Friday, February 17, 2012

CLMT: Hydrocarbon cognac

Calumet Specialty Products Partners L.P. (CLMT) claims to have the "most diverse specialty hydrocarbon capability in the world" with "a full line" of napthenic and paraffinic oils, aliphatic solvents, white mineral oils, petroleum waxes, petrolatum and hydrocarbon gels.

The only thing I recognize on that list is the petrolatum. That's the petroleum jelly that I put on my feet and fingers when they crack in winter.

So Calumet is a company that immediately sends me on a Wikipedia crusade to try to figure out what it does.

Basically, Calumet sells the hydrocarbon equivalent of cognac. Its products are no simple red table wine for the masses, but rather they have been distilled into diverse liquors of the finest quality for highly refined niche palates.

Naphthenic oils burn a lot and are the most volatile part of crude. Paraffinic oils are solid at room temperature and are far less volatile. Aliphatic solvents lack a benzene ring, in contrast with aromatic hydrocarbons....

Well, you get the picture. The company makes and sells stuff that other companies appear to need, and that I as a trader will never understand well. It has something to do with oil.

CLMT had the most bullish chart of 15 stocks added today to the Zacks top-buy list. PVX was the runner-up. DSW and RUE completed the final four.

Based in Indianapolis, Indiana, CLMT began its most recent leg up on Feb. 6 from $21.09, rising to $23.34 today, a level that brings the price above its previous higher high of $22.97. In other words, it counts as a breakout.

The rise is part of a longer-term uptrend that began Oct. 4, 2011 at $16.33 and was broken by two significant corrections.

From a very long term perspective, the price has been trending sideways since early 2010 and can be interpreted as having completed two peaks in a messy head-and-shoulders pattern. The price at present is approaching a third peak, with the head having three tops: $24.95, $23.75 and $23.95.

That triple-headed beast provides plenty of resistance less than a dollar and a half away from current levels. And by the way, if it is a functioning head-and-shoulders pattern, then it implies that CLMT is heading for a fall down to $5 a share.

I don't put a lot of trust in head-and-shoulder patterns of this magnitude, but still, the implications do give me pause.

Return on equity was 15% in mid-2011, and debt was high, amounting to 122% of equity. Quarterly earnings are a mess, quite frankly. The company has come in below estimates in nine of the last 12 quarters, including the most recent.

Institutional ownership stands at 12%, a miniscule level. The price is very low. It takes only 38 cents worth of stock to control a dollar in sales.

The stock trades 200,000 shares a day, and that low liquidity is reflected in the somewhat limited options selection. Open interest is grouped tightly around the at-the-money level, with no open interest at the fringes.

Implied volatility, at 36%, stands at its lowest level of at least the past six months and is dropping sharply. The volatility shows that traders give a 68.2% chance that the price will close between $20.86 and $25.66 a month from now.

The next earnings announcement is scheduled for May 4. The stock goes ex-dividend sometime in May. It has a high annual yield, 9.11%, paid quarterly.

Decision for my account: I'm passing on CLMT because of the near-term resistance on the long-term chart, because of the low liquidity and because of the lack of institutional ownership. A break past $24.95 would prompt me to revisit the decision.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

No comments:

Post a Comment