Offshore Drillers: How Much Stacking is Enough Stacking?

There’s good news and bad news in a today’s Credit Suisse report on the offshore drillers. The good news is that the number of rigs needing to be taken off the market to rebalance supply and demand is probably lower than many expect. The bad news: There’s still a lot of rigs that need to be “stacked” before he job is done.

Kommersant via Getty Images

Credit Suisse analysts Gregory Lewis and Neesha Khanna explain:

While some industry vets put the number of required floater retirements to balance the market at 50 (makes sense as ~50 UDW floaters are scheduled for delivery from 2014-2016 at established yards) we are thinking the number is closer to 30. The 20 rig difference is based on an assumption of 3-4% rig demand growth over the next two years. Bottom line: more rigs need to be stacked to balance the market and this only happens if the market continues to languish – no one will stack a rig in a rising market…

Noble (NE), Transocean (RIG), Ensco (ESV), and Diamond Offshore (DO) are asking themselves that question. While Transocean has 8 floaters stacked, they have not stacked a rig in over a year (sort of) – that may soon change. More recently both Diamond Offshore (Q3) and Ensco (Q2) have taken write downs and starting the stacking/scrapping process.

So who’s been stacking rigs? Lewis and Khanna point to Ensco and Diamond Offshore:

Last quarter Ensco announced plans to stack 5 floaters and hold them for sale (we expect buyers to be limited) and also announced plans to stack the DS-2 for a total of 6 stacked rigs since last October. Not to be out done last week, Diamond Offshore announced plans to scrap 6 floaters; this included 3 long term stacked rigs and 3 rigs that have worked in the last 12 months (1 is still working). Additionally, Diamond Offshore recently stacked 2 other floaters (1976 built). A bit dazed and confused but that is 5 stackings from Diamond Offshore in the last year for a total of 11 stacked rigs between Diamond Offshore and Ensco. Who's next?

Shares of Diamond Offshore have ticked up 0.1% to $38.90 at 1:03 p.m., while Ensco is unchanged at $38.91, Transocean has gained 0.4% to $40 $30 and Noble has dropped 0.8% to $20.77.

Tuesday’s Dividend Changes: 9 Companies Raise Payouts (IBM, COST, BBT, More)

U.S. equities advanced on Tuesday, pushing the Dow Jones Industrial Average within striking distance of a record high. Also during today’s session, nine companies raised their dividend payouts.

JMP Group Raises Dividend 11.1%

JMP Group (JMP) raised its quarterly dividend from $0.045 to $0.05, or $0.20 annualized. The new dividend will be paid on 5/30/2014 to shareholders on record as of 5/16/2014. The stock will go ex-dividend on 5/14/2014.

UGI Corp. Lifts Dividend 4.4%

UGI Corp. (UGI) raised its quarterly dividend from $0.2825 to $0.295, or $1.18 annualized. The new dividend will be paid on 7/1/2014 to shareholders on record as of 6/16/2014. The stock will go ex-dividend on 6/12/2014.

Costco Boosts Dividend 14.5%

Costco (

New Home Sales At Six-Year Highs

Related XHB Existing Home Sales Rise, Beat Forecast Buckingham Initiates Coverage On Several Homebuilders

New Home Sales reached a six-year high, as reported by the Commerce Department, with sales increasing 0.2 percent to an annual rate of 467,000 units. However, August had a sharp downward revision of 466,000 from 504,000.

Price concessions may be behind the rise in sales, as the median price dropped nearly 10 percent to $259,000. The year-over-year rate of -4.0 percent is only the second negative reading in the last two years.

Initially, the S&P 500 sold off on the report, but it has since regained the levels it was at prior to the release.

Shares of the Homebuilder ETF (NYSE: XHB) were trading lower by 0.36 percent at 30.68.

Posted-In: News Econ #s Markets

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Now That’s a Volatile Market: Dow Gains 216 Points, Ninth 200-Point Move This Month

When they said volatility had returned to the stock market, they weren’t kidding.

