Kraton's Story Is A Little Complicated, But Can Still Offer Some Value

It's been a while since I last wrote on Kraton (NYSE:KRA), but I had some valuation issues and thought there might be opportunities to buy the shares at lower prices. Those opportunities did in fact materialize (there have been at least three meaningful pullbacks) and the shares have recently been quite a bit stronger - up over 60% in the past year despite multiple negative revisions and challenging input cost developments.

Kraton could still offer some upside here, but management has to execute. Efforts to shift the company toward higher-value applications have delivered mixed results, and the size of the Arizona Chemical deal is such that strong execution/integration is an absolute must. I do like the increasing diversification of the business, though, as well as its exposure to non-hydrocarbon inputs and relatively attractive markets like construction/infrastructure, medical, and adhesives. With the company potentially on a trajectory toward 20% EBITDA margins and meaningful improvement in free cash flows, $30 looks like a pretty reasonable fair value.

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Kraton's Story Is A Little Complicated, But Can Still Offer Some Value

Seeking Alpha: Amidst Restructuring Efforts, Weatherford Still Thinking About Growth

Energy services company Weatherford (WFT) has come a long way since my February 2013 piece, with the company not only putting tax and accounting issues behind it, but also moving forward with a sizable restructuring effort. Weatherford is selling, spinning off, or shutting down non-core operations where either the company's market position or margin potential isn't good enough to warrant ongoing operations.

Amidst these turnaround efforts, though, the company is not ignoring the need to keep the company in position for future growth.

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Amidst Restructuring Efforts, Weatherford Still Thinking About Growth

Seeking Alpha: Kraton Offers A Good Story But Some Valuation Questions

Kraton Performance Polymers (KRA) is the kind of stock that gives investors early gray hairs. A cyclical, seasonal chemical company with significant raw material risk, the company also has uncommonly high share in its markets. I like the company's history of innovation and product development, not to mention the major synergy potential of the proposed merger with LCY Chemical's SBC business. The cyclicality of the business make discounted cash flow trickier, while reasonable debate on the "right" EV/EBITDA multiple could lead to a fair value between $22 and $3

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Kraton Offers A Good Story But Some Valuation Questions

Seeking Alpha: Talisman Energy Aims To Shrink And Grow Rich

"Bigger is better" is the operating mindset for many corporate executives, but that's not always the winning strategy in the energy sector. With share price performance often closely tied to debt-adjusted production growth, it can make quite a bit of sense to jettison assets that don't offer much production growth upside and/or those that require substantial investments to maintain or develop.

That brings me to the Talisman Energy (TLM) situation. While the company has legitimately interesting assets in North and South America as well as Southeast Asia, the company's North Sea assets are little more than an albatross around its neck. Talisman shares do appear to be trading below fair value, and the company appears quite committed to both asset sales and cost reductions, but there isn't any particular shortage of interesting ideas in the energy sector today.

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Talisman Energy Aims To Shrink And Grow Rich

Seeking Alpha: Fear Driving The Braskem Trading And Obscuring The Value

Chemical stocks can be volatile enough in their own right, as they are sensitive to the prices of key inputs like oil (naphtha) and natural gas and demand is typically tied to economic growth. Braskem (BAK) seems to offer additional risks, as investors worry about the impact of electricity rationing on the Brazilian economy and the company's competitiveness with gas-based cracking capacity.

Questions about the health of the Brazilian economy are valid, as the company has about two-thirds share in Brazil and over half of its sales go into this economy. Even so, the market appears to be overdoing it and the discount to other chemical companies seems to wide to ignore. I believe that fair value for Braskem starts around $20 today, making this is a notably undervalued play on Brazil's underlying economic growth as well as operational improvements that could improve the company's product portfolio and cost structure in the coming years.

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Fear Driving The Braskem Trading And Obscuring The Value

Investopedia: Apache Makes Nother Move To Reduce Business Risk

Investors are getting even more of what they say they want from Apache (NYSE:APA), as this large independent oil and gas producer has reached an agreement to sell down its stake in Egypt. Due in no small part to the significant increase in political/operating risk in Egypt, many shareholders and analysts had been vocal in calling for Apache to reduce its exposure to the country. Although it sounds like Apache got a reasonable deal, I am skeptical that it's really going to change opinions on this company as it goes through a restructuring of its operations.

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http://www.investopedia.com/stock-analysis/083013/apache-makes-another-move-reduce-business-risk-apa-snp-oxy-omvky.aspx

Investopedia: New Gas Prices Help PetroChina, But Multiple Challenges Remain

Not unlike Petrobras (NYSE:PBR), PetroChina (NYSE:PTR) finds itself continually put into losing situations by its government. The Chinese government controls the prices at which PetroChina can sell natural gas and refined products like diesel, but cannot control the global cost of crude, nor the cost of producing oil, gas, and refined products. Couple that with aging fields, rising prices, and lower returns on capital, and PetroChina is in a difficult position.

Although that's a serious backdrop for the company, it's one in which management has always operated, and generally operated pretty well. Although aging fields in China are a concern, the company has been expanding its overseas production options and the development of shale and other unconventional resources in China could offer production growth. All told, PetroChina looks a little too cheap today and offers decent capital appreciation potential and a solid dividend.

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http://www.investopedia.com/stock-analysis/070313/new-gas-prices-help-petrochina-multiple-challenges-remain-ptr-pbr-ceo-snp-choly.aspx

Investopedia: Is It Time To Prepare For A Braskem Rebound?

The peculiar logic that goes with commodity company investing works a little something like this - Brazil's Braskem (NYSE:BAK) is near its 52-week lows, so investors should probably add it to their watch lists. The trouble with this approach, though, is illustrated by the recent troubles in the coal sector - buying near the lows is all well and good, but what do you do if and when the stocks keep digging out new lows?

Is a Rebound Coming?
The trouble with Braskem is a familiar one; sluggish demand has hurt volumes, while spreads have been exceptionally low. Even though Braskem has a commanding (two-thirds) share of the Brazilian chemicals market and is largely protected by the Brazilian government, there's not much to change the short-term reality that demand is sub-optimal and the company's costs are high.

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http://stocks.investopedia.com/stock-analysis/2012/Is-It-Time-To-Prepare-For-A-Braskem-Rebound-BAK-DOW-SNP-XOM-DD0409.aspx

China's Potash Hypocrisy

If nothing else, China has chutzpah. China's government put out a statement early on Wednesday indicating that it was paying "close attention" to the possibility that BHP Billiton (NYSE:BHP) would succeed in its bid to acquire Canadian fertilizer giant Potash (NYSE:POT). In mentioning that a so-called BHP potash monopoly would "harm global interests" and that prices are already "unbearable" for Chinese farmers, it would seem that this is a not-so-subtle shot across the bow for not only BHP, but perhaps Canada as well. 

Given that BHP Billiton has a significant stake in Chinese potash company China Sinofert, China actually does have some influence in this process and could certainly apply pressure to BHP through that investment. Moreover, there is still the possibility that a Chinese investment fund or company could make a competing bid for Potash - even as large Chinese companies seem reluctant to commit to much interest in such a move.

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