ridiculously efficient, AmBev should benefit not only from leading brands, but the relatively low per-capita consumption in its markets. Investors will also be pleased to know that the company has to distribute at least a third of its earnings to shareholders in profitable years.  

Here's the full text of the column: 

Sunday, May 30, 2010

Book Review - When A Crocodile Eats The Sun

I've decided to periodically write a few book reviews here and there. Some of them will be business/investing-oriented, but I suspect that the majority will not.

So, the debut attempt will Peter Godwin's book When A Crocodile Eats The Sun.

Ostensibly, it's a memoir of the author's experience growing up in Zimbabwe and shuttling back and forth from his life as a journalist in places like New York and London back to his parents in Zimbabwe. Along the way, though, is plenty of commentary about the recent collapse of Zimbabwe, and that is ultimately what the book is really about.

This has been a topic I've followed closely for years, so most of the information in the book was not new to me, though it added in a lot of color and detail to what I thought I knew. Being well acquainted with the facts, though, doesn't really lessen the impact of hearing eye-witness accounts of them.

What the dictator Mugabe has done to the Zimbabwean people, and what the Zimbabweans have done to each other and themselves, is alternately infuriating, depressing, and numbing. I find it impressive, then, that the author maintains quite a bit of sympathy and patience for the people who in many cases turned on him and his family. He spares Mugabe little (and credits him for nothing), and that suits me fine. I suppose some apologists may find him patronizing and criticize his viewpoint as a privileged ex-pat, but I am not one of them.

It's an unfortunate reality that most people probably don't care enough about Zimbabwe to read a personal history of how it has fallen apart. Alas, that's almost always a part of the enabling process that allows dictators like Mugabe to do what they please.

In any case, I recommend this book for any interested Africa-watchers, as well as those who simply enjoy a good memoir. A word of warning, though - it's not light reading and there aren't very many happy interludes in the narrative.

Friday, May 28, 2010

Medtronic - Life In The Crosshairs

When you execute as well as Medtronic (NYSE: MDT) has over the years, when you become a leading company in virtually every market in which you compete, you get the dubious reward of being the company everyone else wants to knock off the mountain. So far, though, Medtronic management continues to demonstrate that it is capable of taking a huge business and making it even bigger. 

The Quarter That Was 
Medtronic reported its fiscal fourth quarter results May 25. As has been the case of late, the results were "good ... but not great". Revenue was up about 6% in constant currency terms, and that was more or less in line with expectation. Likewise, bottom-line earnings per share were up 9% and two pennies higher than the average analyst estimate.  

For the full article:

Please note, the editor of the piece made a small error in spelling out St. Jude as "Saint Jude".

Insurers Caught In The Spill

Cleaning up the mess left in the wake of the explosion and sinking of the Deepwater Horizon is going to be a multi-part process. BP is doing its part, trying to stop the shattered well from dumping even more oil into the Gulf and cleaning up what has already come out. Looking ahead, though, there will also be a major role for the insurance industry to play, as it is often insurance companies that bear the brunt of the financial ramifications of accidents like Deepwater Horizon. 

Cost Estimates Are Starting To Come Ashore
All told, the most common estimates floating out there for total insurance industry exposure to the Deepwater Horizon event range from about $1.5 billion to $3.5 billion. Should the bulk of the spill stay at sea, the losses will probably be on the lower end of the range. Should the oil come ashore in large quantities, though, it is likely that various business interruption policies will be triggered, pushing up the costs to the industry.

So far, a host of companies have come forward with their initial assessments of liability.

For the full article, please continue on to:

What ASCO Can Tell You About Biotechs (Pt 3 of 3)

Although this article shares the same two intro paragraphs as the other two ASCO pieces, it discussing a whole separate list of biotechs. I promise!
One of the major biotech events of the year is fast approaching. The annual meeting of the American Society of Clinical Oncology (ASCO) will take place in Chicago from June 4 to June 8. This event is like Woodstock for biotechnology - if Woodstock were clean, air-conditioned, and had plenty of restrooms. If you invest in biotechs or pharmaceuticals that want to play in the huge and well-reimbursed world of oncology, this is one of the major events of the year. 

Ahead of the meeting, ASCO releases a list of abstracts that scientists and companies will present. In some cases, these abstracts give away at least most of the story (efficacy, safety, etc.), while other abstracts are embargoed until the meeting itself. In any case, investors can still look forward to follow-up data (abstracts are submitted well ahead of the meeting) and often the amount of attention garnered by a presentation reflects overall interest in the compound.

Here we present some of the companies presenting abstracts at ASCO.

For the full article, please go to: 

Thursday, May 27, 2010

Reposting - Great Dividend Payers In Medical Technology

I just found out that the original link for this article wasn't working. 
Here's is a reposting. Apologies for the inconvenience!

There are a lot of solid reasons for investors to include medical technology stocks in their portfolios. The healthcare sector has grown faster than the economy and seems poised to continue to do so, and the more established names in this field routinely post excellent returns on capital. Better still, medical technology is generally spared the feast-famine cycle of patent expirations that bedevil the pharmaceutical sector. 

Now we can add another reason to like medical device stocks - dividends. As many investors already know, the stocks of companies that pay dividends tend to outperform those that do not. When you combine the advantages of dividend-paying stocks with the advantages of medical technology stocks, you have a powerful mix.

Full text at:  

Apple Now King of the Mountain

Yesterday marked an event that probably no sane person would have predicted 13 years ago - Apple (Nasdaq:AAPL) surpassed Microsoft (Nasdaq:MSFT) and became the company with the highest market capitalization of any tech company in the world. While the margin of superiority is tight enough that leadership could change hands a few more times, it is probable that Apple is going to enjoy a stretch of time as the most valuable tech company in the world. (For a quick refresher, check out Market Capitalization Defined.)

How Did This Happen?If you go back to 1997 when Steve Jobs rejoined the firm, Apple was nearly bankrupt and WinTel ruled the technology world. Although the PowerBook proved popular, the Macintosh was floundering and the company wasted a great deal of time and money on the Newton platform and a failed alliance with IBM (NYSE:IBM) and Motorola. Enter, or rather re-enter, Steve Jobs. (To read more about Steve Jobs' influence, see What Would Steve Jobs Do? and Hype It Like Steve Jobs.)

For the rest of the article, please go to:  

Monsanto - I Should Have Known Better

I really have been doing this too long to excuse this screw-up.

In my experience, companies that lower guidance generally don't just do it once or twice before they hit bottom and resume their prior trend. Disappointments often come in threes (or more) and it takes time for a management team to root out and address whatever it is that went wrong in the first place. And yet, like some newbie investor, I rushed in to buy Monsanto (MON) after its recent underperformance and disappointing guidance. 