BRENDAN MCDERMID

The Dow Jones Industrial Average gained 216.58 points, or 1.3%, to 16,577.90 today, the ninth move of 200 points or more in either direction in 17 trading days so far this month. Not only is that more than the seven such days that had occurred previously in 2014, you have to go back to August 2011, when there were 10 such days, to find more (and that took an entire month to accomplish).

The S&P 500, meanwhile, gained 1.2% to 1,950.82, the Nasdaq Composite advanced 1.6% to 4,452.79 and the small-company Russell 2000 finished up 1.8% at 1,116.49.

Why is the market surging? Top-notch earnings from big Dow components like Caterpillar (CAT) and 3M (MMM), and a dividend increase from Visa (V) certainly have helped, as these are some of the priciest stocks in the price-weighted Dow. And then there’s the economic data. US jobless claims rose to 283,000, a tad bit higher than expected but still ridiculously low. Global purchasing managers’ indexes also showed signs of improvement, especially in Europe. If the recent selloff was a “growth scare,” then perhaps growth isn’t as scary as many investors thought. 

ISI Group’s Dennis DeBusschere, however, worries that the stronger-than-expected growth out of Europe could ultimately be bad news for the markets:

We have been of the opinion that Fed actions are less important today than they have been over the past few years as markets are now priced to a point where we need to see growth not just easy policy. That is not as true for the Eurozone, so these better than expected manufacturing data could be considered negative for risk assets if they further slow the progress of fiscal reforms and monetary stimulus.

Marketfield’s Michael Shaoul and team are pleased with the state of corporate earnings but worry that the market could retest its recent lows:

Although US and other global markets have enjoyed a powerful rally off last week's lows, our assumption is that this corrective phase is yet to full run its course. Indeed our "1997 playbook", which continues to prove to be a useful guide, would suggest that we may still have to endure a number of weeks of messy choppy markets. What has been established over the last two weeks is that key support resides at the 1820 level, with Thursday's "retest low" at 1835 marking another very important level to watch. Similarly the failure to cross 1950 in yesterday's session (the index peaked at 1949.31) marks this as important near term resistance that presumably extends in a range all the way up to the 50-day ma at 1966.7…

We believe it would take "new news" to break last week's support and are therefore relieved that by and large corporate earnings have been strong in the current earnings season and have generally confirmed the strength of domestic US economic data which preceded it. We therefore doubt that the corporate sector will supply a "knockout blow" to the market but we are open to the possibility that events elsewhere may provoke another wave of selling.

And even then, it might prove to be another opportunity to buy.

McDonald’s: The First Step is Admitting You Have a Problem

McDonald’s (MCD) has a problem. Investors have known this for a while, and now it seems McDonald’s management does too.

Associated Press

McDonald’s reported a profit of $1.35 a share not including charges, missing forecasts for $1.37. Even worse–same-store sales in the U.S. and Europe slumped the most since 2003. Janney’s Mark Kalinowski and Ryan Kidd explain:

September same-store sales in the U.S. fell by -4.1%, which was even worse than our sell-side low projection of -3.6% (and also below the Consensus Metrix figure of -2.8%).

The -4.1% number was also the worst monthly McDonald's U.S. same-store sales performance since February 2003's -4.4%. Perhaps an even greater surprise was Europe's September same-store sales decline of -4.2%, which was worse than our -1.0% projection, and below the Consensus Metrix number of -0.9%. The poor European showing was the worst month for McDonald's same-store sales in that key region since March 2003's -5.4% decline. Although APMEA (Asia/Pacific, Middle East, & Africa) September same-store sales of -7.5% were better than our -11.0% estimate and Consensus Metrix of -11.0%, it's obviously not a performance to crow about, either.

The good news is that McDonald’s finally acknowledged that it has a problem. It plans to simplify its menu, among other steps. It might take bigger steps, however, before investors can start believing in McDonald’s again.

Shares of McDonald’s have dipped 0.3% to $91.35 at 12:28 p.m.

