Energy

Current Holdings

• Energy Sector– 4.8%– $3,808.52

• Exxon Mobile (XOM): Integrated Oil & Gas– 2.8%– $2,214.52

• Weatherford Int’l (WFT): Oil Related Services– 2%– $1,594.00

Areas of Interest

• Coal– Peabody Energy

• Oil & Gas Drilling– Helmerich & Payne– Nabors Industries

• Oil & Gas Refining/Marketing– Valero Energy

Peabody Energy Intro• Peabody Energy Corporation, incorporated in 2001, is a coal

company. The Company owns majority interests in 28 coal mining operations located in the United States and Australia. In addition to mining operations, it markets, brokers and trades coal.

• It operates in four segments: its three mining segments and Trading and Brokerage segment. The three mining segments are Western U.S. Mining, Midwestern U.S. Mining and Australian Mining.

• Its fifth segment, Corporate and Other, includes mining and export/transportation joint ventures, energy-related commercial activities, as well as the management of its coal reserve and real estate holdings.

Peabody Energy Fun FactsCriteria Requirements: BTU Industry Good or BadSolvency and Financial Leverage Ratios:Current Ratio > 1 2.08 1.52 GoodDebt Ratio < Industry Average 47.31 5.4 BadEfficiency Ratios:Total Asset Turnover > Industry Average 0.67 0.79 BadInventory Turnover > Industry Average 14.53 2.42 GoodProfitability Ratios:Net Profit Margin > Industry Average 12.77 21.13 BadReturn on Asset (ROA) > Industry Average 9.84 36.63 BadReturn on Equity (ROE) > Industry Average 19.38 38.52 BadGrowth Ratio (5 years):Historical EPS Growth > Industry Average 38.55Historical Revenue Growth > Industry Average 15.33 0.7 GoodProjected EPS Growth >10%* and > industry Average 29.6 -82.8 GoodOther Informative Data:P/E 11.3P/B 1.76PEG 0.28Fair Value Estimate 55 58.92Current Price (10/17/2011) 39.23Purchase PriceDividend 0.34Dividend Yield >2%** 1 1.24 BadShares Owned

Peabody Energy SWOT

• Strengths– Large Coal Reserves– Australia Operations– Economies of Scale

• Powder River Basin Coal (PRB)

• Weaknesses– McArthur Acquisition

• Highly Leveraged

• Opportunities– Current Robust Coal

Prices– PRB Coal Reserves

• Less Sulfur content

• Threats– Coal Price Uncertainty– Weak US coal demand– Potential slow in Asian

economies

Peabody Energy Chart & Valuation

• Yahoo! Chart• Current Price: $39.23• Morningstar– Fair Value: $55.00– Consider Buy: $33.00– Consider Sell: $85.30

• NEV/EBITDA (25%/45% M.O.S.)– Fair Value: $58.92– Consider Buy: $44.19– Consider Sell: $85.43

BTU News

• Best Values In Coal Mining Group That May Outperform In A Recovery – Seeking Alpha

• A$9 Billion Coal Port Expansion Approved in Australia– Bloomberg

• Move by central banks exhilarates Wall Street– AP

Helmerich & Payne Intro• Helmerich & Payne, Inc., incorporated on February 3, 1940, is

engaged in contract drilling of oil and gas wells for others.• The Company’s contract drilling business consists of three business

segments: U.S. land drilling, offshore drilling and international land drilling.– Its United States land drilling is conducted primarily in Oklahoma,

California, Texas, Wyoming, Colorado, Louisiana, Mississippi, Pennsylvania, Utah, Arkansas, New Mexico, Alabama, Montana, North Dakota and West Virginia.

– Offshore drilling operations are conducted in the Gulf of Mexico, and offshore of California, Trinidad and Equatorial Guinea.

– During the fiscal year ended September 30, 2010 (fiscal 2010), its international land segment operated in seven international locations: Ecuador, Colombia, Argentina, Mexico, Tunisia, Bahrain and Venezuela.

