Chris Edmonds Chats on Yahoo! - TheStreet

Chris Edmonds chatted on Yahoo!, Tuesday, June 12 at 5 p.m. EDT.

laura_the_street:

Thanks for joining us we are ready to roll.

chris_edmonds_tsc:

A little technical glitch, but don't dispair -- it must be all the rain in the Midwest. We are close, keep those questions coming.

laura_the_street:

We are ready to go!

chris_edmonds_tsc:

A very interesting end of the day, I thought. Pretty resilient given the wash from Nokia and follow-through on the downside from Nortel. Let's talk about all of that and more.

chris_edmonds_tsc:

And, of course, don't forget, Kraft. Nobody makes better mac and cheese.

kenevus:

Chris, do you think the oil and gas complex has peaked for this cycle? A lot of the stocks are locked in a long downtrend.

chris_edmonds_tsc:

Good question and certainly there are reasons to be skeptical.

chris_edmonds_tsc:

Jim Cramer

makes a couple of good observations this morning -- the Munder Fund and the Fuel Cell secondary all provide some sort of anecdotal evidence of a top in the sector. That sentiment analysis is right on.

chris_edmonds_tsc:

Yet, I still know what the gas market should look like this summer, even if it is mild from a temp perspective. So, I think you need to be patient and pick your spots.

chris_edmonds_tsc:

But, I still think you will see these stocks rally in the coming months as gas consumption increases. And, I don't buy the $18 oil scenario this year. I do think, however, we need to keep an eye on oil prices into the fall and winter. They will be a real tell.

tavinla:

Chris and Aaron, did you hit 'em straight on Thursday at Lincoln Park?

chris_edmonds_tsc:

You can't let it go, can you TV -- no, we did not, but the views are awesome!

angeleag:

What do you think of Kraft opening tomorrow should I buy?

chris_edmonds_tsc:

I agree with what you have seen on the

TSC/RM.com

. Looks to be priced in the middle of the food stock range and it is a good plain vanilla play.

chris_edmonds_tsc:

I would watch after the open and see what happens and know you will have opportunities. But, overall, like the play and am looking for shares.

chris_edmonds_tsc:

From a price perspective, there has been some talk about the push in the price, but it looks to be fair in the food group.

ll01701:

Chris, Any concerns about the electricity brokers with all the talk about regulation gong on?

chris_edmonds_tsc:

There has been a lot of talk and that has been one of the reasons the Independent Power Producers have taken a hit lately. Look at the charts of companies like AES (long), Calpine, Dynegy, Mirant (long) etc. Ugly.

chris_edmonds_tsc:

But, in the end, these are the companies that hold the solutions to the crisis in California and the shortages elsewhere. I think you pick your spots and play in that sector as the prices stabilize in here.

chris_edmonds_tsc:

Regardless of what

Gov. Davis

,

Richard Gephardt

and other say, price caps will not happen!

chris_edmonds_tsc:

And reregulation in California and elsewhere is very unlikely.

anotherprevsgeemp:

Chris, I feel as though some of the tech traders are leaving the energy markets, and that after an initial down period, that this sector may return to one that is based on real valuations. Your thoughts please?

chris_edmonds_tsc:

Think you are probably correct in that assessment. I would add a caveat, however. A lot of analysts have suggested that energy became a hiding place in the recent tech downturn and that some of the beauty came off in the tech head fake more recently.

chris_edmonds_tsc:

What is a bit disturbing is the fact that that money doesn't look to be coming back during this downturn. So, the momentum may have slowed.

chris_edmonds_tsc:

Still, I think you will see increasing interest as the fundamentals hold up. Unlike the first quarter, where I thought earnings would be a catalyst to sell, I am beginning to think the second quarter numbers -- if they hold up -- may provide a reason to buy.

tavinla:

Chris. Where are the best contrarian plays?

chris_edmonds_tsc:

Well, the true contrarian starts to look at Nortel and Nokia and begin to wonder how low they can go. I know others will say lower, but I like to think about names like that when there is blood in the streets and was beginning to do so in a very light way today.

chris_edmonds_tsc:

I also would want to take the other side of the oil at $18 trade, thinking that is a bit overstated, but don't know that you want to jump in there with both feet yet.

chris_edmonds_tsc:

Finally, in a sector I know well, I think property stocks -- the REITs -- are overextended here and would be out to modestly short if this rally continues.

boomkikker:

What is your opinion about the euro (or dollar)?

chris_edmonds_tsc:

I'm not a currency guy, but I'd love to see the dollar strengthen before I head to Paris late this summer.

chris_edmonds_tsc:

Seriously, from a political standpoint, I still question the staying power of the euro over the next several years. I think there are more skeptics than there are supporters.

NoEmailAddress:

What is your take on the oil transportation stocks like NAT, TK, VLCCF ... they have taken a chop lately.

chris_edmonds_tsc:

Waters have been choppy across the energy sector. Remember, however, there has been a general tanker shortage and those names stand to benefit from that.

chris_edmonds_tsc:

Teekay has always struck me as an interesting company.