Pretty much from the moment I clicked "Execute", the stock has gone down. Today I get my just desserts in that the company is lowering guidance yet again, and the stock is taking another punch to the gut.

If there is any good news here, and there really isn't, it's that the disappointment is coming from the company's glycophosphate (weed killer) business. This business is far more cyclical than the company's larger seed traits business, it's more of a commodity business, and it has been an underperformer in recent times. On top of all that, reports have been coming out in recent months that glycophosphate-resistant weeds are emerging in the Southern U.S. (as if we don't have enough trouble with kudzu!).

So although this news hurts the company's near-term financial performance, it doesn't change a thing about my long-term thesis on the stock. Simply put, Monsanto is a leader in next-gen crop research, and I believe this is one of the best sectors to be for the long-term. True, DuPont (DD) and Syngenta (SYT) both seem to be getting their "stuff" together and closing the gap on Monsanto (especially Syngenta here of late), but I think Monsanto is still positioned to be the long-term leader in this field.

I'm likely setting myself up for more near-term underperformance, but I'm grudgingly hanging on to my shares. I think most of the bad news is now priced into the stock and I think the company is more or less "clearing the deck" in terms of its forecasting. Like I said, my long-term thesis on this company hasn't changed, so I don't feel any compulsion to sell quickly and move on.

Since I have the advantage of not having a boss or investors to answer to, I might as well make the most of it and not be shaken out of a stock where I still have long-term conviction.

In the meantime, I'll just feel stupid for a little while and then move on to the next crisis.

ASCO - A Big Deal For Biotechs (Pt 2)

This is the second of three articles previewing the ASCO meetings in Chicago next week.

One of the major biotech events of the year is fast approaching. The annual meeting of the American Society of Clinical Oncology (ASCO) will take place in Chicago June 4-8. This event is like Woodstock for biotechnology - if Woodstock were clean, air-conditioned and had plenty of restrooms. If you invest in biotechs or pharmaceuticals that want to play in the huge and well-reimbursed world of oncology, this is one of the major events of the year.

Ahead of the meeting, ASCO releases a list of abstracts that scientists and companies will present. In some cases, these abstracts give away at least most of the story (efficacy, safety, etc.), while other abstracts are embargoed until the meeting itself. In any case, investors can still look forward to follow-up data (abstracts are submitted well ahead of the meeting), and often the amount of attention garnered by a presentation reflects overall interest in the compound. (For more, see Stocks On Drugs: What It Takes To Get High.)

To read the full text of Part 2, please continue on to: 

Wednesday, May 26, 2010

A Big Deal For Biotechs - ASCO

One of the major biotech events of the year is fast approaching. The annual meeting of the American Society of Clinical Oncology (ASCO) will take place in Chicago from June 4 to June 8, 2010. This event is like Woodstock for biotechnology - if Woodstock were clean, air-conditioned and had plenty of restrooms. If you invest in biotechs or pharmaceuticals that want to play in the huge and well-reimbursed world of oncology, this is one of the major events of the year. 

Ahead of the meeting, ASCO releases a list of abstracts that scientists and companies will present. In some cases, these abstracts give away at least most of the story (efficacy, safety, etc.), while other abstracts are embargoed until the meeting itself. In any case, investors can still look forward to follow-up data (abstracts are submitted well ahead of the meeting) and oftentimes the amount of attention garnered by a presentation reflects overall interest in the compound.

Here we present some of the companies presenting abstracts at ASCO. 

For the full article, please continue on:


Can Apple Stay Fresh?

Me writing a positive story on Apple ... Folks, check your local farms to see whether there are any reports of flying pigs today. 

I've recently read that Katy Huberty, an analyst at Morgan Stanley, has put a price target on shares of Apple (Nasdaq:AAPL) of between $310 and $400. For those of us who remember the tech bubble, there may be a shiver of remembrance at the $1,000 price target put on Qualcomm (Nasdaq:QCOM) by a PaineWebber analyst in late 1999. That pretty much marked the beginning of the end to that run. The question is, does this signal a similar high-water mark for Apple? 

For the full article, please continue on to:

Tuesday, May 25, 2010

Buffett Scandals - Then and Now

This was an interesting piece for me to write. I've long admired Buffett, and I wasn't entirely sure it was a project I wanted when it was first suggested to me. Now that I've written it, though, I find it interesting to see that Mr. Buffett really has kept his nose clean for the most part. What controversies there have been have largely been due to the actions of other people. To his great credit, though, Buffett seems to realize that when you sit in the big chair, you take the credit *AND* the blame when things go wrong, whether you have much to do with matters or not. A lot of CEOs should learn from that example. 

It is a peculiar American trait that we celebrate stories about the "land of opportunity," yet we also take a perverse pleasure in plastering bulls eyes to the backsides of the very wealthy. As one of the wealthiest people in the world, it is no surprise that the much-heralded investor Warren Buffett has had his share of controversies over the years.

The latest PR crisis for the Berkshire Hathaway (NYSE:BRK.A) CEO is his investment in Goldman Sachs (NYSE:GS) and his ongoing public support for the company and its management.

No one has thus far accused Buffett of any wrongdoing, beyond continuing to support a management team that is quite unpopular at present.

For the full article, please continue to:

Auto Parts Could Rev Up Returns

Reports of the death of the auto industry have been greatly exaggerated.

American automakers are certainly still in trouble, but there is a wide world out there and people, especially Chinese people, continue to buy cars. If people are still buying cars, that means companies are still building cars. If companies are still building cars, that means there is still business out there for auto parts companies.

Back From the DeadInvestors are right to be skeptical of the thesis that there is actually money to be made from investing in auto parts stocks. After all, many of these companies had the same problems as the U.S. automakers - stagnant sales, competition from foreign companies, outdated (and excessive) cost structures and too much debt. More than a few companies went bankrupt or flirted with bankruptcy.  (For more, see Analyzing Auto Stocks.)

For the full article, please continue on to: 

Monday, May 24, 2010

Transocean Still In The Crosshairs

The hits just keep on coming for deepwater driller Transocean (NYSE: RIG). Today word came out that a gaggle of senators (I believe they're are all senators ... maybe there is a rep or two in the mix) sent a letter to the Attorney General asking him to investigate Transocean's recent  special dividend announcement.

The dividend, about $1 billion in total, was going to be paid in four quarterly installments. According to these business geniuses, they are concerned that the payment of such a dividend could make it difficult to pursue liability claims against Transocean in the future.