Helmerich & Payne Fun FactsCriteria Requirements: HP Industry Good or BadSolvency and Financial Leverage Ratios:Current Ratio > 1 2.3 1.87 GoodDebt Ratio < Industry Average 10.7 174.1 GoodEfficiency Ratios:Total Asset Turnover > Industry Average 0.55 0.44 GoodInventory Turnover > Industry Average 29.29 17.19 GoodProfitability Ratios:Net Profit Margin > Industry Average 17.07 135.72 BadReturn on Asset (ROA) > Industry Average 9.35 6.69 GoodReturn on Equity (ROE) > Industry Average 14.3 15.2 BadGrowth Ratio (5 years):Historical EPS Growth > Industry Average 44.05 22.96 GoodHistorical Revenue Growth > Industry Average 25.37 21.71 GoodProjected EPS Growth >10%* and > industry Average 14.5 13.2 GoodOther Informative Data:P/E 14.29P/B 1.73PEG 0.47Fair Value Estimate 74 55.97Current Price (10/17/2011) 56.96Purchase PriceDividend 0.28Dividend Yield >2%** 0.5 BadShares Owned

Helmerich & Payne SWOT

• Strengths– FlexRigs

• Premium Technology• Lower Cost

– Large Corporate Customers

• Weaknesses– Poor Venezuelan

Operations– Poor investment

portfolio

• Opportunities– FlexRigs well suited for

horizontal drilling

• Threats– 60% of sales from top 10

customers

Helmerich & Payne Chart & Valuation

• Yahoo! Chart• Current Price: $56.96• Morningstar– Fair Value: $74.00– Consider Buy: $44.50– Consider Sell: $114.70

• NEV/EBITDA (25%/45% M.O.S.)– Fair Value: $55.97– Consider Buy: $41.97– Consider Sell: $81.15

HP News

• Commodity Trends: Raw Material Stocks Are Outperforming – Motley Fool

• 7 Relative-Strength Trades to Beat the Market in 2012– CNBC

• These Beaten Down Oil Services Companies Are Ready For A Christmas Rally – Seeking Alpha

Nabors Industries Intro

• Nabors Industries Ltd. (Nabors) is a land drilling contractor and a land well-servicing and workover contractor in the United States and Canada.

• As of December 31, 2010, the Company marketed approximately 550 land drilling rigs for oil and gas land drilling operations in the United States Lower 48 states, Alaska, Canada, South America, Mexico, the Caribbean, the Middle East, the Far East, Russia and Africa.

• As of December 31, 2010, the Company marketed approximately 555 rigs for land well-servicing and workover work in the United States and approximately 172 rigs for land well-servicing and workover work in Canada.

Nabors Industries Fun FactsCriteria Requirements: NBR Industry Good or BadSolvency and Financial Leverage Ratios:Current Ratio > 1 1.8 1.87 GoodDebt Ratio < Industry Average 76.54 174.1 GoodEfficiency Ratios:Total Asset Turnover > Industry Average 0.48 0.44 GoodInventory Turnover > Industry Average 18.6 17.19 GoodProfitability Ratios:Net Profit Margin > Industry Average 4.99 135.72 BadReturn on Asset (ROA) > Industry Average 2.4 6.69 BadReturn on Equity (ROE) > Industry Average 5.24 15.2 BadGrowth Ratio (5 years):Historical EPS Growth > Industry Average 714.51Historical Revenue Growth > Industry Average 59.61 7.32 GoodProjected EPS Growth >10%* and > industry Average 53.7 13.2 GoodOther Informative Data:P/E 13.03P/B 0.85PEG 0.49Fair Value Estimate 34 33.92Current Price (10/17/2011) 17.94Purchase PriceDividend -Dividend Yield >2%** -Shares Owned

Nabors Industries SWOT

• Strengths– Pressure Pumping

Operations• “Fracking”

– 2/3 of rigs are new• premium

• Weaknesses– Excessive Executive

Compensation

• Opportunities– Ability to secure major

contracts in Mid East– Well positioned in shale

gas boom

• Threats– Struggling Int’l

Operations– Weak asset value in oil &

gas properties– Low barriers to entry

Nabors Industries Chart & Valuation

• Yahoo! Chart• Current Price: $17.94• Morningstar– Fair Value: $34.00– Consider Buy: $17.00– Consider Sell: $59.50

• NEV/EBITDA (25%/45% M.O.S.)– Fair Value: $33.92– Consider Buy: $25.44– Consider Sell: $49.18

NBR News

• Energy Stocks: Winners and Losers– The Street

• 6 Undervalued Oil Stocks That Analysts Expect To Double In 2012 – Seeking Alpha

• Nabors shareholders are looking for payback– CNN Money

Valero Energy Intro• Valero Energy Corporation (Valero), incorporated in 1981, is a North

America’s independent petroleum refiner and marketer.• As of December 31, 2010, the Company owned 14 petroleum

refineries, which were located in the United States, Canada and Aruba. The Company’s refineries can produce conventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products, as well as a slate of premium products.

