When governments around the world told people to stay home and many did, the immediate effect was to take cars off the road which made driving easier. The cars off the road resulted in demand for gasoline to drastically fall which made prices fall and add a supply war between Russia and Saudi Arabia has meant all energy companies shares have declined. The question for investors is as restrictions are taken off and demand for gasoline goes up, which companies benefit. Should you buy the an index stock similar to Energy Select Sector SPDR Fund which is down 36% or buy individual companies? Are there any companies benefiting from low oil prices? Gary Christie who works Trading Central offered some names who are benefiting.

He started with S&P 500 energy companies with a minimum market capitalization of $1 billion.

He looked for energy stocks with a P/E ratio less than the S&P 500 (19.7) to find undervalued companies

Cash flow is important, it needs to be positive (last quarter versus Prior Year)

Operating margins of 10% or more. (how much profit does the company make on each dollar of core revenue?)

He included dividend yield, year to date performances (they were all negative), the 1 year performance and recent price.

Company Mkt Cap P/E Div CF Growth Oper 1 Yr Recent

($ Bil) Yld % Margin Pref Price

TC Energy 44.7 15.1 4.9 104.6 45.3 0.7 47.00

Frontline Ltd 1.5 9.5 6.7 161.2 24.7 -6.1 7.56

Euronav NV 2.2 18.5 6.0 71.5 19.4 2.1 9.89

Cdn Nat Resources 18.3 4.7 7.9 37.6 22.9 -45.6 15.47

Enbridge 65.6 16.4 7.9 6.1 17.3 -16.7 32.45

ONEOK Inc 12.5 14.9 12.7 n/a 20.7 -56.6 30.29

Valvoline Inc 31.9 13.6 2.8 63.6 15.5 -10.0 16.97

EOG Resources 28.2 9.7 3.3 30.4 23.9 -45.3 48.42

Cactus Inc 1.2 9.5 2.4 161.6 28.2 -57.7 16.28

The importance of charts such as these is there are always companies that make money during any cycle of the economy. Some of the above are pipeline companies, the energy area is oversold which was done for very good reasons. At some point the energy companies will perform better, it is good to know which ones should do better. For the decade it was possible to pick a variety of companies working in the oil shale parts and the stock to go up. Now you have to be more narrowly focused, but as you see more vehicles on the road including commuting and driving across the country, demand for gas will increase which means some companies are making more money.

Linking to dividend paying stocks, just because it pays a dividend does not mean the price will fall, in the oil industry we have seen 50% decreases which helped push yields up and the question is the yield sustainable? As the price of the shares increase, the yield falls. Cash flow and operating margin help you determine if the dividend is sustainable and whether to hold, buy or sell (fold). Kenny Rodgers song the Gambler did sum it up.

There are more questions than answers, till the next time – to raising questions.

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When governments around the world order we all have to social distance and many tourism and entertainment facilities were shut down because they help bring people together, also included in the list is restaurants and airlines. There were and are very good reasons to do so, because the virus spread is slowed and stopped for a period of time when medical companies can find a fix.

In an article by Christoper Rugaber of Reuters, it turns out what is wonderful public health fix is a terrible economic fix and reality is coming back. Every in the restaurant industry discusses number of times the restaurant can turn over, adding patios to double seating, what is the minimum space between patrons. All those numbers are turned upside down when discussing reality and social distancing. The average restaurant needs 60% capacity, if social distancing means 33%, how many bodies are needed to serve the patrons?

Of the 20.5 million people who lost jobs, over 80% stated their loss as temporary. The majority of people working work for small and medium sized businesses and they will not be fully staffed when it comes time to open. As time goes by, more layoffs become permanent, the recovery will be slower and unemployment is going to rise.

Compounding the problem is who is temporary laid off. In 2008 the majority were men and targeting infrastructure programs provided a major boost to the economy. This year the majority laid off are women and policy makers are terrible at helping women manage in the economy. If large gatherings are not allowed then the conventions to the restaurants to the events mean fewer working. Do more with less until people feel comfortable with the surrounding is going to be the order of the day.

Linking to dividend paying stocks, for companies that products appeal to the masses one has to worry about the general economy. For companies such as utilities that appeal to the masses but is essentially an monopoly, growth in revenues is the issue not whether the company will make money or not; for companies making money in select functioning areas, the general economy is less of a concern. Before investing ask how does the company make money? has it been through a couple cycles and still make profits. Profits is a good thing when investing.

There are more questions than answers, till the next time – to raising questions.

In a number of recessions, the banks stopped credit to save on loan losses and when the banks stop lending money there are few low interest rate options. Government agencies can help but traditionally they take time and help on a limited number of companies. The government of the day looks at its big banks and banking sector to keep lending or keep liquidity in the market. There are many challenges but having access to capital should not be the major concern. After the 2008, banking collapse because of the mortgage back securities write offs, the government imposed stricter regulations. The banks which have been enjoying making money, have been lobbying to take the restrictions off and until President Trump he would rather deregulate than regulate.

