Question:
Why have the Canadian Oils (ERF, PWE, PGH) been doing so poorly? Is there too much oil sitting in Cushing? Oil is around $95/barrel. Why are these stocks near 52-week lows? Is there any hope for these in the future?
Answer:
Canadian oil production is generally from oil sands or tar sands, which are loose sand or partially consolidated sandstone, which contains naturally occurring mixtures of sand, clay, and water, saturated with a dense and extremely viscous form of petroleum. The manufacturing process for oil sands is very complex and expensive. Oil has to be above $85 per barrel for it to be economically feasible. While oil is above that threshold, any drop in price would significantly affect these companies’ profitability.
We found very little information on Enerplus Corp (NYSE:ERF) and Penn West Petroleum (NYSE: PWE), which in our opinion is not a good sign. Pengrowth Energy Corp. (NYYSE: PGH) is a $2.3 billion company. It is struggling since its acquisition of Lochend Cardium in November 2012. One of the problems with such small oil companies is that they lack the geographic diversity and reserves that larger oil companies have. As a result, their profits will suffer when manufacturing slows. The company recently cut its dividend, which has also affected the stock price.
Additionally, the company converted from a master limited partnership (MLP) to a corporation in 2010. This change cost the company significant dollars in taxes. An MLP must pay out 90% of its profits to shareholders, while a corporation is not required to pay a dividend, and may pay out less, allowing the company to raise capital.
We do not recommend holding these smaller oil companies at this time.
Question:
With Apple’s Mac Pro line being discontinued in Europe, and with the other news that has surrounded the company recently, I think perhaps now maybe a good time to look somewhere else. I have used their products for a long time, and have liked the stock a lot. Tim Cook has mentioned that a new Mac Pro will be released this spring, but some of the other announcements like a cheap version of the iPhone etc. have me worried. I know you are a fan of the stock, but don’t you think it may be time to look somewhere else also?
Answer:
We like Apple, Inc. (NASDAQ: AAPL), and believe it to be a tremendous buy. It is trading very cheap, considering how much cash the company has and what they could do with it. We are not concerned about the company offering cheaper versions of their products. We see this as a smart business move, as it allows for more saturation into lesser developed countries and markets that are not currently using their products.
We believe Apple is a strong, well-run company that will come through this spell. Many investors have made a considerable profit from their stock, since it traded at $80 just six years ago. The company does not owe its cash to anyone, nor should they have to defend their position for holding onto their cash. As for Europe losing the MacBook, it is merely an issue with the cooling fan guard. We believe that the company will resolve this within the next quarter, and sales will resume.
Question:
American Airlines (owned by parent company AMR Corp. (NYSE: AMR)) and U.S. Airways Group Inc. (NYSE: LCC) announced their merger. Do you have any opinions?
Answer:
The merger will make for the world’s largest carrier. This merger should help the investors of AMR Corp’s debt, considering the company filed for bankruptcy protection in 2011. However, our opinion is that airlines have never truly been profitable since the Wright brothers. We do not like the industry, and thus, do not recommend holding an airline stock. We prefer instead to invest in a manufacturer of planes, such as, The Boeing Company (NYSE: BA).
Question:
I heard Bil mention getting a credit card at 0% interest and then getting a CD to flip the card. I was confused and intrigued at the same time. Can you tell me more?
Answer:
Years ago, when creditors were a bit looser with credit, consumers would often receive credit card offers with 0% interest on balance transfers for a specified period. To pay off credit card debt, the thought is to transfer your balance to a card with such an offer. If you make payments on time, you may be able to rid yourself of the debt without paying interest. The trick was to use the card, pay off the charges, and then close the card. Within six months, the creditor would re-market you with another 0% interest offer to regain your business. This method might not be a great move for your credit score; however, if you are making your payments on time and lowering your unsecured debt, your credit score should generally be OK.
The other strategy is: take the cash advance offer at 0% interest and invest the money in a short-term CD, matching the maturity so that the CD matures about the time you pay off the advance at 0% to make the spread. However, you have to make the payments to the credit card company on time, as to not trigger a rate increase; otherwise, you lose interest you have earned on the CD. We do not advocate that investors incur debt just to earn a half percent on a CD. However, if you have the cash flow that allows you to borrow at 0% to earn 0.5%, it can be done.
Question:
My sister’s investment club is recommending Starbucks. Should I buy the stock or the Frappuccino?
Answer:
We have warmed up to Starbucks Corp (NASDAQ: SBUX). Five years ago, we thought this was a flash in the pan. Recently, however, we have grown to like the business model. The company has a global presence and is continuously coming up with unique ways to make money. The company trades at an above-average P/E, but we view it as a long-term holding. Starbucks pays a small dividend, but we believe it is still a growth story, as the company is growing between 14% and 15% a year. If you own Starbucks, we recommend that you hold it.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
