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public:investment [ClearOnMoney]
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Investment

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Note: This page is for posts closely related to current investment decisions.

Buying into the future of French companies

16 Oct 2012 by Jim Fickett.

A number of European stock markets are undervalued. I wrote about this, basing my analysis on data from a paper by Joachim Klement, earlier (Belgium, France, Germany and the Netherlands have attractive CAPE). There I made the case for buying a French index fund (EWQ), but wasn't quiet comfortable with it at the time. Two recent bits of news changed that.

First, the Global Financial Stability Report that just came out had an overview of investment-grade credits in several countries, and this shows that, for investment-grade companies at least, French balance sheets are in about average shape:

Corporate fundamentals and funding conditions remain strong in advanced economies outside the euro area periphery. Although earnings growth is slowing sharply in all countries amid a generalized economic slowdown, funding conditions and the debt servicing capacity of businesses in most countries remain strong. …

The analysis of corporate fundamentals of investment-grade companies shows a significant divergence between, on the one hand, U.K., U.S., and core euro area firms and, on the other, firms in the euro area periphery (Table 2.4.1). Debt servicing capacity (interest coverage) remains favorable for the former group of countries despite the recent decline in profit growth (as measured by EBITDA) in a slowing economy.

The units in the table are standard deviations. So the ratio of income (as measured by EBITDA) to interest payments on debt is almost 2 standard deviations higher in France than in the other economies listed. On the other hand, the ratio of free cash flow to total debt is almost one standard deviation below average. Overall, French balance sheets are in decent shape.

Second, Pacific Capital Associates just put out a ranked list of the Shiller cyclically-adjusted P/E for a number of countries that helps to put things in perspective (no link). Here is the list up to and including France (ranked by increasing CAPE):

Country CAPE
Greece 2.25
Ireland 4.71
Italy 6.36
Russia 7.21
Portugal 7.77
Austria 7.77
Spain 8.84
Belgium 9.71
Netherlands 10.67
France 11.18

Greece, Ireland, Portugal and Spain are sufficiently likely to experience really deep disruption that I'm not very comfortable with investing there without really understanding how a currency change or government default would affect individual companies, and Belgium is on the edge of that group. The law is a foreign concept in Russia, which for me makes it an unappetizing investment destination. I would guess Austria has such a low P/E because the country has a very large banking sector, and the banks are heavily exposed to the peripheral countries – again not a situation I want to get into.

Unfortunately Italy was not covered in the Klement study, so I don't know how predictive the CAPE is for the Italian market. Netherlands and France remain. I think both are potentially interesting investment destinations.

I will start a position in EWQ. I suspect the European crisis will heat up again and perhaps give a better entry point, so for now I'll invest only 1% of the portfolio.

Best Buy is very likely undervalued

9 Oct 2012 by Jim Fickett.

Best Buy remains a dominant player, and its cash flow remains very strong. Today I took an initial position of 1% of the portfolio.

In the story that Amazon is killing Best Buy we have another great example of “truth by repetition”. The facts are that Best Buy's market share and revenue are stable; its online market share is actually growing; and its free cash flow has been and remains very healthy. So the default outlook should be that recent years provide a decent baseline for future free cash flow.

This would suggest future free cash flows of somewhere between $640 million (if one foresees some future shrinkage, and takes the long-term average free cash flow that includes years when the company was much smaller) and $810 million (the average of the five years 2009-2013, including the midpoint of current guidance). With a current market cap of $6,000 million, that range gives a free cash flow yield of 11% to 14%. That is very high, and suggests the stock is quite undervalued.

A widely quoted fact that supports a more negative view is that same-store sales have been dropping. However, if revenue and market share are stable, this means, by definition, that the sales lost at some stores are being picked up by other stores or the online business. Falling same-store sales are not good, but the company is not actually losing the business.

It is certainly true that, in the past, Best Buy has paid insufficient attention to its online business. They completely missed the importance of the iPod in its early years and, until just recently, one could barely find any mention of the web or the internet in the annual reports. But this is changing. In the last two years online revenues have grown 20% and 14%, and this year the company hired two new high level people who understand the internet – former Expedia president Scott Durchslag and former Starbucks CIO Stephen Gillett.

I have mentioned before that Best Buy does not have a very strong balance sheet. I think the strong cash flow largely mitigates this, provided that the strategy going forward does not require extremely large capital expenditures. This seems to be the case, with the main strategic points being to improve the website, improve personnel training, and slowly move towards smaller stores.

