By Steve Garcia

Over the course of the last several trading days, a bottom appears to have formed for BP, the much maligned oil conglomerate.  The company is experiencing a nice rebound right now as shares are trading up over $33.00 in regular trading hours today.  Royal Bank of Scotland changed their hold call to a buy recently and there was more good news, as there seems to be a third ship to capture oil on site at the spill location.  Reports have it being hooked up within the next day or so.  This will effectively double the company’s capacity to capture leaking oil.  Also of note, BP says they are still a week ahead in drilling their first relief well in spite of recent bad weather.

Of course there is still lots of negative news regarding the company for anyone wanting to find it or listen to it.  Much of it is rehashed over and over again for your listening and viewing pleasure.  Funnily enough, the media more than BP, has caused a lot of the financial loss in the Gulf States.  There were plenty of warnings about oily beaches for weeks…but mostly a few scattered areas of tar balls is what has been seen save for the Louisiana coast.  Weekend news programs showed several beaches along the gulf with few visitors, but lots of white sand.  Readers take that for what it is worth. The one area that really seems to be heavily affected is the Louisiana coastal area and corresponding marsh areas.  As time continues to pass, it is becoming increasingly evident to all;  who it was that really failed us as citizens of the United States, and that was MMS and the United States government, who failed to ensure permits for the deepwater horizon rig were properly issued, and also failed to ensure that BP had a cohesive and comprehensive emergency plan in place that was executable under the extreme circumstances that occurred.  To that regard, it seems that all deepwater drillers have failed to varying degrees, with none actually having an executable and comprehensive plan in place for any disaster similar in scale and magnitude.

At this point in the stock price, I see the bottom in at around $29.35 with potential upside over $40 dollars mid to long term.  The next few days will be interesting to see if BP shares can stay above the $31.25 mark and possibly continue  the  push higher. I also see the max cost of this sad tragedy somewhere in the 30 billion dollar ballpark, depending on when the well is actually capped.  The cleanup, while not perfect by any means, has succeeded in keeping the majority of the oil off our shores to this point.  Let’s hope fishermen don’t have as terrible a situation as originally feared, and that by next season, some normalcy has returned to gulf coast businesses.  Caution is the word regarding this equity situation, however, I think waiting any longer is nothing more than a loss of potential profit, the worst is over if you have been paying attention, and I expect the news to become increasingly less hostile in tone, with a few good news scenarios in the short to medium term.  As always do your own due diligence.

Disclosure: Long BP

By Steve Garcia

Shares of British Petroleum (NYSE: BP) continued to topple last week into Wednesday as the US government further enflamed an already ridiculous pissing match.  Everyone already knows the tragic situation unfolding in the Gulf of Mexico, not to mention the loss of 11 workers who died trying to make a better life for themselves and their families.  That said, the government has gone out of its way to seemingly throw gas on a bonfire.  Among the culprits, one Ken Salazar, who audaciously made the assertion that BP should have to pay for all oil workers jobs in the Gulf that are lost due to the disaster and the coming moronic halt of drilling in the Gulf by the U.S. government, which can only be described as the ultimate in micro-mismanagement and nearsightedness.  A knee jerk reaction to a serious problem, but one that makes little common sense once you look at the situation.  Certainly the continuing flow of oil in the Gulf is a major problem.  The death of many forms of marine life and plant life due to poisoning and suffocation from the oil is a horrible situation as well. Obviously BP needs to not only stop the oil from spilling into the Gulf, but they also need to compensate people whose incomes have been affected or destroyed by the situation and show some remorse, not make commercials to try and sway opinion.   The PR firm hired by BP has been one giant horror show with blunder after blunder.  Of course, our own US government and the President himself have been just as out of touch with reality on the ground in Louisiana.  Micro-management does not, has not, and will not work.

