Trade Alert: Being elkish and avoiding stocks with net debt

Morning folks, how are things around here? Markets getting hit a bit this morning in volatile trading, with oil and energy down to new lows yet again and I’m hard at work in my office with elk outside my window. Here was the view at 7:30am MT as the market opened.

As someone phrased it in the Trading With Cody Chat Room after seeing this picture there: “Hmm, I understand Bears and Bulls…What do Elk (?) indicate in the market? :-).” I told him I like his idea — forget being bullish or bearish, let’s be elkish. The elk around here are opportunists and we should be too.

Why am I such a stickler for strong balance sheets with more cash than debt? Here are three reasons –

$FCX – $20 million net debt with little cash.

$KMI – $40 billion of debt total and $33 billion net debt.

$CHK – $11 billion of debt vs $2 billion in cash.

$FCX $CHK and $KMI account for $60 billion in debt that somehow has to be serviced and/or someday paid back even as commodity prices hit new lows. Will shareholders ever make any money in these names? Will the banks and bondholders be flexible?

Those three stocks reflect the fact that right there is $60 billion in net debt that somehow has to be serviced with commodity prices at new lows before shareholders start getting their own cut again.

We continue to see pundits and money managers galore get gored trying to game a bottom in energy. I continue to expect to see lots of bankruptcies in energy — and we’re talking about hundreds of billions of dollars in debt from these companies, as evidenced by just the three names I’ve highlighted here and which are all in trouble.

The elk don’t like trouble. The elk like it calm and quiet where grass grows and they can graze and crack antlers without distraction. Let’s be elkish. And on that note, I’m going to nibble a small tranche in Sony now that it’s cracked below $25 adding about a 1/5th size position in common stock buying back the shares I’d trimmed a bit higher than these levels a while ago when we had the opportunity to do so. Sony’s got a strong balance sheet with net cash, has a huge library of TV and movie content that’s in high demand by well-funded streaming players and has a growing profitable business in image sensors like the one in my iPhone that I used to take that above picture.