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Investors know that oil prices and terrorism, two things that really can’t be controlled, have a large influence on the stock market. Many investors avoid airline stocks for this reason. They can’t control one of their biggest expenses (fuel) and an act of terrorism can seriously damage the industry.
Why are cruise stocks any better? Rising fuel costs and Hurricane Katrina led to lower stock prices for companies like Carnival Corp. and Royal Caribbean Cruises Ltd. These two cruise lines account for about 75 percent of the cruise industry, worldwide.
When George Allen Smith IV, from Connecticut, vanished while on a Royal Caribbean cruise, the industry received a lot of negative publicity.
Certainly, there are many negatives for cruise stocks, but some investors are bullish. First, there is no direct indication that the vanishing honeymooner from Connecticut has hurt ticket prices. Valuations on these stocks also look good.
Carnival Corp. trades at 16 times estimated 2006 earnings; its historic range is 10 to 30 times earnings. Royal Caribbean trades at 14 times estimated 2006 earnings; its historic range is 5 to 24 times earnings. Growth potential is strong as only 4 percent of Americans have ever taken a cruise.
When considering cruise stocks, remember the risks. A sharp rise in fuel prices or another terrorist attack would likely have a negative impact on cruise stocks. In my opinion the risk outweighs the possible reward as I don’t expect cruise lines to significantly outperform the broader market.
Investing in the stock market sometimes boils down to one essential element, namely good choices. No matter how well we do our research, how often we buy and sell, or how much we pay experts for their tips and advice, without choosing stocks that represent value, we wont succeed. Although some are good at predicting the direction of the market and timing the ups and downs, if they dont purchase the right stocks, they will still meet with difficulties when trying to reap profits.
For that reason, some of the best paid people on Wall Street known primarily for their talent at picking stocks. Financial advisors give talks and write books and newsletters about how to choose stocks that will outperform the market, and most experts echo the same sentiment and agree that one of the best ways to judge a stock is from the point of view of a consumer. By using instincts we have already honed as ordinary shoppers, we can often ferret out information that even the most skilled and software-savvy market watchers miss. While they study analytical charts, earnings reports, and the stock exchange ticker tape, folks just like yourself actually do business with the companies they invest in, because their experience as a customer speaks volumes about the value of the company and its products and services.
Here are the kinds of things to look for as indicators of a companys worth:
1)How popular is their product or service? If everyone you know uses it, and is satisfied with such things as price, customer service, and reliability, the company is probably well situated among the competition.
2)Are the employees satisfied? One of the best ways to judge a company is by talking to employees. Many companies put on a good faade, but underneath the fancy marketing is plenty of discontent. But if employees like a company especially if they like it enough to buy stock in it thats a very good sign.
3)How well known are they? You may find a great startup company with all the trappings of success, but discover that it is lesser known. Many small or regional companies are popular in their own back yards, but the rest of the world may not yet know about them. Buying such unknowns can be a great way to invest in the next hot stock. If the fundamentals look good, sometimes being lesser known is a good thing for investors getting in on the ground floor.
4)If they went out of business, where would you go for similar products and services? If you cant think of a convenient alternative, the company is probably in a niche market that enjoys customer loyalty and repeat business.
Shop around, and notice what you see and how each business makes you feel. Then trust your intuition. Make a list of companies that get your attention, and then call their shareholder relations department and ask for more details. By starting your list with companies you already have a first hand experience of, you raise the chances considerably that you will make smart choices.
Canadian Coalbed Methane Stocks: 7 Things to Know Before Investing
More investors are now inquiring about Coalbed Methane exploration companies. Just as uranium miners were flying well below the radar screen in early 2004, coalbed methane exploration may very well be the next very hot sector later this year and next. Historically, coalbed methane gas endangered coal miners, resulting in alarming fatalities early in the previous century. This is the fate suffered today by many Chinese coal miners in the smaller, private coal mines. Typically, the methane gas trapped in coal seams was flared out, before underground mining began, in order to prevent those explosions. Rising natural gas prices have long since ended that practice.