NoEmailAddress:

Would hotel REITS be included in the list to get out of.

chris_edmonds_tsc:

Good question -- the REVPAR (rev per available room) comps are just terrible. Corporate travel is slowing and that really hurts.

chris_edmonds_tsc:

I received a Hyatt statement in the mail the other day with more deals for summer travel than I can EVER remember. That's anecdotal, I admit, but I don't think I want to be there right now.

chris_edmonds_tsc:

The good news is supply seems to be slowing. The REIT roundtable -- which will run next week -- has some good hotel insights -- look for it!

billy_mumphrey:

What is your assessment of SLB and Halliburton?

chris_edmonds_tsc:

You know what Cramer thinks -- they are stocks he has keyed on. I tend to agree that as large-cap, liquid names in the sector, they are places for generalists to play.

chris_edmonds_tsc:

I do think you can find other pure-play service names that give you more direct exposure just to the drilling services you might be looking for, but you give up some liquidity and size when you go that route. I think they participate in a rebound like the other OSX stocks. I also like HAL's construction biz.

journalist03:

Chris, do you think there is any chance for a rebound in the financials?

chris_edmonds_tsc:

I do -- I think the comment from

Tony Dwyer

earlier today that he has taken a more neutral stance is a smart one.

chris_edmonds_tsc:

I think lower rates are good for financials and I think any kind of economy stability/recovery begins to really perk the group up. I also think you can find some very real value in some of the mid-cap regional bank names.

chris_edmonds_tsc:

On another note, looks like Kraft is pricing at $31.

kenevus:

What are reasonable prices to pay for AES and Mirant, Chris?

chris_edmonds_tsc:

First, I own them both. I like AES at current levels. I do think they have a little more headline risk with a pretty vigilant investigation in California and South America exposure.

chris_edmonds_tsc:

But, I like the management team and I like their style. Mirant is fairly priced here, although I think mid-$40s is reasonable. I think you probably have more short-term upside in AES.

chris_edmonds_tsc:

I do like Mirant's growing international exposure and also think they stand a pretty good chance to do well in the NE this summer as well as enter the Canadian markets before the end of the year.

trenchier:

Is this the lull before the storm or is the Big Bad Event of California this summer overhyped?

chris_edmonds_tsc:

Overhyped from the standpoint that I think the state will not lose its lights for longer periods of time. There will be blackouts and for Gov. Davis to suggest the state has turned the corner is nonsense.

chris_edmonds_tsc:

Nothing has changed, yet. That said, I think this problem will last a summer and things will be largely back to normal next year, although power prices will be much higher!

chris_edmonds_tsc:

Finally, I will say, I have been amazed at the stories regarding conservation I have heard. It makes me think conservation is a much more important piece to an energy policy than I initially thought.

chris_edmonds_tsc:

And, Edison, by the way, is toast in my book. A filing is likely imminent.

trenchier:

When is the next energy roundtable?

chris_edmonds_tsc:

As soon as Houston dries out! On a serious note, a number of my very good friends have been impacted by the flooding in Houston and our thoughts and prayers are with you.

chris_edmonds_tsc:

We hope to have a gathering in July. Stay tuned!

NoEmailAddress:

If you have the chance as a homeowner to lock in natural gas prices for 98 cents a therm for two years, is this a good deal since it's currently 78 cents a therm in California?

chris_edmonds_tsc:

Wow, that's a very good question. Two years is a long time to lock in an above-market contract. Depends on where you live and what your gas demand is. It sounds like an average hedge to me.

chris_edmonds_tsc:

Probably not a real money-saver but probably wont break you either. How's that for wishy-washy?

billy_mumphrey:

What does Enron's experience in India imply for companies looking to generate substantial revenues from emerging markets -- e.g., AES etc.?

chris_edmonds_tsc:

Great question -- it suggests that there is significant political risk abroad. That said, India is a very strange market and the situation at hand is almost unbelievable.

chris_edmonds_tsc:

However, could it happen in China, Russia, or even more progressive European nations -- sure could. That is why the cash flows from foreign operations of independent power producers are discounted relative to values placed on domestic cash streams.

chris_edmonds_tsc:

I will say I think AES has the highest level of political astuteness of any of the IPPs, including Enron.

chris_edmonds_tsc:

To see what I mean re: valuations, look at the historical multiples on Calpine (a pure domestic play) vs. AES.

chris_edmonds_tsc:

That will provide some insight, I think.

trenchier:

Have we seen the top in energy or do we revisit and perhaps even surpass old highs?

chris_edmonds_tsc:

Seen near the top in pure oil plays is my guess. Think gas-leveraged names go higher in this cycle and the energy service names trade a higher from here. Remember, you haven't made a lot of money in the service names since the beginning of the year or over the past year for that matter.

chris_edmonds_tsc:

That doesn't mean all energy won't rally from these levels, just that the oil stocks will have a more labored approach to growth from here.

larrybodner:

How do you feel about retail heading into the tax "rebate checks," any potential winners relative to today's prices?

chris_edmonds_tsc:

I may be wrong here because I'm not an economic psychologist, but I don't think the checks alone will have a demonstrative impact on retail. Many of those names have pulled back from highs but are probably fairly priced in here. I am ambivalent about Kohl's, for example.