California Drought's New Target: The Great Pumpkins

Joe Klamar, AFP/Getty ImagesRows of fresh large pumpkins at the Pierce College Farmer's Market in Woodland Hills, Calif. | The list of crops affected by California's ongoing drought is growing. This time it's pumpkins. While this year's crop is expected to be normal -- a pumpkin from California weighing 2,058 pounds took first prize and set a new tournament record this week -- the lack of water is forcing many pumpkin growers to face the possibility of plowing over their pumpkin patches sooner than later. California is the second-largest pumpkin producer in the country, trailing only Illinois. "The impact is very severe on us and if we don't get rain this winter we won't be able to grow anything," said Wayne Martin, a farmer in Fresno, California, who grows pumpkins on his 60 acres of land. "It's very bad here with the little water we have," he said. Martin explained that because he's had to pump more water out of the ground than usual to produce this year's crop, the cost of doing business has gone up. "The financial impact has really hurt," he said. "We've had to pay more for the water and that means consumers will pay more." Martin said he expects he will have to sell his pumpkins for 15 percent more than last year. The national average is currently around 50 cents a pound, or $5 for a basketball-sized pumpkin. Doug Perry runs Perry Farms in Fremont, California, and grows pumpkins on 91 acres. He's had to go to a drip irrigation system to help cultivate his crop. He's actually growing smaller pumpkins because of water cutbacks. Perry said he's fortunate to have access to water that other farmers might not have in drier parts of the state. But like Martin, he worries about next year and beyond. "This winter is key for a lot of us," Perry said. California's Pumpkin Crop Most pumpkins are grown on smaller farms. And they don't go far from the fields. Despite their tough exterior, pumpkins bruise easily and are rarely shipped across state lines. Most are sold locally. In fact -- Halloween jack-o'-lanterns aside -- the bulk of the pumpkin crop is used for canned pie filling. But it is time consuming to grow pumpkins. The season lasts from April to October and planting requires feeding, worries that the crop can grow too fast before harvest and constant spraying for insects. "The irrigation system helped keep the soil moist but it led to a lot more bugs," Perry said. "When you sprinkle water normally you get less bugs but then you get more weeds," he added. "It's a constant battle." 'Pray for Rain' Other crops feeling the heat from the California drought include, hay, wheat, olives and corn. Livestock deaths have increased due to lack of water in the state. Even California's rice production has been hit. Nearly 25 percent of the state's $5 billion rice crop will be lost this year due to lack of water, say experts. Dairy production is also down. California, which is the top milk producer in the U.S., has lost 1 percent to 2 percent of its dairy industry because of the drought in the last three years, according to recent statistics. Any chance of rain for this winter seems bleak. Earlier this year some forecasts predicted rainfall for California. But those projections have been toned down. The weather condition known as El Nino that brings rains to the state was expected to be strong. However, even if El Nino does occur, it will be weak with little rainfall predicted. That's leaving farmers like Martin, who's grown pumpkins for 30 years, feeling helpless. "All we can do is pray for rain," he said. "What else is there to do."

Peabody Energy: Too Much Debt, Coal Slump Make Shares a Bad Bet

Amidst the coal slump that has battered the shares of producers like Walter Energy (WLT), Arch Coal (ACI) and Alpha natural Resources (ANR), Peabody Energy (BTU) has held up slightly better thanks to its “relatively more balanced financials.” That didn’t stop Imperial Capital’s Matthew Farwell from taking a sour view of Peabody Energy in a note today:

Reuters

We are assigning an Underperform Rating to the common stock and establishing a one-year price target of $5.00. We are assigning SELL ratings to select senior notes…While Peabody has a stellar reputation and a strong management team, in our view, its shares and senior notes likely will remain under pressure from rising leverage and instability in global coal markets. The shares currently are valued at about 12.4x EV/EBITDA, and could rise to 14.0x if coking coal were to settle at $110/t in the short-term, near where current spot prices are indicated. Our Underperform rating factors in a view that coking coal could settle in the $140-150/t range long-term and the shares should trade at 6.0x-7.0x normalized EBITDA. Our SELL rating on the senior notes is a function of high 7.4x net leverage that could rise to 8.4x with a similar short-term drop in coking coal, also causing free cash flow to turn negative, which would necessitate using revolver capacity or secured debt to cover pending maturities. We are most negative on longer-dated notes the market will realize would be layered with secured debt over time. Like more distressed coal producers (Walter Energy, Alpha Natural Resources, Arch Coal), Peabody's troubles stem from the debt-financed acquisition of coking coal assets in the 2011 time period when it issued $4bn of debt to purchase Macarthur Coal.