Fortunately, some of the restrictions remain and in recent article from Reuters, the UK banks which all went bankruptcy and needed to be essentially owned by the government are now in a position to keep lending if the economy were to shrink by 30%, according to a stress test carried out by the Bank of England.

The good news is even though core capital ratios would drop from 14.8% to 11%, the numbers are still higher than the minimum regulatory requirements. The banks could also incur total credit losses of 80 million pounds or $138.2 billion, however they would have cushions to absorb the losses.

Analysts in the US believe the US banking sector is still fundamentally sound, although bank stocks are down for other reasons. The rising unemployment rates and what does that mean to the general economy. In the words of the President, how is the economy going to be great again, since no economist believes all the jobs are coming back.

Linking to dividend paying stocks, companies that can pay dividends and generate profits on a consistent basis have shown they can weather many storms. The bigger the storm, the more they rely on the government to help, both it and its customers. As an investor, you like to see strong regulations which help keep out the competition or only allows the competition to compete on the margins. You might say you do not like regulations, but competition is a double edge sword and sometimes you fall on it.

There are more questions than answers, till the next time – to raising questions.

6 months ago, the global tourism industry was celebrating a record year for travel, now who knows. According to an article by Dee-ann Durbin of the Associated Press, Tourism Economics predicts global travel demand will not resume what was considered normal until 2023.

If you watch YouTube there are multiple events where people gather to people watch, see older cities and mix and mingle with other people. It is very hard to do if people have to stand apart for 6 feet;

Airlines have grounded 2/3’s of their planes and cruise ships are docked some will not sail until November. Millions of people who depend on tourism are laid off or furloughed, in the US the number is estimated to be 8 million plus (about 1/3 of total US unemployment).

Alexandre de Juniac. CEO of the International Air Transport Association, the leading airline trade group said carriers need to fill at least 70% of the seats to break even on most flight. If they are are required to block seats – 2 choices do not fly or raise prices 50%.

Linking to dividend paying stocks, all of us work to enjoy more leisure time, but is it safe to go? The summer months are coming and that is when most of enjoy some sense of leisure, do you believe the theme parks are going to be filled? when you consider your pent up plans – do they measure what you see in the economy? Prior to the virus, tourist stocks were great performers, how things change.

There are more questions than answers, till the next time – to raising questions.

At the Annual General Meeting of Berkshire Hathaway Inc. announced it sold its entire stakes in the 4 largest US largest airlines, the size was 11% in Delta Air Lines, 10% of American Airlines, 10% of Southwest Airlines and 9% of United Airlines. This was big change in the Berkshire portfolio because for years, Warren Buffett said he did not understand airline investing. Then in 2016 he took the plunge.

In 2020, because of the virus passenger travel is down to 5% capacity and thousands of flights have been cancelled and planes parked and ready to go. The when is the issue.

According to an article by Jonathan Stempel of Reuters, Berkshire Hathaway is being hit hard by the virus posting a quarterly net loss of $50 billion. Berkshire owns 90 businesses, most of them are number one or two in their category. Some of the bigger names are BNSF railway – commodities are down such as coal while consumer products are up; Geico the auto insurance company – companies are giving rebates for consumers not driving. other large holdings are Apple, American Express, Bank of America, Wells Fargo, Precision Castparts and in Omaha – Nebraska Furniture Mart and See’s Candies. Usually those business do their busiest weekend in connection to the Berkshire Hathaway annual meeting.

Berkshire’s cash rose from $128 billion to $137.3 billion. Quarterly operating profit rose 6% to $5.87 billion or $3.624 a share.

Linking to dividend paying stocks, the wonderful thing about Berkshire Hathaway is the cash position which could buy up multiple companies, if Mr. Buffett and Mr. Charlie Munger see opportunity. In the meantime, the companies are progressing as much as they can, waiting for the openings we all hope for.

There are more questions than answers, till the next time – to raising questions.

The President loves to talk about a V shaped recovery, he says he can feel it and maybe he is right or maybe he is wrong. One country to examine if that is what happened is China, where the virus affected the country first.

In an article by Keith Bradsher of New York Times News Service, he examined what is happening in China now that the country is reopening. China’s factories and industrial machinery is working and pollution is coming back to the cities. The problem is how to empower consumer. Many consumers, similar to in the US lost their jobs or had their pay slashed. For a generation of young Chinese people known for their American-style shopping sprees, saving and thrift hold a sudden new appeal.

Retail sales in China were down 1/6 from the previous March. It is estimate that the official unemployment rate is 5.9% the real number according to Larry Hu, an economist with Macquarie Securities is closer to 20%.

For many Chinese saving not spending is more important and that translates to retail sales staying down. What should the government do to encourage spending?

Linking to dividend paying stocks, if one person saves that is great, if everyone saves then the economy is flush with savings and has little spending. All economies need a balance of spenders and savers; coming out of a recession the savings likely is more important. If the government did what former Presidential candidate Andrew Wang wanted – give everyone an extra $1,000 a month, within a few months much of the money would be spent, we will see. The recovery looking at China will not be a V shaped ones, but slow and steady and slow and steady in your investments is a good thing.