The weakest point in my case for Best Buy is that I assume market share and revenue can continue to be converted to income. But lately there has been pressure on margins. Here is a graph of Best Buy's operating income as a percent of revenue:

Obviously the company is currently feeling great pricing pressure. It is not clear how much of this is from online-only retailers (the CFO recently named some one-off pressures on margins), but probably Amazon is at least part of the story. On the one hand, Amazon is losing its biggest price advantage, in that more and more states are forcing it to collect sales tax. On the other hand, the former Best Buy CEO Brian Dunn said in 2011, “Taxing all online sites equally would be a major, but not complete, closure in the pricing difference.”

My case rests on the thesis that physical stores do, in fact, have some advantages, and that people will not mind paying, say, 2% more, in order to talk with a real person and then immediately buy. I think that is true, but it is always hard to know such things. So the biggest risk to this investment is not that Best Buy will soon disappear, but rather that profits and free cash flow could be lower if the company feels it has to match Amazon's prices.

Some other miscellaneous points

  • Best Buy has no legacy retirement benefit costs; i.e. it never had a defined benefit plan for employees.
  • One can find many complaints about poor customer service. An objective measure of customer satisfaction can be found in data from the American Customer Satisfaction Index. According to Best Buy's 2007 annual report, the company scored almost exactly at the national average.
  • I am not trying to guess whether Schulze will succeed in taking the company private. If he does, it will almost certainly be at a greater price than where I bought. If he does not, I am betting on a stable continuing business resulting in a higher stock price.
  • The current dividend yield is 3.8%. There is much talk in the annual reports about returning money to shareholders via stock buybacks; but in fact at least half the buybacks simply cover employee stock options.
  • Best Buy is trying out a new strategy of providing turnkey IT for small businesses, included equipment, setup and repairs, cloud services, etc. If done well, this seems like it could be a winner.

Previous posts on Best Buy

Added to PELAX position

9 Oct 2012 by Jim Fickett.

Today I added to my position in PELAX, PIMCO's emerging market, local currency bond fund. I've explained my interest before (Purchasing two PIMCO bond funds); in short, this is a fairly safe, non-US dollar place to park money, both for current income (paying about 4%) and safety from future US inflation. I brought my position up from 3% of the portfolio to 4%. It may be there will be a better opportunity next time worries about Europe heat up. If so I'll use that opportunity to bring the allocation up to my target of 5%.

Daimler -- solid long-term cash flow

26 Sep 2012 by Jim Fickett.

I would like to own more assets in countries where inflation is viewed as a dangerous scourge. Germany is at or near the top of that list. While I do not think one can predict how the euro zone sovereign debt crisis will work out, I'm quite sure that the ultimate solution will not involve high inflation in Germany. Germans mostly save by putting money in the bank, so currency stability is of prime importance to a large fraction of the population and, further, the great hyperinflation of the 1920's is remembered vividly and often referred to in current dialogue.

Daimler is a large, old company best known for their largest division, Mercedes-Benz cars. If you've spent much time in Europe you will have noticed that they also manufacture a large fraction of the commercial vehicles there – buses, trucks, and vans. More recently they're also into green, making, for example, the Smart car and hybrid versions of many of their other vehicles. No one is going to break in on the territory of the Mercedes name any time soon; with the much-bemoaned inequality of incomes in the world today, luxury cars will continue to see solid demand; and well-made trucks will always find a market. So Daimler is worth a look.

Growth

For many basic valuation questions it is important to know whether a company is growing. The data are somewhat ambiguous for Daimler; the company is either stable or growing gradually.

(All data are from the annual reports. All euro amounts are inflation adjusted and reported here in 2011 euros.)

The core business is in Mercedes-Benz cars. The recent impressive growth in sales is mainly because of Daimler's expansion into China – sales were up 39% from 2010 to 2011 in China, compared to sales down 2% in Western Europe. Daimler is banking heavily on China, expanding operations there and projecting continuing growth. I am somewhat less optimistic about China's growth but, even so, the car business is at least stable over the long term, and probably growing via emerging markets.

Revenue has clearly dropped, over the whole period shown. However this is, to a large extent, due to the disposition of Chrysler (after the disposition in 2007, results back to 2005 were retroactively restated for Daimler without Chrysler).

