Let Them Eat Steak

In This Issue: Let Them Eat Steak The Great Natural Gas Grab The Buck Is Back Special Offer: Save Up to $119 Recently we sent out a notice to current subscribers extending their Personal Finance subscription at a special savings of up to $119. Since many of these subscribers more than DOUBLED their money in the past 10 years, we've received a stampede of renewal notices. Now, for a limited time, YOU can have this same amazing, rock-bottom rate normally reserved for our loyal subscribers. Try it for 90 days. If you don't like it, we'll refund every penny. But you must hurry. Only 48 hours remain for you to scoop up Personal Finance at the lowest prices you'll ever see. If you've ever wanted to try it, NOW is your BEST opportunity. Let Them Eat Steak 9/26/2014 By Benjamin Shepherd I like steak and peanuts as much as the next guy, but I also have what some have called an odd fixation on food safety. Needless to say, steakhouses that encourage patrons to throw peanut shells on the floor don't exactly scream "hygiene" to me, but the rest of America seems to love them. Texas Roadhouse (NSDQ: TXRH) is a chain of mid-priced, full-service, casual dining restaurants with about 350 company-owned locations and 75 franchise restaurants across the US. Apparently Americans are not the only ones who love these sorts of places either, as there are a handful of locations in Kuwait, United Arab Emirates and Saudi Arabia. While the restaurants are known for having a huge barrel of peanuts in their lobbies -- and customers simply throwing the shells on the floor -- one of the biggest draws is prices. Most locations offer at least 10 entre items for under $10, including 6 oz. sirloins, pork chops and salads, but even its largest steak, a 23 oz. porterhouse T-bone, is typically priced around $25. Its affordability has made the chain hugely popular with mid-market and cost-conscious dinners, a fact clearly demonstrated by its solid growth. Revenue growth has averaged 17.4% over the past decade, with 13.3% net income growth and 14.8% growth in earnings per share. Keep in mind that during that period, we experienced the worst recession in living memory. Perhaps even more impressive then the company's growth is its margins. While operating margin has fallen from better than 10% a decade ago, hitting a low of 7% in 2008, it has hovered around 8.5% since 2011. Margins at Bloomin Brands (NSDQ: BLMN), which operates Outback Steakhouse, Barrabba's Italian Grill, Flemings Prime Steakhouse and a few others, hover closer to 5.5%. Its profit margin also hangs around 5.5%, slightly higher than its peers in an industry with margins that can run as low as 3%. Texas Roadhouse has clearly done an excellent job of controlling costs and adapting to the business environment for margins to be so consistent. Its balance sheet is also rock solid, holding about $95 million in cash and a debt-to-equity ratio of just 0.08 as compared to 1.2 for the industry as a whole. While many other restaurants have been leveraging up to drive earnings, the company has actually been deleveraging as its debt-to-equity ratio has sharply declined from just over 0.3 four years ago. Texas Roadhouse is also attractive from a valuation perspective. It's currently trading at just 22.8 times trailing earnings, versus 28.1 times for the industry as a whole. Its forward price-to-earnings ratio has also fallen from 24.6 times at the beginning of the year to 21.6 times today. That fall is largely tied to investor worries that the sluggish economy will dent growth at the restaurant chain, but those fears seem misplaced. In the second quarter revenue rose 12% year-over-year to $393.4 million, while sales were up 11% to $792.5 million on a year-to-date basis. Net income for the quarter hit $23.1 million, a 16% increase over the same period last year, while earnings per share rose 17% to 33 cents. Going forward, the company expects sales growth in the mid-single digits while it will spend about $100 million to open 25 new locations here in the US. Two more locations are expected to open in the Middle East by the end of the year and its first Asian location, in Taipei, Taiwan, is also slated to open for business. Analysts are clearly excited by that growth, forecasting that earnings should grow by about 10% annually over the next five years. They expect full-year earnings to hit $1.26 this year and grow 15.9% next year to reach $1.46. That assumed growth seems perfectly reasonable and it wouldn't be unusual for Texas Roadhouse to beat it. Consumer confidence recently hit a 14-month high according to the University of Michigan, hitting 84.6 in September and the government says that gross domestic product grew by 4.6% in the second quarter, its fastest pace in more than two years. Finally, the company has also paid a steadily growing dividend for the past three years, currently 15 cents per quarter of a yield of 2.2%. While that's not a huge yield, there is plenty of room for growth as the company's payout ratio is currently about 40% with steady earnings growth. A great growth and income play that should only gain ground as consumer confidence improves, Texas Roadhouse is a buy under $33. Breaking Energy Update! President Obama is set to do the one thing he probably never dreamed he'd have to: open the Steele City Gateway, a 50-foot tract of land that's holding back 174 billion barrels of oil and 70 trillion cubic feet of natural gas from flowing into our country. Some say it's a result of crafty political maneuvering. Some folks even say it's blackmail. I say, who cares? There's trillions of dollars at stake. If you've never heard of the Steele City Gateway, you're not alone. I'll give you all the