Central Securities Corporation

It happened again. I was researching another stock and I stumbled over an even more interesting stock. This one is called Central Securities Corporation, a closed end fund that was organized on Oct 1, 1929 – what great timing. The stock trades under the symbol CET and if its annual report can be believed has beat the S & P 500 for the last 20 years. More info on this one at:


http://www.contrariuspopulus.com/

Nabors Industries

Is it time to buy Nabors Industries? Nabors is one of the premier land drilling companies in the Energy Sector with hundreds of rigs in its fleet. So here is the debate. The stock has sold off from a peak of $41.35 in January 2007, down to its current price of around $30 a share, which represents a drop of 34%. There is no doubt that there is a slowdown in the land drilling market. Day rates have come down off their peak and utilization is dropping as well as rigs are released. Is this the start of a long down cycle as in past years?

The optimists believe in what is called the “snapback theory,” which states that as rigs are released and drilling activity slows, natural gas production will drop sharply cutting inventories and boosting prices which will in turn lead to a rebound in drilling as the economics improve. The reason for this is because a large proportion of the wells drilled in North America in the last few years are unconventional wells, which typically have high rates of decline in the first year.

There seems to be too much risk for me to jump in now. I would rather wait for the 100-year flood to happen. What do I mean by that? The Energy sector is periodically rocked by catastrophic events that cause panic and investors run for the exits all at once. Energy stocks are also owned by a lot of fast money accounts, which will accelerate this. In the last two cycles, Nabors fell 77.5% (1997-1998) to $5.37 a share, and 70% (2001) to just under $10.00 a share.

I was at the Howard Weil conference last week and attended a breakout session with Gene Isenberg of Nabors. He provided no reassurance during the meeting. He indicated the following:

-That Canada was going to have a dismal year.

- He wouldn’t comment on leading edge day rates and deferred any discussion of it until the conf call in May.

- Older rigs would not be cannibalized for parts (which would reduce supply and help rates) unless they were unsafe.

- He was open to “concessions” on contracts, which means that they would cut rates on existing contracts if the operators agreed to extend the term or pick up more rigs.

- In short, he did nothing to reassure investors that things have bottomed out. Now the company is in much better financial shape than in previous cycles so don’t look for the stock to bottom in single digits. My buy target is $20 a share. I will admit that Nabors is looking cheap on price to EBITDA and price to sales vs. previous cycles, but keep in mind that both sales and EBITDA in those ratios are trailing not forward looking and thus will be coming down which will increase the ratio.

Winners of the New World? (Part I)

So there is this CNBC commentator named Jim Cramer. Everyone knows him. He is richer than I am and probably smarter than me and perhaps even better looking. Once upon a time he wrote a piece at the height of the Internet Bubble called "Winners of the New World. (2/29/00) " It was a list of his top ten stocks - must own stocks for the new millenium. Here they are:

724 Solutions - SVNX
Ariba - ARBA
Digital Island - ISLD
Exodus - EXDS
InfoSpace.com INSP
Inktomi - INKT
Mercury Interactive - MERQ
Sonera - SNRA
VeriSign - VRSN
Veritas Software - VRTS

There were some interesting quotes in the article about these must own stocks:

"We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over -- and it is very far from ending."

"We don't use price-to-earnings multiples anymore at Cramer Berkowitz. If we talk about price-to-book, we have already gone astray. If we use any of what Graham and Dodd teach us, we wouldn't have a dime under management. "

Well guess what Jim Cramer? Tweedy Browne didn't forget about what Graham and Dodd taught them and they have quite a few pennies under management.

So I am going to waste some time and track every one of these stocks that were "must own" stocks from 2/29/00.

724 Solutions - SVNX

This one now was bought out by a Venture Capital firm for $3.34 per share after peaking at $200. The chart on yahoo only goes back to 2001 so it may have been even higher.

Ariba - ARBA

Ariba is still around and now trades at around $9.25 after peaking at $1012.50 a share. No, this is not a misprint as the stock had a 1 for 6 reverse split in 2004. And this guy has his own show?

Digital Island - ISLD

Alas, I can find no record on this one on either Yahoo or Google. It has been lost to history.

Exodus - EXDS

I am having trouble finding this one too - there is a mention of an Exodus Communications that in September 2001 filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code.