Shares of Peabody Energy have dropped 5.9% to $10.16 at 9:48 a.m. today, while Arch Coal has fallen 4.8% to $1.60, Alpha Natural Resources has declined 4.7% to $1.74 and Walter Energy is off 1.9% at $1.58.

It's Already Not Just Another Three Percent Pullback.

I have often written over the years about the successful efforts of Wall Street's large program-trading firms to fool investors by keeping the 30-stock Dow looking as positive as possible.

It works for two reasons.

First, most investors are wisely busy with careers or enjoying their retirements. So if they glance at their smartphone during the day, or flick on the TV when they get home, and see the Dow was up, then to them the market was up, and all is well. Even if they notice the Nasdaq was down, it doesn't matter. The Dow is the market.

Secondly, since the Dow consists of only 30 stocks, it's relatively easy for the program-trading firms to hit say 3 (10% of them) with a buy-program to lift the Dow when desired.

[Related -S&P 500 Statistics Near Crucial Support Agree With Technical Analysis]

One employee at a program-trading firm boasted a number of years ago, "Tell me in the last half hour where you want the Dow to close and give me a few million to play with, and I could most often close it within 10 points of what you want. I couldn't move it over a full day or a week, but for half an hour, no problem."

It's often very noticeable in the last half hour of the trading day when the market is down some and suddenly spikes up 30 points in the final minutes to close marginally positive. Or when it needs a similar last hour spike on a Friday to close it positive going into a weekend.

It also shows up on those relatively rare occasions when the market experiences a correction or something worse.

I wrote about it my 1999 book Riding the Bear. Back in the early 1900's, before regulations came into being after the 1929 crash, market manipulation was not illegal. The famed investors of the time, Joseph P. Kennedy, Bernard Baruch, John D. Rockefeller, Carnegie, Walter Chrysler, and many others spoke openly about it, even boasted about using misleading publicity in radio shows and interviews near market tops, and pumping up the prices of some popular stocks to keep investors bullish, while the manipulators unloaded tons of stocks in the rest of the market, getting out slowly before public investors caught on and began selling and driving prices down on them.

[Related -Panic Selloff Lifts Index Option Trading Volume]

We can know that similar activity is not possible now, with the tight rules and regulations under which Wall Street and the big players have to operate.

But isn't it interesting what shows up in even a minor 'pullback', in the way of corrections sneaking up on markets.  

Wall Street's assurances when this pullback began was that it would only be another of the many 3% pullbacks, perhaps 4%, the market has experienced since 2012.

And so it has been so far, for the Dow. From their peaks the declines look like this:

DJIA: – 4.3%

S&P 500: –5.2%

NYSE Composite:  -7.0%

Nasdaq: 7.0%

DJ Transportation Avg:  -9.0%

Russell 2000: –12.8%

It explains why in market corrections investors who are not concerned about the market because the Dow is looking resilient, are often surprised when they get their monthly brokerage or mutual fund statements. While the Dow, or even the S&P 500, are looked on as representing the market for them, the most popular investment areas for investors are not the 30 Dow stocks but the small stocks of the Russell 2000 and the more exciting and promising stocks of the Nasdaq.

It's been similar how, until recently, U.S. investors were not concerned about the plunges in global markets. After all, the U.S. market was doing well. Just look at the Dow, until this week, down only 2% or so.

It would seem that it's already been shown that this is not just another 3% pullback.

Speaking of global markets.

No commentary needed. Many with the largest economies are back to, or below, their levels of last October.

And never mind short-term 50-day moving averages, below long-term 200-day m.a.'s.

But are they oversold enough to produce at least an impressive oversold rally on the first piece of good news they hear?