lucrative details on this $20 trillion energy passageway when you click here. The Great Natural Gas Grab 9/26/2014 By Richard Stavros Any power utility executive will tell you that the industry has been burned by unexpected natural gas price spikes a number of times over the past 10 years. In some cases, regulators refused to allow the utility to pass on the fuel cost to ratepayers, and investors took the hit in the form of lower earnings. While this does not happen often, when there is widespread consumer outcry over high electric bills as a result of natural gas price spikes, known in the industry as the "French Revolution effect," the relationship with regulators can become so contentious as to materially undermine the utility's earnings profile over a period of years. That's why recent moves by various utilities to develop shale gas pipelines, buy production assets, or even lock in long-term, low-priced natural gas with producers should put those firms in a more favorable light among investors. These physical risk-management strategies will keep costs low, protect profit margins, and allow for incremental increases in capital projects. In fact, federal regulators are encouraging better coordination between electric and natural gas assets. In hearings at the Federal Energy Regulatory Commission in early July, natural gas price spikes during last winter's polar vortex were blamed on a lack of coordination between natural gas pipelines and electric grid operators. Though federal regulators are not advocating mergers and acquisitions by any means, many in the industry see a potential second electric-natural gas convergence wave that may lead to mergers between natural gas and power entities. NextEra Energy Inc's (NYSE: NEE) subsidiary, Florida Power & Light (FPL), offers one recent example of such a move. In June, the utility announced a partnership with PetroQuest Energy Inc to jointly develop up to 38 gas wells in the Woodford Shale region of Oklahoma. In the accompanying filing, the company said the wells would provide 30 years of physical gas and save the firm $107 million over the well's lifetime, since the firm will acquire the gas at the cost of production plus transport charges (as opposed to paying market prices). In conjunction with its shale project, NextEra has proposed a 330-mile natural gas pipeline that would serve the Mid- and South Atlantic region. In an interview with Energy Risk magazine, Sam Forrest, vice president of energy marketing and trading at FPL, said a similar long-term hedge with derivatives would be impossible. He explained that while FPL hedges its near- to medium-term exposure to natural gas prices, typically over a 12-month to 24-month period, hedging many years into the future would incur significant capital and credit costs. Similarly, Dominion Resources Inc (NYSE: DOM) and Duke Energy Corp (NYSE: DUK) announced a partnership in early September to build a 550-mile pipeline that would transport natural gas from the Marcellus and Utica shale regions to fuel new power plants in the utilities' home states of Virginia and North Carolina, respectively. These deals as just the beginning of the beginning: As utilities add more natural gas power plants, they will need greater access to natural gas resources to hedge their commodity risk. Natural Gas Power Generation Will Surpass Coal by 2040 Source: Energy Information Administration The Writing on the Wall These strategic moves couldn't come at a better time. At last year's Edison Electric Institute Financial Conference, one of the most poignant questions was posed by IHS CERA consultant Dr. Lawrence J. Makovich. He asked a CEO panel whether utilities were protected from a rise in natural gas prices, given how wrong so-called experts had been in the past about natural gas abundance. After all, no one can know for sure how natural gas prices will react to increasing resource competition between a growing number of gas-fired power plants, manufacturing plants, and eventual exporters of the commodity. For now, we believe utilities still have a few more years to secure long-term natural gas resources for their gas-fired plant expansions. In early September, research firm Raymond James revised its natural gas price forecasts downward. According to the analysts, "The near-term consequences of this huge gas supply growth is that the US should be able to grow supply faster than demand at gas prices of $4.25 or lower throughout the end of the decade." That being said, the expansion of the technologies that use natural gas will be tremendous. According to a recent Energy Information Administration report, growth in natural gas-fired generation in the power sector will account for 78 percent of the overall increase in use of that fuel through 2040, with manufacturing accounting for the balance. Indeed, natural gas-fired generation is projected to surpass coal-fired generation by 2040. Although this trend is still in its early stages, we believe those utilities that are able to diversify their fuel mix and manage their exposure to commodities prices will be best positioned to produce higher future earnings. This article originally appeared in the Utility & Income column. Never miss an issue. Sign up to receive Utility & Income by email. Why I Love MLPs – and Why You Should, Too I'm still shocked when investors tell me they've never heard of MLPs. But I guess I shouldn't be. There's nothing glamorous about them. They don't make headlines. But what they lack in new-making ability they more than make up for in profits. You see, MLPs are the unsung heroes of America's energy boom. And because of the way they're structured, they're making ordinary investors – like you – extremely