Structural changes at the third-largest natural gas producer in North America will drive this stock 25% in 2014.
Encana (NYSE: ECA) is in the midst of major changes in how it does business. It had been known for spending too much on a production-at-any-cost system. The new CEO has introduced a plan to focus instead on shareholder value.
This includes focusing on their five highest-producing oil and gas properties, cutting capital spending by 11%, slashing their workforce by 20%, divesting assets and cutting their dividend.
The shares currently sell for 50% of their 2014 net asset value; the new CEO’s plan is intended to cut that spread by 25% in 2014.
ECA also plans to sell off assets in Canada and in the U.S.
If any of this sounds familiar, it should. Chesapeake Energy did almost the same thing in 2012 and it drove its share price from about $17 to the $26 range.
Encana, take a look at it.
Satellite Radio Is Alive and Kicking!
Sirius XM (Nasdaq: SIRI) satellite radio has run up 75 times since Liberty Media’s $400 million lifeline in 2009.
Today Sirius has over 26 million subscribers, sales of $4 billion, a market value of $23 billion – that’s bigger than Netflix.
Yet, this stock is still undervalued by the market and underestimated by investors. It is a true monopoly, has about $900 million in free cash flow, and is finally getting the attention of institutional investors.
Rainier Investment Management, which has purchased $100 million worth of the stock since April, thinks this stock has 50% upside in the near term.
Its subscriber base is larger than any cable or satellite TV provider, the CEO sees it hitting 40 million subscribers in the next few years, it has reduced its programming costs from $450 million to just $300 million, it margins jumped to 30% in the most recent quarter, and margins are expected to continue to rise.
Overall, everything is coming up roses for Sirius XM, and that is not expected to change.
How Sweet It Isn’t
Finally, the “Slap in the Face” Award, and this one is really off the wall!
The U.S. government, as part of the 2008 Farm Bill, sold 216,000 tons of sugar cane to ethanol processors at a 90% discount – 90%! And it still has another 80,000 tons left to sell from this year alone.
And, the sugar cane that was just sold is the collateral from sugar processors who defaulted on $139 million in loans from the government.
The government is required to buy sugar cane and sell it to biofuel producers if they think sugar processors might – might, not will, but might – default on their loans.
That’s bad enough, but the collateral these processors are required to post, sugar cane, is being sold at just 10% of its market value. Why bother with collateral if all you get back is 10% of the value?
Best yet, biofuel processors don’t like to use sugar cane; they are set up to process corn. They have to make all kinds of adjustments to their plants to even use it.
The government recoups 10% of the loan value, the biofuel folks get sugar they don’t want to use and the sugar processors get off the hook for a cool $139 million.
I think we should start sending our elected officials calculators because they obvious can’t add.
You can’t make up stuff like this.
View original at: Investment U
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