Here I would explain the logic of this move ... if there was any.

So much for "innocent until proven guilty", huh? Moreover, these economic geniuses apparently don't realize that Transocean has been cash flow positive for nine straight years and given the dynamics of the energy market and deepwater drilling, I really don't see that reversing any time soon.

I don't know whether or not Transocean has done anything that will stand up as legal liability. And nobody else does either (possibly including Transocean). Maybe Halliburton flubbed the cementing. Maybe Smith's fluids were faulty. Maybe Cameron's blowout preventer was faulty, or maybe the accident was one not anticipated by the design of the device.

That's a lot of "I don't knows" or maybes.

Practically speaking, Transocean is likely going to get stuck for some part of the bill -- whether through proper legal decisions or through political maneuverings aimed at "punishing" these nasty energy companies. Given today's letter, that latter contingency shouldn't be discounted by investors. While there are certainly limits on what the government can do, some of those limits are imposed only at the level of the Supreme Court and that's a long, expensive journey for any company.

Even still, Transocean isn't likely to be bankrupted by this. Short of foolish and criminal negligence (namely, not properly maintaining equipment like the BOP), I just don't see the smoking gun that keeps Transocean on the hook. That doesn't mean, though, that lawyers and politicians won't try sticking it to them in the meantime.

You have to a pretty high threshold for pain to buy today, as the press isn't likely to get better any time soon. Still, though, the stock is trading for a lot less than I believe it's fundamentally worth and those situations always appeal to me.

Friday, May 21, 2010

Great Dividend Payers In Medical Technology

This was posted late today on Investopedia. 
I would clearly have included Johnson & Johnson (JNJ) in the list, if not for the fact that Investopedia does not allow writers to even mention stocks they own. I do own shares of JNJ.

Here is the article: 

There are a lot of solid reasons for investors to include medical technology stocks in their portfolios. The healthcare sector has grown faster than the economy and seems poised to continue to do so, and the more established names in this field routinely post excellent returns on capital. Better still, medical technology is generally spared the feast-famine cycle of patent expirations that bedevil the pharmaceutical sector.  

Now we can add another reason to like medical device stocks - dividends. As many investors already know, the stocks of companies that pay dividends tend to outperform those that do not. When you combine the advantages of dividend-paying stocks with the advantages of medical technology stocks, you have a powerful mix.

For the full article, please continue on to: 

Personal Rant - A Memo to BP Complainers, "Pick Your Poison"

It seems to me that bashing BP is now a cause celebre amongst the chattering class. The way some of these people are talking, you would think that BP laid explosives around the drilling rig and deliberately blew it up just to dump oil in the Gulf and ruin the lives of all these people.

Enough already.

Yes, BP screwed up. Yes, BP management has been irritatingly clumsy in their PR response. Do you think they wanted to dump thousands of barrels of valuable oil into the Gulf? Do you think it is easy to fix a blow-out deep below the sea? Do you think there is a manual for this?

I wonder how much of this reaction is a byproduct of what I have long called the "me wantee" culture in America. We want everything to go our way; we want our cake, we want to eat it, and we want it to have 100% of our daily vitamins without any calories.

People need to wake the hell up and realize that modern life has its costs. You want to stop drilling offshore? Really? Where do you want to get your oil from? The tar sands of Canada? Off the coast of Angola? From Russia?

Producing oil is a dirty business and occasionally things go wrong. That's just a fact of life. Is the oil from tar sands or Angola better because it degrades the environment in Canada and Angola instead of ours? Is it "better" because we don't have to live with the risk or see the costs?

Or what about hybrid and electric cars? Are these kosher because Americans don't have to see the environmental degradation and human exploitation that goes with digging up the rare elements that make up the batteries and components? Are toxic mine tailings not a problem as long as they don't hurt "our people"?

There are no free rides here. If you want to live in a modern economy, you have to make unpleasant choices. If you want electricity, it has to come from somewhere. It isn't practical to provide America's energy needs from solar, wind, geothermal, hydroelectric or other "fluffy bunny-safe" technologies. So choose from coal, gas, oil, and/or nuclear - every one of them has problems. Pick one.

If you want a modern economy, you need fuel for transportation, certain metals for technology, and materials like plastics. Those come from mining, drilling, and refining. Want to replace all of that with corn? Fine … then you pick who gets to starve when we reallocate grain production to fuel/plastics instead of food. So take your pick - spills, mine disasters, refinery pollution, etc. or starvation.

Or maybe we should all just live like the Amish. Anybody want to buy a buggy?

I sometimes feel like the modern manifesto goes something like this. " I want an SUV, $1/gal gasoline, and no environmental worries. Oh, and I want a diamond ring ... but the diamond has to be harvested by fluffy bunnies and the gold has to come from renewable unicorn droppings."

I am not trivializing the huge costs and impact of this oil rig disaster in the Gulf. It's serious, a lot of people are getting hurt, and the clean-up is going to be long, painful, and expensive. I'm not mocking those who are, or will be, suffering as a result of this. I am not mocking people who are legitimately concerned about the environment and working to find solutions.  But people need to rein in the hyperbole and realize that adult life in the modern world requires some tough decisions and the realization that nothing comes for free.

Thursday, May 20, 2010

TiVo Gets Scrambled

Do not count your chickens (or lawsuit settlements) before they are hatched. That would seem to be the lesson to TiVo (Nasdaq:TIVO) shareholders from a surprising court decision on Friday, May 11. Due to a federal appellate court's decision to re-review the company's case against Dish Network (Nasdaq:DISH), the stock lost almost half of its value in a single day.

What a Long Strange Trip It Has BeenTiVo is largely credited for the development of digital video recorders (DVR), one of the more popular add-ons for most dedicated TV-watchers. While TiVo sells its services directly, they also partner with companies like DIRECTV (NYSE:DTV) and Comcast (Nasdaq:CMSCA) to sell these services.

For the rest of the article: 

Unwrapping The Home-Improvement Big Boxes

Now that the "great retrenchment" in consumer spending has been going on for a couple of years, are shoppers itching to cast aside survivalist shopping at Wal-Mart (NYSE:WMT) and return to the likes of Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) to buff up their houses? 

Although one quarter does not prove a thing, Home Depot and Lowe's both did something this week that they have not done in almost four years each - they posted positive same-store sales growth for a full quarter. Perhaps, then, this is the renaissance of two of America's most successful retail concepts.  

For the full article, please continue on at:

Wednesday, May 19, 2010

Much Ado About the Wrong Thing

It is no great surprise to me anymore when I see the popular financial media overstate the importance of the goings-on of the equity market and all but ignore what is going on in the credit markets. But this latest example irks me all the same.