JJC

is correct in that it is a great growth play.

chris_edmonds_tsc:

It has a real expansion plan that seems to work. At the same time, I am skeptical like

Herb Greenberg

because every time I go to a new Kohl's in Atlanta, it is empty.

NoEmailAddress:

What's your take on IDA? They have generation, distribution, plus a fuel-cell company in trials with Bonneville PP?

chris_edmonds_tsc:

Nice Idaho utility -- think there are better growth plays in the biz, however.

captjoe06:

Excellent job on the site, what do you think was the main reason for today's reversal?

chris_edmonds_tsc:

Thanks for the kind words -- it's a great team effort ... lots of great contributors. Seems a bit technical to me.

chris_edmonds_tsc:

I think

Gary B. Smith

said it this morning when he said you need to be careful on gap downs. And, in the end, he was proven right.

chris_edmonds_tsc:

Everyone is so focused on bad tech numbers and reacts to the data from companies like Juniper and Nokia. But, hey, there really is a market out there away from tech and you can find ways to make money, even if you only want to be long!

iguana1677:

But AES has currency problems in Brazil and Europe? Include exchange risks and their earnings are poor. What do you think? Thanks.

chris_edmonds_tsc:

Good point -- I was more focused on political risk of international operations. Clearly, exchange risk is an issue -- most companies try to hedge as best they can, but that will always be an issue.

ll01701:

Chris, Do you see institutional support coming in at the 50 DMA for the energy stocks -- as well as others?

chris_edmonds_tsc:

Good question -- it is hard to tell, although several institutions will clearly key to technicals as they watch energy. They also will pay very close attention to the commodity price trends.

billy_mumphrey:

Will trading companies ever generate the king of profits that they had in the past from trading energy? Will the influx of new traders create a more efficient market, with fewer opportunities for supernormal profits?

chris_edmonds_tsc:

Clearly, competition will contract margins in some instances. And, yes, the market has been immature -- think back to 1996-97 and the Midwest price spikes. Nobody talks about how those prices have leveled out when they talk about the market solving the California crisis.

chris_edmonds_tsc:

Very good point. Yet, I think that doesn't mean the main players will suffer tremendously. Along those lines, I think you will see consolidation begin to be a factor among the IPPs in the next two years.

35start:

This economy seems to be a mess -- did

Alan Greenspan

and his five rate hikes cause all the trouble?

chris_edmonds_tsc:

Overdid it a bit, I think most people agree. But, there is a lot more to the current slowdown than just Uncle Alan. He is a nice scapegoat, but you can point to all sorts of other issues -- energy prices included -- as reasons for the slowdown.

iguana1677:

Chris, what are the odds that EIX files for 11? Thanks.

chris_edmonds_tsc:

I'll take the file side of the bet. Remember, they told me point blank at the time the governor's rescue plan was announced that bankruptcy was the only option if the plan was not adopted in full. Well, it wont be and nothing else has changed.

chris_edmonds_tsc:

See you in court -- I'd say 80%-plus!

marknyc32000:

How

does all this oil and currency affect the bond market? How do you see the bond market this year?

chris_edmonds_tsc:

Better people than me to ask about bonds, but clearly rates move in anticipation of inflation. The Fed is on the easing side now and the yield curve will likely return to a more normal slope as we move from slowdown to recover mode.

chris_edmonds_tsc:

I don't think we now fall into recession and think we come out with a smooth, steady but not steep recovery. Bonds wont provide the profits they have provided going forward.

billy_mumphrey:

What is your longer term assessment of REITs? Any favorite sectors here? Best mutual funds for investing in this sector?

chris_edmonds_tsc:

Apartments clearly provide some stability in times of uncertainty. As I have said recently, I think there are some real questions about office in certain markets. That said, I have also said I think Equity Office Properties is cheap.

chris_edmonds_tsc:

I also think if you want to play retail, the grocery anchored centers provide some stability relative to big box retailers and I would avoid the outlet centers. I also would wait on hotels.

chris_edmonds_tsc:

I did a piece on value REITs recently. That list looks pretty attractive. However, I would be cautious as the recent run has been pretty strong. I think some of that momentum will come out sometime this year.

chris_edmonds_tsc:

There are a number of decent funds out there. I'll do a piece on REIT funds soon. Stay tuned.

tavinla:

Chris, which

Caddyshack

character do you represent?

chris_edmonds_tsc:

That little rodent that stays underground!

chris_edmonds_tsc:

Hey, I know we left a lot of questions out there and I'm sorry we are out of time. But, don't despair -- we'll be back and, next time, I promise to make sure the

Taskmaster

is in the studio as well. We have a very smart group of readers and I enjoy these chats as much as anything we do at

TSC

. Keep reading, keep writing and invest wisely. See you in a couple of weeks.