Workers at Freeport-McMoRan’s ($105; NYSE: FCX) Cerro Verde mine in Peru decided not to strike along with the rest of the country’s unions last week. Other Peruvian mines saw laborers quickly return to work from a nationwide strike. Freeport workers pressing for shorter hours and better pay have threatened their own walk-out but have yet to set a date. Freeport is a Focus List Buy and a Long-Term Buy . . . Transocean ($146; NYSE: RIG) signed a five-year contract to rent a deepwater rig for $652,000 per day, which appears to be the highest rate ever paid for an existing rig. In addition to the $1.19 billion contract set to begin in March 2010, Transocean signed a two-year, $412 million contract to rent a semisubmersible drillship starting in December 2009. Transocean is a Focus List Buy and a Long-Term Buy . . . The U.S. Food and Drug Admin istration approved the Xience V drug-coated stent made by Abbott Laboratories ($57; NYSE: ABT). Abbott expects the stent, which has shown superiority in clinical trials relative to others on the market, to grab 25% to 30% of the market over the next 12 months. The Xience stent will compete with the Cypher stent made by Johnson & Johnson ($66; NYSE: JNJ), which generated sales of $825 million in the U.S. last year, and Boston Scientific’s ($13; NYSE: BSX) Taxus, which had $1 billion in sales. Boston Scientific may also sell the Abbott stent under another name, but must share the revenue with Abbott. J&J is a Buy and a Long-Term Buy. Abbott is rated Neutral. Boston Scientific is an Underperform . . . Microsoft ($26; NASDAQ: MSFT) said it is willing to restart talks with Yahoo ($25; NASDAQ: YHOO) about acquiring all or part of the company, but only after the replacement of the Yahoo board. Billionaire investor Carl Icahn has launched his own slate of directors in an attempt to take over Yahoo and sell all or part of the company to Microsoft. Yahoo shares rose 12% in response to the news. Microsoft is a Buy and a Long-Term Buy. Yahoo is rated Neutral . . . UnitedHealth Group ($23; NYSE: UNH) said 2008 per-share earnings would fall about 15% below a previous guidance range. The managed-care provider now expects per-share profits between $2.95 and $3.05, versus $3.50 in 2007. UnitedHealth also said it would pay $912 million to settle lawsuits related to the backdating of stock options and announced plans to lay off about 6% of its work force. United Health is rated Neutral . . . According to published reports, General Motors ($11; NYSE: GM) is considering the sale of its smaller brands. GM responded to the news reports by acknowledging it was considering several restructuring actions but denying plans to sell any brands beyond Hummer. GM is rated Underperform . . . June-quarter profits at Alcoa ($32; NYSE: AA) fell 18% to $0.66 per share, hurt by a large divestiture, but met consensus estimates. The aluminum maker reported revenue of $7.62 billion, down 5% but up 12% excluding divested businesses. Alcoa is rated Neutral.
Lofty oil prices don't life stocks
Oil hit a record-high $145 per barrel on July 3 and is up more than 40% for the year. However, the run-up in oil prices hasn’t done much for investors in oil stocks.
The S&P 1500 Oil, Gas & Consumable Fuels Industry Index is up just 1% for the year, well above the broader S&P 1500 Index’s 13% decline but not reflective of the strong move in oil prices.
Analysts have historically looked at movements in oil stocks to predict oil prices, because the stocks discount long-term expectations for oil prices. That link between stock prices and commodity prices has held for most of the last six years, with both oil stocks and estimates for oil prices trending higher. But this year, the spike in oil prices has resulted in sharp increases in estimates of future prices.
While weakness in energy stocks is disappointing, investors should not give up on the sector. Here are three reasons why energy stocks have not kept pace with commodity prices this year:
Political, financial issues. Concerns about military action in the Middle East and a flood of speculators into the commodities market have contributed to higher oil prices in recent months. Support for oil prices could erode if the political climate stabilizes, and commodities will represent a less-appealing investment option if inflation declines later this year as expected.
Demand trends. A slowdown in global oil demand, as some have predicted, could mean trouble. But while weakness in the U.S. dominates headlines, oil demand in much of the world remains strong and should increase over time.
High costs. Elevated oil prices benefit oil companies only to a point. Integrated companies with refining and chemical businesses have been plagued by huge increases in the cost of raw materials. And many sellers of gasoline and other refined products have had trouble passing price increases on to end markets.
Wall Street consensus estimates project per-barrel oil prices between $100 and $110 through the end of 2009, more than 20% below current levels but well above historical norms. Futures markets are more bullish, projecting prices of $135 to $140 over the next 18 months. If prices remain close to levels expected by the futures market, we could see earnings well above consensus estimates.
The Forecasts’ top energy Buys are oilfield-services companies, such as Oceaneering International ($69; NYSE: OII), Transocean ($146; NYSE: RIG), and National Oilwell Varco ($80; NYSE: NOV). Chevron ($96; NYSE: CVX) is our favorite among the integrated oils, and Long-Term Buy Exxon Mobil ($86; NYSE: XOM) also looks attractive.
AstraZeneca ($47; NYSE: AZN) shares rose after a judge allowed the company to stave off generic competition for its $4 billion schizophrenia drug Seroquel until 2011. AstraZeneca is a Long-Term Buy.
Belgian brewer InBev said it would try to remove the board of Anheuser-Busch ($62; NYSE: BUD), which rejected InBev’s $46.3 billion acquisition offer. Busch has sued InBev, alleging “deceptive conduct.” Busch is rated Neutral.
The U.S. Air Force will reopen a controversial $35 billion tanker contract Boeing ($66; NYSE: BA) lost to European aerospace giant Airbus and U.S. partner Northrop Grumman ($66; NYSE: NOC). Boeing is rated Neutral.