The markets have been chaotic lately, the papers tell us, because of Germany's decision to implement a limited ban on naked short selling. That may be true ... but it is only part of the story.

**To keep this sort-of brief, I'm going to footnote a discussion of shorting. Those who know about naked shorting can just continue on and not worry about it.

The news coverage of Germany's decision focused on the fact that a limited number of equities in the financial services sector are on the list. Big deal. We in the U.S. banned shorting altogether in some financial services stocks for a time during the worst of the credit crisis and it was not the end of the world. I really do not believe the markets here are selling off because of this announcement; it is small potatoes.

What is a bigger deal, though, is the fact that the naked short ban includes government bonds and credit default swaps. I cannot tell you in exact numbers how significant that is, in part because there is no clearinghouse for these instruments like there is in equities. I can tell you anecdotally, though, that naked shorting is a big part of how CDS trading is done and it is not uncommon in bonds either.

Basically, then, Germany has unilaterally re-written some of the rules of the credit market, and the credit market is far larger than the equity market. That, in turn, can mean chaos for the big trading desks at Goldman Sachs (GS), Bank of America (BAC), Citigroup (C), JPMorgan (JPM) et al. Yet another shot across the bow and shock to the system for these huge financial companies is not good news for the market.

So, ultimately I guess the papers have it right - the short ban is likely behind a lot of the turbulence in the markets. But the "how" really has nothing to do with the ban on naked shorting of equities. Once again, the financial press just misses the story when it comes to the credit market.

**For those who do not know, naked short selling is essentially selling something short with no attempt to locate and borrowing the asset. Normally, when somebody wishes to short an asset (like a stock), their broker finds those shares and borrows them for the would-be shorter. In that arrangement, you never have more than 100% of a company's shares sold short (and practically it will never be 100% because certain holders cannot or will not loan out shares to be shorted).

With naked shorting, no attempt is made to locate and borrow the assets. So, you could theoretically have 200% of a company's shares sold short in the market. Clearly, allowing naked shorting allows for almost unlimited selling pressure, though it works both ways and those shorts eventually have to be covered unless the asset goes to zero.

Although naked shorting in the U.S. equity markets got a lot of attention a few years ago (mostly due to (OSTK) and its very vocal CEO), it is generally not a problem. It is not supposed to be permitted to anybody except market makers, and it serves a legitimate purpose in keeping a liquid market. If a market maker cannot perform a naked short, it can essentially gum up the works and impair trading.

Disclosure - I own shares of JPMorgan

A Good Piece ... That I Didn't Write

I wanted to include a link here to this piece on FinancialEdge by Liz Davidson.

Tuesday, May 18, 2010

Keep An Eye On Biobutanol

This article actually was originally prompted by something I read in my weekly reading of newspapers, magazines, and journals. I just wish I could remember which one it was... 

Few topics seem to garner as much interest these days as the idea of moving past the gasoline-based transportation economy and onto something better. Several candidates for "better" have risen and fallen in recent years - fuel cells and ethanol seem to be yesterday's news - and advanced batteries are the belle of the "better" ball right now.

Investors should keep an eye out for biobutanol. While there are several significant challenges to surmount before biobutanol could be commonplace, this is an alternative fuel that may actually give us a real alternative when it comes to fueling our cars. That, in turn, could deliver real rewards for companies like DuPont (NYSE:DD), BP (NYSE:BP) and Total (NYSE:TOT) down the line.  

Recovery Rides In On The Rails

This piece was posted early this morning on Investopedia. 

I strongly recommend Rail Times Indicators; it is an excellent source of information on what's going on with North American railroads.

If you really want to know what is going on in the economy, you cannot just look at the flashy headline economic data that comes out every month. You need to know what is happening at the "street level", and that is why I am a fan of following railroad traffic data.

According to data produced by the American Association of Railroads (in its monthly Rail Time Indicators report), U.S. carloads jumped almost 16% from the year-ago level and hit their highest number since November 2008. Likewise, Canada was quite strong - carloads jumped almost 27% annually and ended up at a level not seen since October 2008.

The rest of the article can be read at Investopedia:

Monday, May 17, 2010

Does A123 Have The Juice?

Investing in potentially game-changing technology comes at a cost. By the time you know the winners from the losers, a large percentage of the gains are already in the hands of those investors who stepped up when there were more doubts than answers. On the other hand, investing in these companies is a virtual guarantee of volatility and runs a serious risk of capital loss. 

All that said, battery maker A123 (Nasdaq:AONE) in one of those plays that may be worth the risk. Although the stock has been weak lately and first-quarter earnings will not help matters, these are still early days for the company, the technology, and the industry as a whole.  

For the full text of the article:

Thursday, May 13, 2010

A Few Fruits From This Week's Research

When you're a stock junkie (to say nothing of a financial writer), you're pretty much always doing stock research. Sometimes you go a while before finding good ideas, and then sometimes you find them in bunches.

This week turned up a few interesting tidbits, as I was looking mostly at the chemicals sector.

Goodyear (GT) - Analysts seem to like this one, and it was up more than 10% in the past week. But a tire company? Really? Sure, the EV/EBITDA ratio isn't bad, but this company's historical ability to produce real returns (ROIC) isn't very good.

Aceto (ACET) - I like the idea of a company that makes the chemical underpinnings of pharmaceuticals, particularly generics. By and large, these guys don't mess with the legal patent wrangling like a TEVA. The EV/EBITDA is on the high side, but this one looks interesting.

Calgon Carbon (CCC) - Wow. Great business and decent returns on capital, but a pretty poor long-term record of growth and doesn't look at all cheap to me (though the analysts seem to like it well enough).

Hexcel (HXL) - Nice story (carbon fiber for Boeing and Airbus), but I can't even get close to making this one work on a valuation basis.

Lubrizol (LZ) - Am I the only one who didn't know this company was producing double-digit ROICs, good growth, and a strong free cash flow yield? Unfortunately, as much as the company looks like a winner, the stock seems to be there already.

Metabolix (MBLX) - You either win big or lose big. It's a nice idea, making plastics out of corn, switchgrass, and the like, but valuation is an exercise in faith. Treat it like a biotech. I probably should go back and double-check the IP here, because that will be the real deciding factor.

Methanex (MEOH) - I was shocked at how cheap this one looks when I value it by a forward EBITDA basis. It's been a volatile commodity business in the past, but they have a lot of unused capacity (good for margins if volumes go up) and China seems poised to use a lot more methanol.