Shareholder equity has been flat.

With my skepticism about continued supercharged growth in emerging markets, I view Daimler as a stable, mature company with modest growth prospects.

Income

The first thing one notices about income, free cash flow, and the dividend, is the strong cyclicality:

A 10-year average is probably long enough to get past the high variation. Adjusting for inflation, the ratio of the current market capitalization to the 10-year average income is 13.3, which is a reasonable P/E. The 10-year average free cash flow gives a yield of 8.1%, which is very good for a mature manufacturer. The 10-year average dividend gives a yield of 3.6%.

Conclusion

The large cash flow yield suggests the dividend yield is sustainable. So Daimler looks to me like a bond with a reasonable, fairly safe yield and a somewhat volatile, inflation-protected principal – hence a decent place to preserve capital.

One remaining hesitation I have is that I prefer to invest in companies where I can admire the management. The fact that the free cash flow yield is much higher than the dividend yield, and yet shareholder equity is not growing, is somewhat worrying. I would like to know where all the cash is going, and whether it is really contributing to the future value of the company. Tracking this down may or may not be straightforward – the company is complex, with many subsidiaries and joint ventures all over the world.

After looking into the cash flow issue and recent quarterly results, I will probably wait a bit and see if things deteriorate further in Europe (quite likely and soon), China (quite possible) and the US (likely but with uncertain timing). Further economic bad news would probably give a more attractive entry point.

Little evidence for Loews as a value play

8 Aug 2012 by Jim Fickett.

Loews Corporation is often compared to Berkshire Hathaway, but in fact the two are not at all similar. It is also often put forward as a good investment for conservative value investors. Loews does have a 50-year record of good returns, but the current CEO has been in place for only 13 years, and much of the good performance of the last 13 years has been delivered by returns on the bond portfolio of an insurance subsidiary, as yields have fallen. The company might be a value play but, if so, the evidence is well hidden.

It is fashionable to compare Loews Corporation to Berkshire Hathaway, and to advocate purchase of Loews stock for conservative value investors. For example, from a recent Motley Fool article:

In today's edition, Paul and Matt discuss Loews, a diversified holding company that looks and feels a lot like Berkshire Hathaway. … This company has rewarded shareholders for more than 50 years and is trading for only 80% of book value, a cheap price to pay for a quality business. Paul thinks the company is worth a look for investors who love the Berkshire model but would like additional diversification.

The comparison to Berkshire Hathaway is frequently repeated but is far from the mark:

  • A core part of Warren Buffett's strategy is to use the float of his insurance businesses to creatively invest in many other areas; Loews owns most of a large insurance company, CNA Financial, but CNA is required by state rules to keep most of its money in bonds (all information not otherwise attributed is from documents in the investor relations section of the company website)
  • Buffett buys strong companies that throw off a lot of cash, and almost never sells them, instead letting returns compound; the single largest company in Loews portfolio, CNA, has underperformed for decades, and Loews often sells companies after buying them
  • Berkshire Hathaway owns dozens of businesses diversified across many sectors; Loews owns majority interests in five businesses and three of them are in the energy sector

Still, even if Loews is not much like Berkshire, it might be a value play. A recent Bloomberg article gives some examples where Loews' management made smart purchases of cheap assets:

[Jim] Tisch [now CEO] made his reputation as a contrarian value investor. In 1982, as a vice president in Loews’s investing department, he bought seven supertankers for $6 million each, less than their scrap value, and unloaded the last of them in 2004 for almost 10 times that amount. In 1992, he bought 39 offshore drilling rigs for about $372 million, half what a single new rig costs today. And it was on Tisch’s watch in 1999 that CNA turned a $9 million investment in telecommunications giant Global Crossing Ltd. into a $1.9 billion profit in three years. …

Beginning in 2003, Tisch made another series of sweet deals, this time with pipelines. Heavily indebted power companies were scrambling to unload assets to raise cash following Enron Corp.’s bankruptcy. In May of that year, Loews paid $1.05 billion to buy Texas Gas Transmission LLC from Williams Cos. The next year, Loews paid $1.14 billion for Gulf South Pipeline LP. The assets were combined and christened Boardwalk Pipeline, which was taken public in 2005.

As of April 10, the listed partnership units had a market value of $5.5 billion. Last year, Loews reaped $282 million in distributions from its various Boardwalk holdings.

