Wednesday, March 30, 2011

RSY XXXII: No COP needed now but order TOTal

After the RSY success in its position of LZ, I wanted to get back into the same or a related sector and industry. Current events have shown the need for energy and chemical production for worldwide economic growth and the rebuilding of Japan including petcoke which the US supplies to Japan.

I first used a modified RSY in MyStockFinder with only the Basic Industries checked for sectors. Nothing got me excited enough to recommend. I then expanded the search for Basic Industries and Energy sectors with only Strong Buys. As the title said, COP {ConocoPhillips} was a close contender for adding to the RSY, but I think that TOT {TOTAL S.A.} provides a better choice for now. In addition to having strong chemical divisions that would replace the LZ chemical position, it also provides a better dividend of over 5% dividend yield compared to COP with around 3 1/4%. TOT already has declared a nice dividend of $1.577 for May 18th.

Both COP and TOT have exposures to Libya and if Qaddafi stays in power this could hurt Western oil companies. COP was already thinking about exiting from Libya, Nigeria and 3 other countries. According to the article 5 Best Positive Cash-Flow Oil Companies, TOT has 2.6% exposure of revenue and COP was at 3.3%.

As my last post mentioned, this uncertainty to recent world events {especially Libya} provides opportunities. Here, oil companies could benefit from a freer and more open society. The Economist magazine recently suggested the "West should recognise the council {interim national council} as a traditional government provided that it promises to hold multiparty elections." Even if Qaddafi stays in power in the west, the majority of oil production is in the East and a split Libya could provide opportunities for production also even in a civil war situation.

RSY recommends a limit buy order of 100 shares of TOT at a limit price of $60.91 {GTC} for the opening on March 31st.

Update: TOT gaped up and never hit our price target. RSY recommends raising the limit order to $61.11.

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