Sigma Aldrich (SIAL) - Great company. No bargain in the stock, though.

Huntsman (HUN) - Hmmm. This one could be interesting. It's a diversified chemicals business, but a little less commoditized than your average commodity business. This one could be worth a closer look.

(LNDC) - This was a popular "little known" growth stock a few years ago. It was supposed to be a company that "looked like a commodity business, but really wasn't". Guess what? It was. At least enough to knock the wind out of its sales. I'm intrigued, though, and if my numbers are right this could be a cheap one.

And so ends the gleanings from this week's research. There were a lot more names I looked at, but I feel like 10 at a time is about all anybody wants to read about.

Happy hunting!

An Increasingly Small World For Disney

Sometimes, conventional wisdom is not so wise. Take the case of media giant Disney (NYSE:DIS) - the conventional wisdom is that the popularity and ubiquity of its brands (and its eternal appeal to kids) insulates it from economic conditions. That so-called wisdom bypasses the reality that it takes money to go to theme parks, advertising on networks trails off in recessions and movie production requires large upfront investments for uncertain returns. 

Diversification Shows its AdvantagesThat said, Disney's diversified asset base has helped the company weather the downturn in relatively good order, and this quarter was another example. Revenue rose about 6% overall as strength in the cable and film business offset pretty iffy results in broadcast TV and theme parks. Margins likewise have stayed strong, even as the company lays out significant money for programming rights for ESPN. One note of caution on the margins, though. Successful movies like Alice in Wonderland can certainly boost profitability, but seemingly every studio has a dry spell from time to time and they are inherently impossible to predict (few studio execs would green-light a movie they know is doomed to fail).

Will Adaptive Design Change the BioPharma World?

I wrote the following for Investopedia, and it was published today. 
I'm actually pretty interested in seeing what, if any, reaction I get to this. I really do believe this is one of the bigger ideas that could emerge in biopharma over the next few years, but it is an idea that you scarcely hear about outside of occasional panels and forums at industry conferences and meetings. 

I hope you find it interesting. 

Every so often a good idea comes out way ahead of its time. Fuel cells actually predate the gasoline engine, the Apple (Nasdaq:AAPL) Newton is the almost-forgotten iPad/iPhone predecessor, and Nikola Tesla sketched out plans for concepts like wireless energy transfer and airplanes that could take off vertically in the 1920s.  

Adaptive clinical trial design may ultimately belong on this list as well. Although the idea of changing pharmaceutical drug trials in response to data generated within the trial has been around for at least 10 years, the idea may finally be on the cusp of being realized. Should this concept become more commonplace, it could be a major step forward for biotechnology and pharmaceutical companies.

Read the full column at:  

Wednesday, May 12, 2010

A Private Deal For Sequenom

Interesting little deal today in the diagnostics space.  

Sequenom (SQNM) announced a private placement of 12.4M shares at a price of $4.15/sh ($51.6M total). The company definitely needs the cash to continue its R&D program, and the size of this deal should calm the funding fears for a while.Still, I can't help but notice that the investors in this deal demanded a pretty substantial discount to the prevailing stock price - nearly a 25% haircut to today's opening price.

To me, that seems like a pretty fair discount given the concerns and controversy around this company. There are plenty of places where you can read about the details, but the gist of it is that a major scandal hit the company last year; costing most of the sr. mgmt their jobs, costing the company several lawsuits, and throwing into question whether or not the company's lead test even works. On top of that, I'm still under the impression that the owner of the underlying technology (who had extended SQNM a license) wants out of that agreement.

So, in other words, this is a $340M market cap company trading basically on the hope that their test for Down's Syndrome works (but where the past data is all but useless because of the possibility of deliberate bias in prior studies) and that they still have the rights to develop and market it. Given all that, then, a 25% discount is not an unreasonable margin of safety.

On a more positive note, the company gave pretty clear guidance last week regarding the development timeline for this test, with test optimization expected to be over by the end of Q3'10, testing of samples conducted in the fourth quarter, and commercial launch by the end of 2011.Now, maybe I'm reading too much into this, but doesn't this sound a bit like "back to the drawing board?" If  they're having to go back to test optimization, that suggests to me that there were at least a few significant flaws in the old test. Whether that completely invalidates the old promise or not, I do not know. Unfortunately, I don't think anybody outside the company knows either, so it's basically an exercise of faith at this point.

I happen to think that the baseline technology the company is using is pretty sound, and I think there's some real market potential for this test. But with so many other options to chose from, and options that offer "clean" stories, I just don't see the need to take the risk here right now.

Good Luck, Peter

Saw an announcement after today's close that Peter Donato has resigned from his position as CFO at IRIS International. I had the pleasure of interacting with him a number of times while I covered his company as a sell-side analyst. Much as it pains me to praise any fan of Ohio State and the Detroit Redwings, I always enjoyed interacting with Peter, and IRIS is poorer for his departure.

I won't even begin to speculate as to why he is leaving the company and what it may, or may not, mean. People move on in business and it's just a fact of life. Still, it's another ripple through a company that seems to be pretty much cursed with them. Given what the company hopes to accomplish in the near term - filing for VELOCITY, securing FDA approval for ProsVue, launching those two products in the US, and rebuilding the company's reputation with the Street -- that is a pretty significant shake-up for the company.

I guess the "good news" here for an IRIS shareholder is that the value of the stock is pretty much based upon what the company *should* be able to do and not what it has been doing recently. Accordingly, assuming that the company recruits a qualified candidate, it shouldn't really impact the story over the long-term. Still, I would be nervous about what this management shake-up is going to do to the company's launch plans.

Again, best of luck Peter!

Has Europe Risen To The Challenge?

This is a bit out of date now, as it seems like the market has more or less digested the ECB rescue package and deemed it "good enough ... for now".

After seeing punishing increases in interest rates, declines in the euro and chaos in the equity markets in response to slow and unsteady action on Greece, the ministers of the European Union decided to try to get ahead of the next round of worry and launch a massive liquidity measure for its members. The announced package immediately sent the euro higher along with equities of all stripes, but especially those exposed to the financial chaos in Europe.

What HappenedEarly on Monday morning, the finance ministers of the EU announced an enormous liquidity package designed to restore faith in the euro and the solvency of its members. The three-part program is worth almost $1 trillion and it consists of 60 billion euros in loans, 440 billion euros in future loan guarantees and as much as 250 billion euros in funding from the IMF.
The full column can be read at:

Meaty Results From Zhongpin and Tyson

These are pretty fat days to be in the protein business. Corn and soy prices, the two primary feed ingredients, are about as low as they have been in a few years, while prices for hogs and cattle are quite high. That margin, which goes by the somewhat grizzly name of "crush spread", is music to the ears of major meat producers like Tyson Foods (NYSE:TSN), while China's Zhongpin (Nasdaq:HOGS) also continues to see a benefit from ongoing economic development in its home country.