The company brags of 50 years of good performance – the 2011 annual reports says, “Over the past 50 years, the price of Loews common stock has grown at an average annual rate of approximately 14%, compared with an approximate 6% growth rate for the S&P 500.” But Jim Tisch, the current CEO, has only been in place since 1998, so it is reasonable to scrutinize the last 13 years a bit more closely, to judge whether outperformance is likely in the future.

Income is nothing special, with the P/E on trailing twelve month earnings currently at 18.8 and, on average earnings over the last 13 years, at 12.4. Free cash flow is much worse; using average free cash flow over the last thirteen years, the price to free cash flow is 23.9.

With income and cash flow not impressive, that leaves building value through buying low, managing well, and selling high.

The Bloomberg piece offers some hope: “Growth in Loews’ book value per share – a metric favored by Buffett – has averaged 10 percent annualized from 1998 through 2011 compared with 8.1 percent for [Berkshire Hathaway].” But as I skimmed the last 13 annual reports, it seemed to me that Loews was not consistently very smart.

  • Even though they own almost all of CNA, they have put up with the company underperforming for decades.
  • They jumped into the natural gas boom and bought assets in 2007, near the top in gas prices
  • They made no big investments at all in the 2008/2009 crash, when bargains abounded

So where is that growth in book value coming from? As I tried to track down an answer to that question in the consolidated financial statements, I noticed that the variation in the investment portfolio of CNA (mostly bonds) seemed rather closely correlated to changes in book value. Here are the data:

Obviously the correspondence is not perfect, but the performance of CNA's bond portfolio does explain a great deal of the variation in book value. So Jim Tisch's record has benefited greatly from the huge drop in interest rates in the last few years, and it is less than clear that his record of increasing book value will continue when bonds do less well, as they surely will in the future.

One Loews investment strategy I can agree with is a long-term program of stock buybacks. The rationale is explained in a recent company overview flyer:

Of our five subsidiaries, three are publicly traded companies, making our stakes in them easy to value based on New York Stock Exchange trading prices. As of February 17, 2012, our shares of Boardwalk Pipeline, CNA Financial, and Diamond Offshore had a total combined value of approximately $14 billion, or just over $36 per Loews share. If you add in our holding company cash and investments and back out our $700 million of holding company debt, the value of Loews increases to about $42 per share. Finally, you can add to that figure the value of Loews’s non-public assets, which include the Loews Hotels and HighMount subsidiaries, and the Boardwalk general partnership interest and Class B units. Compare all this to Loews’s closing stock price on February 17, 2012 of $38.30. That’s what we call a real bargain.

In such a case, buybacks do benefit continuing shareholders. Imagine a company with two shares selling for $40 each, and with a balance sheet consisting of $100 in cash. Each of the two shares is $10 underpriced. If $40 of the cash is used to buy back one share, then the remaining share now corresponds to $60 in remaining cash, and so is $20 underpriced. So ongoing buybacks are likely, indeed, to help the share price. Of course, these buybacks improve the pricing of the conglomerate stock relative to the value of underlying assets. It does not guarantee that the underlying assets are a good value.

All in all, I have no opinion on whether Loews stock will provide a solid return over time. But I am skeptical that those who promote the investment really understand the company well enough to make a good case. I don't see the evidence, and will not invest.

Taking a small position in Peabody Energy

24 Jul 2012 by Jim Fickett.

Today the stock price for Peabody Energy dropped 11%, from a close of $23.16 yesterday to a close of $20.55 today. Today's price is approaching the 2008 low of $18.44. Although I have not finished my analysis, I thought this was almost certainly an over-reaction to bad news, in the coal market and in Peabody's quarterly results, and so began a small position (1% of the portfolio).

Although Peabody does have some assets in Australia, its fate will mostly be determined by the US electricity market. Recent financial news articles on US coal have been very negative for two reasons: (1) It is assumed that natural gas will remain practically free forever, and hence will undermine demand for coal. (2) It is assumed that stricter EPA regulation of pollutants will also drive a large fraction of generation from coal to gas. Both of these are exaggerated. It is very unusual for gas to be cheaper than coal, and it will not last much longer. And thoughtful analysts suggest that the most likely outcome from stricter EPA regulations will be to curtail US coal demand by something like 10 percent. Given the drop in demand we've seen so far, the adjustment may already have mostly taken place, accelerated by cheap gas.

