Saturday, August 18, 2007

Dykstra on McDermott (MDR)

Lenny Dykstra, ex baseball player, and apparently investor extraordinaire apparently shares my views on MDR, as opined in his post

Since it is in the free area of the website I will post some of the blurbs:

My pick today is getting cheap enough to become a possible takeover target: McDermott International

McDermott is one of those companies that define fundamental strength; its balance sheet is about as good as it gets. Its second-quarter earnings tripled from the same period a year ago, with net income increasing to $149.4 million, from $47 million. The result easily surpassed estimates on Wall Street, as revenue rose to $1.42 billion from $1.05 billion last year, beating analysts' forecast of $1.39 billion.

McDermott's customers are utility companies, oil companies and the U.S. government. The U.S. Energy Department recently renewed its contract with them to maintain the nation's strategic crude oil reserve. The $600 million contract will provide needed protection against disruptions in the oil market.

In April I raved about the company's strong return on equity. That ROE provides a great measure of how well a company generates profits. McDermott's ROE continues to be outstanding, currently at an amazing 117%. This means that for each $1 of equity, McDermott generates $1.17 of profit. Additionally, it has booked $5.21 billion in revenue and $1.12 billion in cash, and it has zero debt.

Dykstra had a limit order to buy 10 November 60 calls, thereby controlling 1000 shares of MDR. This is a leveraged way to play the stock and could work out very well - his target was $12 for the calls so I am unsure if he got them or not.

MDR continues to be the #1 holding in the fund at >5% and a large holding in my personal portfolio.

Long MDR

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