Penn Virginia Turning Coal Into Cash

Penn Virginia has been one of my favorite companies for a while, and it's a company that I have written about a lot over the years. Oddly enough, I've never actually pulled the trigger and owned it in my own portfolio. Maybe soon, though...

Say you want to invest a portion of your portfolio in coal, America's dominant energy source for electricity, but you also want to get a hefty stream of income from that investment. Unfortunately for dividend-seeking investors, the leading names in the coal industry like Peabody Energy (NYSE:BTU), Arch Coal (NYSE:ACI) and  Massey Energy Co. (NYSE:MEE) do not pay especially large dividends. What do you do?  

Well, you could try to buy a share in a coal mine lease, but that is quite frankly not an option for most regular people. You could also pursue a covered call writing strategy, but that may be a bit too much work for some investors. Or, you could also just buy the shares of a royalty partnership like Penn Virginia Resources (NYSE:PVR).  

Tuesday, May 11, 2010

Earnings From a Couple of Gas Giants

There is an argument out there that closely analyzing the quarterly financial performance of energy companies is basically futile. The impact of energy prices is so significant, the thinking goes, that it renders the company-specific details basically meaningless. 

But if you look at long-term charts of the players in the energy space, you will see that the stocks of efficient and savvy producers outperform over time. So while a penny of earnings here or there is not going to dominate the discussion around Devon Energy (NYSE:DVN) or Ultra Petroleum (NYSE:UPL), investors would do well to dig in and appreciate what distinguishes the best operators.

Transocean Far From Sunk

There is no need to minimize just how serious the Deepwater Horizon oil spill in the Gulf of Mexico could ultimately be. Workers died in the accident, billions of dollars in damage are likely, a valuable rig is now scrap metal, and opponents of offshore drilling will make hay from this accident for years to come. 

All of that being said, the decline in market value of offshore driller Transocean (NYSE: RIG) seems to be exaggerating the ultimate impact to the company and its future prospects. With earnings out last week and a growing sense of the worst-case scenarios, the nervous hands may be all but gone from this story.

Monday, May 10, 2010


I originally wrote this piece right after InterMune announced its FDA setback, but there was a bit of a logjam in the editing process. In any case, there are still some valuable points here. 

Failure is an inherent risk in the boom-and-bust world of biotech, and InterMune (Nasdaq: ITMN) shareholders saw that risk play out on Wednesday morning. The FDA effectively rejected the company's application for marketing approval of Esbriet (pirfenidone) in the treatment of idiopathic pulmonary fibrosis. 

Clearly the damage has already been done, but what InterMune investors must decide now is whether there is enough promise in the drug and the company to hang on in the hopes of a rebound. 

For the rest of the article, please click on the following link:

Friday, May 7, 2010

Greece: The Worst-Case Scenario

This ( went up yesterday afternoon, so I apologize for the late posting.

While there has been a great deal of attention paid over the last few months to the nascent recovery in the United States, the ongoing Greek sovereign debt crisis in Europe is a reminder that there are often long-tail effects to recessions and global economic shake-ups. 

How Did This Happen?What has happened is the result of a long series of bad decisions. The establishment of the euro effectively gave Greece access to a huge amount of relatively cheap debt, but Greek officials did not put the proceeds of this debt to good use. Since the euro came into existence, Greece's ratio of debt to GDP has stayed above 100% and the country ran persistent deficits in excess of 10% of GDP. Ultimately, when investors (and, belatedly, the ratings agencies) realized that the emperor had no clothes, rates on Greek debt began to creep up, and matters culminated in the S&P downgrade of Greek debt to "junk" status on April 27 of 2010.

For the rest, please click on through to:

Thursday, May 6, 2010

Ouch! Nasty Whiplash

This is why I try to keep the TV-watching to a minimum during the workday. In maybe 20 minutes I've seen the market plummet from down 5% to down more than 9% to now down about 4% (and climbing).

This is a pretty good microcosm of why I got out of the business ... there's way too much doing and not nearly enough thinking. Now, I'll grant that the decline may have really accelerated because of the impact of program trading, but that's not all of it. Institutions will program in stops at, say, the 200-day moving average, and then you can get just a cascade of selling as all of those stops trigger and force sell orders.

But it's pretty clear that people are really jittery and easily spooked these days. It seems like traders watched the news, saw unrest in Athens, and decided to de-risk their holdings. As the markets dropped, rates moved fast (as did gold, though to a lesser extent) and things snowballed.

At this point, nobody wants any risk. It wouldn't shock me to see the market close weak (despite this intraday rebound), as I doubt nervous traders want to hold equities overnight. So when you have panicky people, you get panic selling.

Is this is a great buying opportunity? I don't think so.

You and I can't buy nimbly enough to really profit off of these large intraday moves. So while I see a lot of volatility and nervousness in the near term, I think it is very difficult to play that effectively. The best advice is probably old advice - buy good stocks at prices that give you a wide margin of safety. And, to be very frank, it may just be time to step away for a bit and let things settle down.

This is *not* the end of the recovery, *not* the end of the euro, and *not* the end of the world. But what good does that do you when hyperactive traders all scream "sell" at once?

Australia Proves Taxing To Miners

The latest article on Investopedia:

I'll be very curious to see how debate in Australia shapes this issue. Mining is a major source of income for the country and Australia derives huge benefit from being a modern and mineral-rich nation relatively close to China. Here's hoping they don't strangle the golden goose. 

One of the biggest risks that go along with investing in mining stocks is the risk that sovereign governments will change the rules midstream. More than a few mining projects in Africa and South America have been canceled or curtailed by governments suddenly changing the rules, typically by tearing up contracts demanding a larger slice of the pie. Historically, Australia has been seen as a very mining-friendly country, but a recent proposal to change tax rules in that country has sent some major ripples through the sector.

The TaxAs part of a comprehensive tax policy review, the Australian government has proposed a new "resource super profit tax" of 40% that would be levied on companies with on-shore mining assets in Australia. In short, this tax would increase the effective corporate tax rate for mining in Australia to about 57%. Another way to look at it is that basically makes the government of Australia a 40% partner in all resource projects starting in the summer of 2012. 
For the full article, please go to: 

Shopping Time In Medical Technology?