Today, coalbed methane companies are turning a centuries-long nuisance and byproduct into a valuable resource. About 9 percent of total US natural gas production comes from the natural gas found in coal seams. Because natural gas prices have soared, along with the bull markets found in uranium, oil, and precious and base metals, coalbed methane has come into play. It is after all a natural gas. But because it is outside the realm of the petroleum industry, coalbed methane, or CBM as many industry insiders call it, is called the unconventional gas. It may be unconventional today, but as the industry continue to grow by leaps and bounds, on a global scale, CBM may soon achieve some respect. Please remember that a few years ago, there was very little cheerleading about nuclear energy. Today, positive news items are running far better than ten to one in favor of that power source.
CBM is the natural gas contained in coal. It consists primarily of methane, the gas we use for home heating, gas-fired electrical generation, and industrial fuel. The energy source within natural gas is methane (chemically, it is CH4), whether it comes from the oil industry or from coal beds.
CBM has several strong points in its favor. The gases produced from CBM fields are often nearly 90 percent methane. Which type of gas has more impurities? No, it isnt the natural, or conventional, gas you thought it might be. Frequently, CBM gas has fewer impurities than the natural gas produced from conventional wells. CBM exploration is done at a more shallow level, between 250 and 1000 meters, than conventional gas wells, which sometimes are drilled below 5,000 meters. CBM wells can last a long time some could produce for 40 years or longer.
Natural gas is created by the compression of underground organic matter combined with the earths high temperatures thousands of meters below surface. Conventional gas fills the spaces between the porous reservoir rocks. The coalification process is similar but the result is different: both the coalbed and the methane gas are trapped in the coal seams. Instead of filling the tiny spaces between the rocks, the coal gas is within the coal seams.
One of the past problems associated with CBM exploration was the reliance upon expensive horizontal drilling techniques to extract the methane gas from the coal seams. Advanced fracturing techniques and breakthrough horizontal drilling techniques have increased CBM success ratios. As a result, a growing number of exploration companies are pursuing the early bull market in CBM. Market capitalizations for many of these companies mirror similar early plays we mentioned during our mid 2004 uranium coverage (June through October, 2004). Industry experts told us there would be a uranium bull market. Now, we are hearing the same forecasts about CBM.
SEVEN TIPS BY DR. DAVID MARCHIONI
We asked Dr. David Marchioni to provide our subscribers with his 7 Tips to help investors better understand what to look for, before investing in a CBM play. Dr. Marchioni helped co-author the CBM textbook, An Assessment of Coalbed Methane Exploration Projects in Canada, published by the Geological Survey of Canada. He is also president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the companys CBM exploration program in China.
Our series of telephone and email interviews began while Dr. Marchioni sat on a drill rig in Albertas foothills, the Manville region, until he finished outlining his top 7 tips, or advices, on how to think like a CBM professional.
1)COAL SEAM THICKNESS
Is there a reasonable thickness of coal? You should find out how thick the coal seams are. With thickness, you get the regional extent of the resource. For example, there must be a minimum thickness into which one can drill a horizontal well.
2)GAS CONTENT
Typically, gas content is expressed as cubic feet of gas per ton of coal. Find how thick it is and how far it is spread. Then, you have a measure of unit gas content. Between coal seam thickness and gas content, you can determine the size of the resource. You have to look at both thickness and gas content. Its of no use to have high gas content if you dont have very much coal. The industry looks at resource per unit area. In other words, how much gas is in place per acre, hectare, or square mile? In the early stage of the CBM exploration, this really all you have to work with in evaluating its potential.
3)MATURITY LEVEL OF THE COAL
This is the measure of the stage the coal has reached between the minerals inception as peat. Peat matures to become lignite. Later, it develops into bituminous coal, then semi-anthracite and finally anthracite.
There is a progressive maturation of coal as a geological time continuum and the earths temperature, depending upon depth. By measuring certain parameters, you can determine where it is in the chemical process. For instance, the chemistry of lignite is different from that of anthracite. This phrasing is called coal rank in coal industry terminology.
4)PERMEABILITY
When you are beginning to think about CBM production, this and the next item must be evaluated. How permeable is the CBM property? You want permeability, otherwise the gas cant flow. If the coal isnt permeable at all, you can never generate gas. The gas has to be able to flow. If it is extremely permeable, then you can perhaps never pump enough water. The water just keeps getting replaced from the large area surrounding the well bore. The water will just keep coming, and you will never lower the pressure so the gas can be released.