Taking a deeper look at the situation, several questions emerge.  Why has the President not met with BP CEO Tony Heyward, nor spoken to him?  Why is Halliburton, which performed the cementing work on the well hours before the explosion, and other companies involved with the situation being avoided in discussions regarding compensation to fishermen and repair of the damage to the environment?  Why is the US government attempting to decide whether a non U.S. company pays its shareholders a dividend? These are just a few of the questions that need to be answered.  The daily onslaught of negative news regarding BP from the media and the government has been shameful at best and borderline criminal at worst.   BP has lost more than half of its value; over 100 billion dollars in market cap in less than two months due to this accident and the ensuing constant negative news highlighted by the minute.  This I cannot understand.  Did the government force the Banks and the financial markets to compensate all the (more…)

By Steve Garcia

Citigroup (NYSE:C) is slowly ascending once again, which is interesting given Citigroup was recently mentioned, along with Bank of America (NYSE:BAC) and Deutsche Bank (NYSE:DB), as being among a group of financial institutions that shed debt just before quarter’s end to disguise levels of risk. The companies have been lowering their net borrowing in the repo market by an average of 41% at the end of each of the last 10 quarters, according to Fed Reserve data. This points out the systemic issues that have yet to be fully addressed in the Banking industry; as extensive use of repos was what allowed Lehman to improve its risk appearance quarter after quarter before that firm was forced into bankruptcy in September of 2008.

An upgrade from Oppenheimer in which they raised their outlook on Citigroup to outperform may also have contributed to the sudden momentum in Citigroup shares. Oppenheimer sees Citigroup shares trading below book value of $4.09 or so. Reducing short term borrowing ahead of the end of a quarter does not appear to be illegal at present, but the Securities and Exchange Commission is reviewing and considering new rules that would require increased disclosure of such practices, according to a recent report in the Wall Street Journal.  The repurchase market, more commonly known as the repo market; where banks put up securities as collateral to get quick access to funds, is one of the riskiest ways to borrowing because it is so short term. If sudden panic were created for some reason and markets seized up, banks that rely too heavily on this particular market transaction could suddenly find themselves in a funding crisis, such as what happened with Bear Stearns and Lehman Brothers during the 2008 financial market collapse. Citigroup stock may also be rising from a report in the Financial Times that said that the Qatar Investment Authority is strongly considering buying some of the U.S. Treasury’s 27% stake in Citigroup. (more…)

By Steve Garcia

Citigroup (NYSE:C) shares continue to be volatile.  Shares of Citigroup, which were trading at more than $55 per share in 2007 plummeted to less than $2 in 2009 and have begun to recover reaching more than 5 dollars in April.   Citigroup shares closed below 4 dollars in trading yesterday at $3.86 per share.  This is not an unexpected situation for informed investors; as the government owns more than one quarter of Citigroup, and has been unloading roughly 20% of their stake of approximately 7.7 billion shares in the company since late April.  The Treasury began selling its common shares under a prearranged plan with Morgan Stanley as the sales agent for the deal.  The initial sell off of shares amounts to roughly 1.5 billion shares. Citigroup stock should basically trade sideways to slightly lower while unwinding of this first lot is completed.  Once complete, the stock should move up as the company continues to unwind or sell off many of its toxic assets; on the path back to its core banking business as the fundamentals continue to improve.  It is important to remember that at some point the Fed will have to raise interest rates and banks like Citigroup will once again have to actually work at turning a profit, but over the long haul, this stock should bring solid gains to its holders. (more…)

By Steve Garcia

Duke Energy is one of the largest electric power holding companies in the United States.  It is headquartered in Charlotte, N.C.  Duke, a Fortune 500 company on the New York Stock Exchange has traded in the range of $13.31 – 17.94 per share over the past 52 weeks.

Duke Energy’s utility operations serve approximately 4 million customers located in five states in the Southeast and Midwest, representing a population of approximately 11 million people.  Their commercial power and international business divisions own and operate diverse power generation assets in North America and Latin America, including a growing portfolio of renewable (Green) energy assets in the United States.  Duke Energy Generation Services (DEGS) is a leader in developing innovative renewable energy solutions, including wind, solar and bio power projects.  DEGS’ renewable energy initiatives are separate from the activities of Duke Energy Carolinas, which is part of Duke Energy’s regulated business. DEGS builds, owns and operates electric generation for large energy consumers, municipalities, utilities and industrial facilities. DEGS is also working to build commercial transmission capacity to help the U.S. meet its energy needs in the future.  Recently North Carolina Municipal Power Agency Number 1 (NCMPA1) and Duke Energy announced a partnership; partnering on a Commercial Solar Project in Shelby, N.C. Duke Energy Carolinas is installing solar panels on a small segment of business and residential customers properties as part of a $50 million program approved by the North Carolina Utilities Commission in May 2009. (more…)