wealthy. I've pinpointed six MLPs that are crushing the S&P 500 by 6 times so far this year and outperforming their peers by 5 times. I'll give you all their lucrative details when you click here. The Buck Is Back 9/26/2014 By Philip Springer Remember when various pundits cried that the U.S. dollar would surely forfeit its status as the world's reserve currency, to be replaced by the euro, China's renminbi or gold? This week, the long-undervalued greenback rose against a broad basket of other major currencies for the 10th consecutive week, its longest winning streak in more than 17 years. The dollar is now trading at a four-year peak against the currency group. The buck climbed to 109.35 against the Japanese yen on Thursday, near its strongest level since September 2008, and to a two-year high against the euro. Emerging-market currencies also have been weakening relative to the dollar. There are several reasons that the dollar has now emerged as the preferred currency for global investors. First, the U.S. economy is strengthening, in sharp contrast to the other developed nations, notably the 18-nation euro zone and Japan. An improving economy typically leads to higher interest rates, which make a currency more attractive to yield-seeking investors. Today, the Commerce Dept. reported that the U.S. economy expanded at an annual rate of 4.6% in the second quarter, in the third and final estimate. This was even better than the 4.2% estimate of a month ago and the fastest pace in more than two years. A solid rebound is expected to continue for at least the rest of 2014. Consensus expectations are for 3% growth in the current third quarter. Second, the Federal Reserve has almost ended in quantitative-easing, bond-buying program. And it's gradually moving toward a tighter (but still easy) policy. Again in contrast, Europe and Japan are fully engaged in their own developing or fully developed QE2 programs, which effectively lower interest rates and currency values. Third, U.S. Treasury securities already pay significantly higher yields than those of other major government bonds. Here are the current yields for 10-year government issues: U.S.: 2.5% United Kingdom: 2.4% Italy: 2.3% Canada: 2.1% France: 1.3% Germany: 1.0% Switzerland: 0.5% Japan: 0.5%. All told, the current move by investors into the long-undervalued dollar reflects our relatively good U.S. economy, reduction of federal deficits and an improving trade balance, aided particularly by a boom in energy exports. Yesterday, the euro dropped to below $1.27 following weak business-activity data in the euro zone. Contributing to the euro's decline was more comments from European Central Bank president Mario Draghi that the ECB is considering additional unconventional policy actions in an attempt to stabilize Europe's weak economy and prevent deflation. The ECB's statements and actions are widely considered an attempt to drive down the value of the euro. A weak currency makes exports less expensive, a relatively easy way to spur growth in the troubled euro zone. The dollar's move against the yen has been the most striking, up 7% in two months. In Japan too, a weak currency is a linchpin of aggressive efforts to revive a weak economy. What's more, Japan carries perhaps the largest government debt load in the world, 227% of the nation's sluggish-growth economic output. Pros and Cons The newfound, and overdue, strength of the dollar has pros and cons. But the former outweigh the latter, in our view. First, a rising currency dampens inflation and lowers the cost of imports. And it reduces the prices we pay for many commodities, which typically are priced in dollars on world markets. For example, the recent decline of world oil prices stems from the greenback's rise as well as a generally weakening global economy. A rising dollar should also fuel increased investment in both our financial markets and the real economy. And a strong greenback is a plus if you happen to travel overseas. Among the negatives, a climbing dollar reduces the returns to U.S. investors from foreign investments. However, the investment world outside the U.S. already was less attractive than domestic investments in most cases, as we've long advised. The better dollar also is a negative for large multinational companies that generate much of their revenues abroad. So this can dampen the reported earnings of many big U.S. companies. However, the greenback has been down so long that the latest upward move so far remains relatively modest. For example, the current value of the trade-weighted U.S. dollar index is still more than 25% below its level of 10 years ago. On a short-term basis, the dollar likely is overbought, meaning it has risen too quickly to sustain its current pace. So there could be a pullback. But once currency trends get started, they can last for a long time.   This article originally appeared in the Mind Over Markets column. Never miss an issue. Sign up to receive Mind Over Markets by email. Canada Seizes North Pole You may not have heard the news that Canada recently laid claim to the North Pole. It didn't get a lot of press on this side of the border. But it should have. It's one of the largest land grabs since the Louisiana Purchase. The motivation behind this move has little to do with nationalism and everything to do with a vast new oil and natural gas field. It's created a stir with their Arctic neighbors, Russia. It's also created an unprecedented profit-making opportunity. I'll give you the full story, along with seven companies sure to profit from this situation, when you click here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2014 Investing Daily. 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