5)WATER
In a very high proportion of CBM plays, the coal contains quite a lot of water. You have to pump the water off in order to reduce the pressure in the coal bed. Gas is held in coal by pressure. The deeper you go, typically the more gas you get, because the pressure is higher. The way to induce the gas to start flowing is to pump the water out of the coal and lower the water head of pressure. How much water are we going to produce? Are we going to have to dispose of it? If its fresh, then there may be problems with regulatory agencies. In Alberta, the government has restrictions on extracting fresh water because others might want to use it. One could be tapping into a zone that people use as water wells for farms and rural communities. Both water quality and water volume matter. For example, Manville water is very salient so nobody wants to put it into a river; this water is pushed back down into existing oil and gas wells in permeable zones (but which are also not connected to the coal).
6)FUNDING
To be able to access land and do some initial drilling, i.e. the first round of financing, it would cost a minimum of C4 million. This would include some geological work and drilling at least five or six wells. In Horseshoe, that would cost around C4 million (say 1st round of finance); in Manville, about C9 million. This is under the assumption that the company doesnt buy the land. The land in western Canada is very expensive and tightly held. Much of the work is done as a farm in drilling on land held by another for a percentage of the play. (Editors note: During a previous interview, Dr. Marchioni commented about his preference for Pacific Asia China Energys land position in China because comparable land in western Canada would have cost 100 million or more.
7)INFRASTRUCTURE
The geology only tells you whats there, and what the chances of success are. You then have to pursue it. Can we sell it? Gas prices are local, meaning they vary from country to country, depending whether it is locally produced and in what abundance (or lack thereof). How much can we extract? How much is it going to cost us to get it out of the ground? Are there readily available services for this property? Will you have to helicopter a rig onto the property at some incredible price just to drill it? Will you have to build a pipeline to transport the gas? Or, in China as an example, are there established convoys for trucking LNG across hundreds of kilometers?
One addition, which we have mentioned in previous articles, and especially in the Market Outlook Journal, Quality of Management Attracts PR, it is important that the CBM company have experienced management. This would mean a management team that includes those who have gotten results, not only a veteran exploration geologist but a team that can sell the story and bring in the mandatory financing to move the project into production.
There are two primary reasons why many of these coalbed methane plays are being taken seriously. First, the macroeconomic reason is that rising energy costs have driven companies in the energy fields to pursue any economic projects to help fill the energy gap. Coalbed methane has a more than two decades of proof in the United States. The excitement has spread to Canada, China and India, where CBM exploration is beginning to take off. Second, the fundamental reason is that exploration work has already been done in delineating coal deposits. There are, perhaps, 800 coal basins globally, with less than 50 CBM producing basins. In other words, there is the potential for growth in this sector.
The stock market offers one the opportunity to have short- or long-term gains. However, not everyone is cut out for such investments. For one, the idea itself of partial ownership in a company by buying shares may not actually be that interesting to some.
Owning stock also exposes one to the risks a particular company faces. If the business is reported to have financial difficulties, legal problems or other issues, its stock is likely to be affected, fall and consequently, also pull down all investors in the company.
An individual who intends to invest in the stock market must recognize that gains generally come after an extended period of time. In addition, even short-term results are not always assured, as negative economic or company news can quickly wipe out any gains. This means that an individual must be patient in waiting for the investment to pay off.
This patience extends to market timing in the case of short-term traders, who aim to move in and out of the market based on what they feel is the most opportune time to do so. The problem with this approach is the assumption that the market can be consistently predicted – a condition that most financial advisors believe would be virtually impossible.
Discipline and flexibility are two other traits needed by individuals who decide to invest in the stock market. Market stability is not always a given, and there will be periods when the market may be volatile. This happens particularly in the event of a major disaster such as the September 2001 terrorist attacks in the US, and the havoc caused by recent hurricanes Katrina and Rita, which forced the shutdown of major oil refineries in the Gulf of Mexico.
When these situations arise, predicting the direction of the stock market becomes difficult due to resulting fluctuations, making it necessary for an individual to remain disciplined with investment strategy but flexible enough to adjust to the situation.
Investors also have to put in some research before selecting any stock. Among the factors they need to know are a brief history of their target company; the company’s parent, subsidiaries and other affiliates; earnings movement; expansion plans and management structure. These would give an individual a fairly good idea of how stable a company is and help project the company’s direction and future.
Having an interest in a company through shares of stock thus poses both risks and rewards. However, the stock market may not be an ideal investment vehicle for individuals without patience, discipline, flexibility and enough diligence to conduct research.