August Tranche - WNR, ORCL and RPXC

Time to think about some further MFI stocks for upcoming tranche.

WNR - I had a great run with HFC and MPC in this space a year ago.  Can lightening strike twice?  Refiners are very strange.  They are largely dependent on crack spreads, which seem to contract and widen all the time at random, though I am sure there is some pattern.  So when crack spreads are wide, they look great in MFI, but there is not so much certainty that will continue in the future.  But there may also be larger macro issues at play.  The US is supposed to be energy independent by 2020.  I can only assume that we will be refining that oil and gas to give us independence here, so it seems there is a secular trend to more demand for refiners.  I also know that no new refineries have been built for at least a decade.  That stat is always a bit misleading as refineries already in existence have expanded production capacity.

Western is trading at a trailing multiple of under 6 and a forward under 7.  They are a bit debt heavy as they had an acquisition several years ago that was frankly a bit costly. But they have really repaired the balance sheet.  Two years ago they had $60m of cash and they now have $450m. Two years ago they had a bit over $1b in LT debt.  They have halved that and are now at $500m.  Of course, they were hurting so much two years ago that they spent all of 2010 in single digits, dropping a bit under $5 a share ($26+ now).  Hmmm, doing a bit more research.  I think this graph explains why refiners are a poor investment right now ( a chart of this spread here). Next.

ORCL - I have owned MSFT, CSCO, AAPL and INTC.  Why not Oracle?  Software companies can be great as once a company is using your software, it is very sticky as it is a total pain in the neck to switch.   They seem pretty cheap, trading at just 10x next year's projected earnings. Cash - debt is over $14b. Balance sheet is a little ugly, they have acquired a number of companies and built up $27b of good will.  So while stockholder equity is $44b, TBV is only $10b.  They pay a 1.6% dividend, which may increase over time. I know Larry Ellison is a bit larger than life.  He was close friends with Steve Jobs and when their families would get together, Steve Jobs' children called Ellison their dad's "rich friend".  I gotta think ORCL makes it to the next cut.

RPXC - this is a patent troll firm.  Not my favorite way to make a buck, but it is at least legal.  As you might expect, capital costs are low.  They just need to own intellectual property and then have a bunch of lawyers to enfore the patents.  They have a ton of excess cash ($280m).  These firms can be hot and cold.  TSRA and IDCC have run on hard times of late.  They often get big one time payments and then things peter out, so the past is not always a great predictor.  You know, now that I read about them a bit more, they are not the typical patent troll firm.  They appear to be trying to lease them out and build a steady income stream (A Bullish Case For RPX: A Play On Patent Wars).   I like that model more.  I think they should be potentially considered in next round.

So surviving to R2: ORCL, RPXC, AAPL, FLR, NSU, CF, KLIC and CYOU. So I have to pare 8 to 5.  Should be doable.  Will keep eye out for any late bloomers.