So although many reporters seem to think the US coal industry is about to shrivel up and die, I think it is much more likely that production will be cut back by temporarily closing some of the less profitable mines, and the industry will bounce back.

Peabody shows a current trailing twelve month P/E of about 6, and pays a dividend yield of 1.5%. It is a little difficult to estimate sustainable P/E. The average of earnings per share over the last 10 years is $1.86 which, at the current stock price, would give a P/E of about 11. But this is somewhat misleading because there have been a number of large acquisitions that changed the company considerably over that period. Including only 2007 - 2011 (one bubble year, two crash years, and two rocky recovery years, with only one big acquisition) gives average earnings per share of $2.69, and a P/E of about 8.

Although Peabody disappointed analysts with quarterly results today, the company is not doing that badly. First half earnings per share were $1.39, compared to $1.69 last year. Sure, earnings are down and times are tough for coal. But profit is still in line with the five-year average.

Peabody has proved and probable reserves of 9 billion tons and says that, in the past, their estimates of proved and probably reserves have come in within 10% of actual production. Enterprise value is just over $12 billion, putting a price of $1.34/ton on reserves. In 2005 dollars, the coal price has varied between about $21 and $62 per ton over the last 60 years. Given that variation, if it is possible to get coal out of the ground and sell it for more than the cost of production, it is probably possible to add another $1.34/ton to the price and justify the company's current valuation.

So overall

  • The current news stream is exaggerating the bad news
  • Different valuation measures suggest the stock is somewhere between cheap and reasonable
  • The current price is near an 8-year low

Nothing is guaranteed in investing, but is is a pretty safe bet that (1) the US coal industry will recover and (2) future volatility, if nothing else, will bring higher prices than the current one.

Incidentally, in 2010 I sold my previous position in Peabody at about $40/share.

Other past commentary on coal

Devon Energy is cheap

18 Jul 2012 by Jim Fickett.

If one were to buy out all stock and debt holders of Devon Energy, and only received the proved reserves, it would be a good deal. Similarly, if one were to receive only the undeveloped resources, it would also be a good deal. Put it together, and the current stock price is a real bargain. I brought my position up from 3% to 4% of the portfolio today.

In November of 2010 and September of 2011 I bought shares of Devon Energy (Devon Energy: conservatively priced assets in the ground and Adding to Devon Energy position). Devon is a well-managed company and I hope to hold the stock for the long term. What follows is an updating of my previous analysis, with a few points added. I think at the present price (under $60/share), Devon is an excellent value.

There are two main facets to evaluating a mining company. One facet, income, is the same as for any other company, though the volatility of the commodities space presents some challenges. The other facet is reserves and resources – attaching a value to the commodity still in the ground. These are interdependent. A company can't have continuing income unless it is continually acquiring and developing new resources, and the commodity in the ground is useless unless the company knows how to get it out of the ground efficiently enough to make a profit.

Devon's income has been solid.

(Data note: all data are taken from the 2000 to 2011 annual reports and 10-K's, as well as one investor presentation; see the investor relations section of the website. For some (not all) data, the 2000 annual report gives historical data going back to either 1998 or 1991. Devon merged with Santa Fe Snyder in 2000, and used “merger of common interest accounting”, which means that all pre-2000 historical data is presented as if the two companies had always been one.)

Growth in net income is partly organic and partly the result of a dozen or so acquisitions over the years. The last acquisition was in mid-2006. Earnings in 2008 and 2009 were skewed downward by the financial crisis and in 2010 and 2011 were skewed upwards by some major divestitures. The average 2006-2011 is perhaps the best we can do to estimate sustainable earnings. Using this average ($4.73/share) and the current stock price ($58.73) yields a P/E of about 12.

Cash flow from operations is somewhat less volatile than earnings, because changes in the oil and gas price hit cash flow only once, in market price of goods sold, while they hit income a second time, in non-cash changes to the value of reserves. Cash flow has been healthy, showing that, at least at the operational level, Devon is competently getting gas and oil out of the ground and selling it at a profit.

Free cash flow, which is cash flow from operations less capital expenditures, can be a useful second measure of overall company profitability, especially in a stable enterprise. But when a company is growing by reinvesting much of their cash in new land holdings, as Devon has done, free cash flow is not very informative. The blue points in the graph below show free cash flow; they are all over the map. Note, though, that if cash has been used to grow rather than maintain the company, then one should see book value growing. In the red line below, I've plotted a very conservative book value per share, removing the most doubtful asset, goodwill, from the balance sheet. This measure of value has grown very strongly, showing that indeed Devon has grown shareholder value.