• The Company also sells refined products through a network of about 5,800 retail and wholesale branded outlets in the United States, Canada, and Aruba.

• Valero also owns 10 ethanol plants in the Midwest with a combined ethanol production capacity of about 1.1 billion gallons per year. It operates in three segments: refining, ethanol and retail.

Valero Energy Fun FactsCriteria Requirements: VLO Industry Good or BadSolvency and Financial Leverage Ratios:Current Ratio > 1 1.36 0.31 GoodDebt Ratio < Industry Average 45.92 25.67 BadEfficiency Ratios:Total Asset Turnover > Industry Average 2.87 0.52 GoodInventory Turnover > Industry Average 20.71 3.49 GoodProfitability Ratios:Net Profit Margin > Industry Average 1.97 7.5 BadReturn on Asset (ROA) > Industry Average 5.65 1.34 GoodReturn on Equity (ROE) > Industry Average 13.93 3.95 GoodGrowth Ratio (5 years):Historical EPS Growth > Industry Average 296.33 9.9 GoodHistorical Revenue Growth > Industry Average 45.57 29.9 GoodProjected EPS Growth >10%* and > industry Average -13.8 13.2 BadOther Informative Data:P/E 7.93P/B 0.72PEG 0.12Fair Value Estimate 28 30.96Current Price (10/17/2011) 22.27Purchase PriceDividend 0.6Dividend Yield >2%** 3 GoodShares Owned

Valero Energy SWOT

• Strengths– Ability to process cheap

crude– Can pass costs along

retail network– Economies of Scale

• Weaknesses– Not integrated

• Does not produce crude

• Opportunities– Pipeline projects for

heavy crude– WTI-margin exposure

• Threats– Slow US economic

growth– Alternative Fuels– Narrowing of heavy

crude discount

Valero Energy Chart & Valuation

• Yahoo! Chart• Current Price: $22.27• Morningstar– Fair Value: $28.00– Consider Buy: $14.00– Consider Sell: $29.00

• NEV/EBITDA (25%/45% M.O.S.)– Fair Value: $30.96– Consider Buy: $23.22– Consider Sell: $44.89

VLO News

• U.S. Nears Milestone: Net Fuel Exporter– WSJ

• Dividend Alert: Valero Triples Its Payout– Seeking Alpha

• Valero Energy Trades Substantially Below Intrinsic Value – Seeking Alpha

Relative ValuationProfitability Ranking Activity Rating Leverage Rating EPS Growth Rate Weighted Rank Financial Rank P/E Rank

Peabody Energy 3 5 4 5 4.4 3 4 undervalued

Valero 6 1 5 2 3.2 1 7 undervalued

Plains All American Pipeline 7 2 8 3 4.6 5 2 overvalued

Helmerich & Payne 5 6 1 4 4 2 3 undervalued

Diamond Offshore 1 7 2 7 4.8 6 6

Trina Solar 2 4 7 8 5.8 8 8

Conoco Phillips 4 3 3 6 4.4 3 5 undervalued

Nabors Industries 8 8 6 1 4.8 6 1 overvalued

ROE TA t/o D/E Ratio Hist. EPS Growth Y/Y P/E

Peabody Energy 19.38 0.67 47.31 38.55 9.91

Valero 13.93 2.87 45.92 263.68 5.42

Plains All American Pipeline 13.89 2.4 103.29 86.09 15.41

Helmerich & Payne 14.26 0.55 10.7 50.05 13.53

Diamond Offshore 25.4 0.51 35.11 2.65 8.09

Trina Solar 23.04 0.91 82.97 -25.24 3.17

Conoco Phillips 16.4 1.56 35.18 10.4 8.62

Nabors Industries 5.24 0.48 76.54 714.51 17.1

Recommendations• Peabody (5/10)

– Int’l exposure– Large reserves

• Helmerich & Payne (8/10)– Competitive Advantage– Large Customers

• Nabors (7/10)– Largest Growth Potential– Shale Gas

• Valero (8/11)– Most Undervalued– Competitive Advantage– Good Dividend

• Purchase Two companies from different subsectors

• Growth: Nabors & Peabody– International Risk– Higher Leverage

• Safe: Helmerich & Valero– Lower Leverage– Competitive advantages

• Mixture: 1 Safe & 1 Growth• $4,000 in 2 stocks ~ 5% of

portfolio