There are more questions than answers, till the next time – to raising questions.

In mid March the President ordered the shutdown of the economy to fight the virus, he was hoping or very optimistic it would be a short shutdown. The effect of the shutdown has sent millions of Americans to collect unemployment benefits and economists to look forward and they do not see pent up demand.

In an article by Lucia Mutikani of Reuters, Chris Rupkey, chief economist at MUFG said if the economy fell this hard in the first quarter, with less than a month of pandemic lockdown, the second quarter is going to be complete disaster.

GDP declined at 4.8% annualized and was the steepest rate since the 4th quarter of 2008. Households cut back on purchases of motor vehicles, furniture, clothing, footwear, transportation, hotel and restaurant services.

Previous to falling, the economy was growing at 2.1%. US Congress has approved a fiscal package of $3 trillion and the Federal Reserve has cut interest rates to near 0 and greatly expanded its role as banker of last resort.

Looking forward, economists are looking for recession numbers, as consumer spending which accounts for 2/3’s of the US economy fell at 7.6%.

Linking to dividend paying stocks, in a growing economy everything looks good, but in a recession cash flow is king. It is easy to make a mistake in a growing economy because likely you will still make money, however in a downturn, doing your homework is important. Why did you buy the stock besides to make money? going through the check list of cash flow; profitability, paying dividends; customers and thinking long term matter.

There are more questions than answers, till the next time – to raising questions.

In mergers there is a process in which a select committee to the President analysis multiple companies to see which company would be a great fit and enhance the value of the company if a merger happened. The process could go on for years, there are reasons why some companies will merge and others will not, reasons change. The process went on and the folks at Bayer watched Monsanto for a long time. There are a number of overlaps in the agricultural sector and Bayer decided it was time to act. In a $63 billion merger Monsanto and Bayer merged and all was good.

Then came a lawsuit, one of Monsanto’s products – a week killer besides killing weeds was determined by a court to cause cancer. Monsanto will be appeal. What should Bayer do? what should it shareholders do? In an article by Ludwig Burger of Reuters, the first year, Bayer circled the wagons and clenched their fists to fight back and shareholders voted against no confidence in the Board. A year makes a difference, no agreement has been reached but people are talking, the Board received a 92.6% vote in favor of ratifying the executive board’s business conduct in 2019.

Bayer’s earnings has risen, but similar to all global companies the economic downturn has meant a need to preserve cash flow, but last year earnings rose.

Linking to dividend paying stocks, one would think that a billion dollar merger every thing had been taken into consideration, every rock turned and every possibility considered, but a lawsuit was missed for the great good. The lawsuit changed the merger, but it still went ahead. Once things are in motion, it is hard to stop them. We often think large companies have people to ensure that if someone buys a used car, outside does it start and run questions are asked. It turns out sometimes the probing is done and sometimes it is not. The idea of buying dividend paying stocks is the probing can take extra time and that is a good thing. If the company is consistently making money waiting for you to do your homework to see the continuing good results is a good thing to have confidence in.

There are more questions than answers, till the next time – to raising questions.

If you think of the American culture since the 1950’s with the completion of the interstates, President Eisenhower wanted trucks moved from the west coast to the east coast after WW II and it took 2 weeks. He decided a better transportation system had to be done and the interstates were born. Once finished travel across the US was easy, affordable and millions of people have and continue to do it. Road trips are part of the culture of living in the US. We are now in the second month of the virus and there has been limited driving – which meant oil prices went down and limited number of people buying vehicles in the urban areas. Given the bulk of the population lives in the urban areas, the affects on the auto dealers can now be seen.

In an article by Ben Klayman and Nick Carey of Reuters, Ford in late April announced it had lost $2 billion in the first quarter of 2020. The second quarter is expected to double the loss. The good news is Ford’s Chief Financial Officer Tim Stone believes Ford has enough cash to take us through the end of the year. Ford had raised $8 billion from selling bonds, it used part of its two credit lines of $15.4 billion, suspended its dividend, and slashed all costs it could including cutting salaries of its white collar workers and executives.

The good news is sometime in May all the auto companies Ford, GM, Fiat Chrysler and Tesla hope to renew production. All companies have operations in China and the China operations are open. In China sales of Ford fell 35%, in the US they fell 12.5%.

Ford is hoping demand will be high and something similar to the cash for clunkers program which offered $4,500 in rebates to trade in an older vehicle, perhaps on vehicles at least 10 years old?

Linking to dividend paying stocks, for many years the auto companies help drive the US manufacturing economy and they are still important, just not as important as they once were. It is important to have profitable auto companies, but the economy will not shut down because auto plants are not in operations. If you wish there are YouTube videos on how a F150 truck is made – there are not many people involved. However, most of us need a vehicle to move around in which means a healthy auto industry is needed. Would you trade your vehicle in? maybe yes, maybe no. If that is your answer, this is why you may like the auto companies, but not necessarily be an investor.

There are more questions than answers, till the next time – to raising questions.