The following has been posted on Investopedia:

It is a little strange for me to see ATS Medical get a bid. We banked that company when I was just a junior analyst at Piper and the CEO/founder, Manny, was (and still is) a one-of-a-kind guy. ATSI has always been something of a sad lesson for me; sad in that it proves that the best technology/product doesn't always win and that the company with the better marketing is more likely to win. 

In any event, it's always fun to speculate on who may be next to go out in the space. I hope you enjoy the piece.  

Amidst the paper blizzard of earnings releases, a little deal in the med-tech world took place. Medical device giant Medtronic (NYSE:MDT) announced that it was buying small cardiology company ATS Medical (Nasdaq:ATSI) for about $370 million in cash and assumed debt. The deal will bring some quality heart valve technology to Medtronic and cash to long-suffering shareholders of ATS Medical.

Buy The TechnologyThe ATSI deal is a relatively minor one in the bigger scheme of things, but it does at least highlight one type of deal that could be increasingly attractive - tucking in a small company that has good technology, but has not been able to leverage it effectively. Following this mold, investors should look for companies that have acknowledged quality technology, but for whatever reasons have not been able to deliver the growth that investors want.

You can read the rest at Investopedia:

Relief With Bristol-Myers Squibb

The second piece on Investopedia today -

Although I wrote this one last week, it took a little while to get up on the site. Enjoy.

As I look at the earnings report for pharmaceutical giant Bristol-Myers Squibb (NYSE: BMY), I wonder if the rally in the stock is more of an expression of relief than excitement. Like many of its big-cap pharma brethren, there has been more than just one wall of worry to climb for BMY. 

For the rest, please go to:

Three Growth Med-Techs Show Their Cards

The following went up this morning on Investopedia:

As earnings season winds down, a relatively rare trifecta occurred May 3 as three quality growth med-tech stocks reported their earnings. Hologic (Nasdaq: HOLX), IRIS International (Nasdaq: IRIS) and Volcano (Nasdaq: VOLC) all reported earnings with varying degrees of performance. 

For the full article:

Wednesday, May 5, 2010

Putting The Dow In Perspective

I apologize for the slowness of posting this one, but I do not get automated updates when my pieces go up on the FinancialEdge website.

Here is the article:

The Dow Jones Industrial Average (DJIA) is inescapable. No matter how middling a news outlet's coverage of business may be, it is a safe bet that the performance of the DJIA or "the Dow" will be offered up as a comment on how the market is doing.

What is often lacking, though, is a sense of context and significance. Without a bit of perspective on just what the Dow is, it's not that useful to talk about moves in the index, particularly when those moves are talked about only as points.

You can read the rest at:

My Humble Solution To The Greek Crisis

Please note - this is intended as satire, not a serious proposal, nor a political commentary.

I think I have arrived at an easy way for Greece to get itself out of this criss.

Unfortunately for Greece, its greatest days were long before the advent of the modern world and concepts like "patents", "trademarks", and "copyrights". But why should that stand in the way? There have been more than a few retroactive patents awarded in the past, and we in the United States have seen fit to grant patents for things like genetic sequences -- something that no man created, but rather just happened to be the first to find.

So, why shouldn't Greece be allowed to hold a patent on arguably its greatest invention?


Now, I know, Greek democracy (or rather, Athenian democracy) is very different than what we call democracy today. In fact, I daresay Athenian democracy would be barely recognizable to Americans as democracy. But let us not quibble over the details.

According to the Democracy Index, roughly 50% of the world today lives under democracy (be it perfect or imperfect). That's about 3.4 billion people, folks.

Now, when the U.S. launched military operations against Iraq, one of the stated reasons was to bestow democracy upon the Iraqi people (along with eliminating potential WMDs, getting rid of Hussein, and holding him accountable for various human rights violations and terrorist activities). So far, our operations have cost America about $704 billion dollars.

Iraq has a population of 31.2 million people. So, if we allow for one-third of the motivation being democracy, that gives us a price of $7,500 per person for democracy. And for the purposes of this exercise, we'll just treat this as a one-time payment paid by the current generation forever more.

Now, the Greeks being fair-minded people won't charge us that established "retail" price that the United States has paid. Instead, they'll grant a perpetual license for 10% of that amount - really a rather reasonable amount when you look at patent licensing agreements for novel technology and innovation.

Do the math (10% of $7,500, multiplied over 3.35B people) and you get a sum of $2.5 trillion. That is what the world, collectively, owes Greece for the right to use democracy.

So, given that the total outstanding sovereign debt of Greece is only about $400 billion, maybe the fairest approach is to call the whole thing even.

Please note - this is intended as satire, not a serious proposal, nor a political commentary.

Tuesday, May 4, 2010

No Safe Harbor?

Where do you want to invest today?

Europe? Good luck.

Europe has problems above and beyond Greece - the "green shoots" of recovery there were always scrawnier than over here, and the decision by the ECB to continue to accept Greek bonds as loan collateral means that institution's credibility is, at best, "stretched". With the possibility of banks in France, Germany, and Spain (and perhaps the UK, Italy, and the Netherlands to a lesser extent) are going to be severely hamstrung by troubles in Greece and Spain, growth in Europe could get pretty difficult. As we've learned over here, it's tough for the economy to be healthy if the bank sector is gangrenous.

The U.S.? Maybe.

I think the U.S. economy is in okay shape for now, but I'm one of the weirdos more worried about *deflation* than inflation (yes, I know public debt is onerous, I know government spending is out of control ... but I majored in Japanese back in college, and I've seen how this scenario can go). The market got over-heated and over-optimistic, but I think we at least have a credible hope to grow. For the next 12-18 months, we should be okay. The 3-year, 5-year, and 10-year horizons are scarier, though.

Emerging markets? Nope.

Brazil is raising rates. India is raising rates. China is trying to deflate a property bubble without strangling the economy. So, the three most interesting emerging markets are all trying to tap the brakes on their economies. Sometimes that works out, but more often than not that "tapping" on the brakes ends up sending the stock market temporarily into the windshield. So, now is a GREAT time to find Brazilian, Indian, and Chinese stock ideas, but I wouldn't be aggressively buying into the headwind of these governments trying to cool things down.

So, where does that leave us?
Gold? Not for me, thanks. Other commodities? Not looking so great ... some are looking strong on a short-term trade (coffee, corn, maybe cattle), but it's hard to feel great about copper sliding off (as that's often a precursor of economic conditions on a more global scale).

Bonds? Probably not, especially with the ratings agencies looking stupid (again), and rates seemingly on the rise.

It looks like we're in for one of those unpleasant periods where the predominant investment decisions are how to minimize the damage, as opposed to how to maximize the gains. But this too shall pass.

