One of the more persuasive pieces of Benjamin Graham's logic that I have encountered is the notion of buying stocks that are so attractively valued that, even if future growth is not particularly impressive, you can still achieve satisfactory returns. And if the future growth does conform to your expectations, well, you'll end up making a lot of money.
There are different ways that you can try to implement this strategy, but my preferred method is to follow the Peter Lynch approach of looking for companies that have a much better underlying economic reality than the prevailing reputation suggests. One such company that fits this criterion is BP (BP).
We all know the story of what happened with BP over the past few years. The oil giant had spent the 1990-2010 generation building a reputation as one of the no-brainer blue-chip investments, eventually becoming the source of 10% of the
Head Full of Steam
Kodiak Oil & Gas (KOG) began the year in an expansive mood, with capital expenditure waiting to be unrolled as the company initiated its own variation on the plug-n-perf methodology for successful fracking in its Polar well series, which saw their production numbers climb despite the introduction of 2 additional wells into the normal mixture of six they had traditionally drilled in each spacing, completion costs that were continuing to drop as completion times diminished into the 17-19 day range, and strengthening oil prices globally rose on the lack of Libyan production, closure of the gap between WTI and Brent, and the promise of a refinery and infrastructure shortfall for light sweet crude in the United States. The entirety of these forecast events has transpired for KOG, and the stock price has reached 52 week highs in the past months, only to be battered down sharply
Royal Dutch Shell (RDS.A, RDS.B) is a favorite stock among dividend investors, including myself. The company has an outstanding track record and provides a stable dividend yield for investors. Shell announced ambitious mid-term financial targets to maintain the attractive dividend payments in the future. This plan includes a free cash flow and capital expenditures during the period 2012-2015. Shell is almost half way the mid-term time frame and I conclude that the company is not on track to achieve the mid-term financial targets, caused by production setbacks, for example: shale gas production within the United States. Further, Shell spent more on capital expenditures than expected, for example: the purchase of Repsol's (OTCQX:REPYY) liquefied natural gas portfolio. Shell is still able to achieve their mid-term targets, because it took several precautionary measures to achieve their mid-term financial targets.
Shell disclosed their mid-term financial targets on their corporate website (see