So Devon has healthy operational cash flow and a reasonable P/E, but its great strength, on the income side, is that reinvestment of cash has boosted book value per share, even excluding goodwill, by a factor of 7 over the last few years.

Now to the assets in the ground.

Note first that Devon has done a good job of continually discovering and characterizing new reserves. In the following graph blue is natural gas and red is liquids (oil and natural gas liquids); the continuous lines show reserves (left scale) and the filled circles show production (right scale). Gas is converted to the same scale as liquids by the heat-value equivalence of 6000 cubic feet = one barrel of oil equivalent (BOE). It is immediately apparent that reserves have been replenished in a way to maintain reserve levels at about 10 times annual production, for both liquids and gas.

New shares were issued for some of the acquisitions, so all data above is shown on a per-share basis. On this basis, total reserves have been fairly constant, though they have grown to some extent.

Several different perspectives on the value of oil and gas in the ground suggest the stock is undervalued. The first two rely on what it would cost you, per BOE, to buy those reserves by paying off all current owners. That is, the first two look at enterprise value per BOE. Recently I posted an historical look at EV/BOE for Devon (Energy company market value reflects only current energy price. Here is a re-post of the same graph:

Note first that the current value of EV/BOE is near the bottom of its 13-year range. That alone suggests the stock price is too low. Second, note that the correlation between price received and EV/BOE is very high. Since the oil price is probably somewhere near its long-term trend and the natural gas and natural gas liquids prices are very low, that suggests that higher energy prices in the future will raise the stock price.

The price Devon received for recent divestitures, ranging from $18/BOE to $41/BOE, also make the current valuation of the company, at $9/BOE, look cheap (Devon Energy: conservatively priced assets in the ground).

The valuation above is in terms of proved reserves, which is what analysts most often pay attention to. However Devon has spent the last 10 years acquiring a large number of properties with additional oil and gas resources that are also of great value.

Very generally (see reserves and resources), “reserves” usually refers to proved reserves, i.e. oil and gas that has been extensively characterized by test wells and is almost certain to be producible under prevailing technical and economic conditions, while “resources” refers to other oil and gas likely to be in the ground, but as yet largely uncharacterized. “Risked resources” means “internal estimates of volumes of natural gas and oil that are not classified as proved reserves but are potentially recoverable through exploratory drilling or additional drilling or recovery techniques”, where “risked” means “calculated by multiplying the unrisked mean resources by the geological chance of success to account for the risk of drilling an unsuccessful exploration well”. In other words, “risked resources” are an attempt to guess what might be added, from current holdings, to reserves in the future. All such guesses are, of course, quite uncertain.

In a June Devon presentation, enterprise value is given as $25 billion, and risked resources, excluding reserves, as 13.2 billion BOE. This gives an EV/BOE, just for risked resources, of about $1.90/BOE.

To turn risked resources into marketable product requires spending about $12.50/BOE on finding and development costs, plus about $12.80/BOE on production costs (including lease operating expenses, taxes other than income, general and administrative overhead, and interest expense). So one could buy the whole company and make money from only the risked resources if one could sell the oil and gas for an average of at least $1.90 + $12.50 + $12.80 = $27.20/BOE. Obviously the oil would sell for much more than that. $27.20/BOE is about $4.50 per thousand cubic feet for gas. Most thoughtful observers think the gas price will need to rise to to at least this for a sustainable industry. Note that the company has focused capital spending on developing Canadian oil sands lately; so Devon's current production is 21% oil, and oil production is growing very quickly (see above production chart).

What all this means is that Devon's enterprise value is cheap considering only reserves, and Devon's enterprise value is also cheap considering only risked resources above and beyond reserves. Putting the two together means the stock is a bargain.

Other considerations

Recent divestitures have left Devon with a very strong cash position to weather the current low gas price and invest strongly in growing oil production – as of 2012 Q2, net debt to capitalization was only 11% and the company had over $7 billion in cash and short-term investments.

The current dividend yield is 1.5%. This is not huge but, in today's interest rate environment, it is not too bad as long as the stock price remains steady or goes up.

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