In the meantime, maybe I need to brush up on some more Turkish and Nordic stocks...

Oh Wait, Things *Aren't* Alright

So, the market sold off significantly today, allegedly due to fears that the aid package wouldn't help Greece. Really? So, yesterday "the Street" thought things would all work out just fine, but then over Cheerios this morning they all realized "oh wait ... we're all doomed".

I actually don't blame the financial media so much for this. They have a job to do, and their foremost job is to provide answers (or something that looks like answers) for the ever-present question "Why did the market go up/down today?" Nobody ever seems to need to explain a flat market ... though I feel like those are the days when we hear about "battles" between bulls and bears over the latest worries and wild hopes.

Look, Greece is bad and it's going to get worse. The "aid" package isn't going to help and will probably do little more than roil the markets and prop up some European banks long enough for them to move that Greek debt off their balance sheets in a way that doesn't totally devastate their earnings and capital ratios in the short-term. Longer term, there's just no realistic chance that this package spares Greece from default.

And that's okay. Default, like bankruptcy, should be the logical consequence of a series of bad mistakes. It's the ultimate expression of "okay, we eff'ed up ... now we need to start over". What is almost always worse, though, is what people, companies, and nations will do to stave off that bankruptcy. When people are desperate, they get dangerous. Suddenly, stupid risks and ridiculous plans seem reasonable, because the ultimate consequence (bankruptcy/default) looks the same to them. So, they flounder around and make a mess of things for everybody else because they see their downside as being limited to that worst case scenario.

As I said before, I'm not *that* worried about Greece. I'm getting hosed on my Societe Generale stock, but then I have been for a while now anyway. And I still hold that stock because I believe the company will ultimately recover and deliver value in excess of its current price. But will Greece crush us? No.

Now, if Greece, Spain, and Portugal go down, we have a bigger risk. But that's another post for another day.

In the meantime, the stock market was overbought anyway, so we have a market in search of an excuse to go down. The Greek problem is a good enough excuse for now, but even if that problem magically went away, another one would suffice.

Keep holding good stocks and hope for the best. It's dangerous to be blindly optimistic, but there's not a lot of profit in pessimism either.

(Disclosure - I own Societe Generale stock. God help me.)

Monday, May 3, 2010

Learn From Apache's Success

Here is a second piece this morning:

Mid-major energy company Apache (NYSE:APA) is a curious case of collective amnesia in the professional investment world. Even though Apache has more than proven itself as among the best of the best, it seems as though the company is often questioned, doubted and discounted by analysts and investors.

I mean, if you look at stock performance over the last 15 years, Apache is well ahead of rivals like Anadarko (NYSE:APC), Devon (NYSE:DVN) and Canadian Natural (NYSE:CNQ), and trails only Suncor (NYSE:SU) and EOG (NYSE:EOG) among those in its "weight class". Maybe you would think that that sort of record would earn management the benefit of the doubt.

For the rest of the story:

Becton Dickinson More Interesting Than You Think

Here's today's first piece on Investopedia. This was a stock (BDX) that I really wanted to cover when I was a sell-side analyst this last time around. Oh well ... water under the bridge.

For many years, Becton Dickinson (NYSE:BDX) has been summarily dismissed by a lot of portfolio managers as "too boring". Well, their loss. Although the stock of this diversified health care and biosciences company could not match the pace of health care all-star Medtronic (NYSE:MDT), it stacks up quite well against the likes of Abbott Labs (NYSE:ABT), Baxter (NYSE:BAX) and many other more "exciting" names. Proof, perhaps, that the steak is more satisfying than the sizzle.

A Quiet QuarterThe first quarter of 2010 was pretty much medium, with little to get excited about in either direction. Revenue growth of about 7% was in line with expectations, while the earnings per share (ex-items) were four cents ahead of the average estimate.

To read the full article, please click:

Buy The Spill?

It's hard not to read the coverage of the oil spill in the Gulf and not start wondering whether some selective vulture capitalism could pay off here.

Everyone involved - BP (BP), Anadarko (APC), Transocean (RIG), Halliburton (HAL), and Cameron (CAM) - has taken a pummeling from the accident. It's difficult to imagine, though, that the damage is ultimately going to be as bad as the declines in the market caps all suggest.

RIG and CAM, in particular, are the names I'm looking at right now. BP is a fine producer and the decline in the stock in the wake of the blowout and rig sinking has certainly put the stock at a point where I think long-term investors will come out nicely. But BP just isn't the type of stock I normally play.

The real question here is a two-parter. First, what will the final sum be for the cleanup costs, legal fees, and settlements? This is a big spill and it was going to be expensive in its own right to clean up. Now with lawyers descending on the Gulf coast like locusts on a corn field, the odds that all involved will be in court for years have to be close to 100%.

The second part is how the expenses get apportioned between the players.

BP has publicly stated that it wasn't their people on the rig or operating the drilling. That's true ... but also irrelevant. Most drilling contracts specifically provide that the leaseholders (BP and Anadarko) are responsible for any accidents unless those accidents can be shown to be the result of "gross negligence" on the part of the driller. So, RIG is going to be on the hook for the rig itself and some related contamination expenses (diesel, etc.). On top of that, the rig was insured for about $560M, and the company carries $950M in third-party liability coverage.

Cameron was the company that made the BOP (blowout preventer), and that piece of equipment is going to get a lot of attention. Generally speaking, a BOP is supposed to prevent exactly what happened on the Deepwater Horizon, but for whatever reason it didn't. I've seen some sources indicate that the BOP was beyond its guaranteed/warrantied life, and it is at least possible that the device wasn't properly tested and maintained. In any case, CAM has a $500M liability policy to deal with cases like this. The bigger risk, though, is that if the BOP is deemed at fault (and badly made), CAM could lose a lot of share to NOV and other rivals.

Last and not least, I wonder about Halliburton. HAL was doing the cementing just prior to the blowout. Did something about that procedure trigger the explosion? In any case, HAL usually has contracts in place that indemnify them or at least limit the liability in cases like this.

All in all, it's a big mess and it's going to take months (if not years) to fully lay out the blame. In the meantime, BP is a pretty cheap stock at these levels. I'd actually prefer Apache (APA) myself, though, as it has taken a few hits along the process of this accident. I have to say I'm very intrigued by Transocean and Cameron at this levels; I've liked both stocks for a long time, but have held off because of valuations. It seems extremely unlikely that either RIG or CAM is going to have a big bill to pay as a result of this accident, and so long as neither company's products or actions are targeted as being the direct cause, the stocks should recover pretty nicely in the long run.