NRG Energy goes to Guam… Superior Energy Services announces first quarter earnings and demonstrates strong confidence in its business… Subscriber notes answered:
- Owen H. asks about the “automatic trailing stop option.”- Chris G. asks about the geographic diversity of the “Open in Case of Emergency” list.- Debra W. asks for suggestions for online brokers.- Beth S. appreciates the examples used in Building Wealth.
*** NRG Energy, Inc. (NYSE: NRG): The power grid disruption story continues to develop for portfolio company, NRG… and not just in the US.
Recently more information has been released about the company’s new solar project in Guam, the Pacific US territory. It’s further evidence NRG is pushing to grow its business, and solar power is not a passing fad. In certain situations, such as on islands in the ocean, the technology definitely has its place…
The 25-megawatt solar plant, capable of powering 12,000 homes, is Guam’s first. Power managers on the island expect it to generate electricity more cheaply than the plants currently burning imported fuel oil and diesel.
The Guam Power Authority will purchase the power from NRG under two 25-year contracts. NRG’s stable growth continues and it is exactly the sort of activity we want to see with the companies in our Building Wealth portfolio.
As I explain in my report covering NRG, the power generation business in the US and worldwide is undergoing a major transformation right before our eyes. And, by investing in NRG now, you stand to earn massive gains in the years ahead due to what’s happening. They’re the type of gains that can help you reach “financial escape velocity,” a core idea for us here at Bonner & Partners.
Shares of NRG Energy, Inc. (NYSE: NRG) are a buy.
If you don’t own NRG, I strongly recommend adding the investment to your portfolio.
Here is the current summary information for our NRG position:
Ex-Dividend Date*:
April 29, 2014
Next Earnings Date:
May 6, 2014
Portfolio Entry Price:
$29.79 (3/19/2014 closing price)
Current Price:
$32.72 (4/30/2014 closing price)
Current Return**:
10.31%
S&P 500 Return^:
1.25%
Trailing Stop Advice:
25% below highest close
Highest Close & Date:
$33.16, 4/25/2014
Trailing Stop Price:
$24.87
*If you owned shares of NRG when the market closed on April 29, you will receive a $0.14 per share dividend on May 15 for a current annualized yield of approximately 1.5%.
**Return includes dividends paid since entry.
^To provide you with a transparent way to evaluate this individual recommendation’s performance relative to the market, I have listed the return of the S&P 500 Index over the same period the position has been open.
*** Superior Energy Services (NYSE: SPN): During the first quarter of 2014, our oil & gas drilling services company, Superior Energy Services, remained right on track with its projections.
The company’s US-based drilling business saw revenues increase by 1% over the fourth quarter of 2013. This was the first quarterly increase for that particular part of Superior’s business since the first quarter of last year. And, based on the increased horizontal drilling and services activity Superior is engaged in within the US, the company expects this trend of increasing US-based revenue to continue.
International revenue declined between the fourth quarter of 2013 and the first quarter of 2014 as expected. The 8% pull-back occurred as certain international drilling rigs changed locations and projects slowed during the winter period. This business will pick back up in the second quarter.
In addition, the company expects to earn further international revenue in the coming months as some underused equipment in the US is being redeployed overseas. A portion of this will be sent to Saudi Arabia to serve new start-up opportunities in the Kingdom. In addition, the company expects accelerating activity in Argentina and Brazil to boost its international revenue even further.
Of course, it’s reasonable to wonder just how much confidence management has in these claims.
For evidence, consider that management at Superior Energy Services exceeded shareholder expectations in one very important area during the quarter: the company used some of its additional cash to accelerate share buybacks.
Over the first quarter, the company repurchased approximately $64 million worth of its stock. In addition, during the first two weeks of April, the company announced that it had repurchased an additional $18 million worth of its stock.
This combined total of $82 million of share buybacks over the first part of 2014 far exceeds the roughly $44 million per quarter average rate investors were expecting.
Such a release of cash from the corporate accounts shows the company is extremely comfortable with its plans. If in doubt, it wouldn’t be letting go of its cash, and it certainly wouldn’t be doing it faster than investors expect.
And, as far as Superior’s shareholders are concerned, the situation is particularly positive. The company is using the cash it is releasing to “tighten the circle” through share repurchases, something I explain in my special report: “The Building Wealth Manifesto: Nine Bedrock Principles.” The measure demonstratesmanagement respects its shareholders. It’s a key characteristic of any great investment and another core idea for us at Bonner & Partners.
Shares of Superior Energy Services (NYSE: SPN) are a buy. Like NRG, buying Superior stock is another fantastic way to help you reach “financial escape velocity.” If you don’t own Superior shares, please consider adding some to your portfolio.
Here is the current summary information for our SPN position and its performance: