First, we saw a relatively steep decline in Holly Frontier Corp. (HFC). Holly is a US based oil and gas refiner. US based refiners have benefitted from the shale oil boom in the US as the new supply has kept their input (oil) at a lower price than their overseas competitors and supported their refining margins. On Thursday, the WSJ trumpeted a recent Obama administration decision to allow the export of certain light oils as the potential end to the US oil export ban which has been in place since the OPEC oil embargo in the late 70’s. Such a decision would potentially be damaging to refiners as it would theoretically raise input prices for them. However, we believe this is mostly noise at this point. A full scale end to the export ban would be a political hot potato particularly heading not election season and with Obama as lame duck and already coming under pressure for the scope and number of executive orders he has issued. We would potentially look to add to our position here once the dust settles.
Second was more positive news from one of our more volatile holdings, Apollo Group (APOL). Apollo is the operator of the University of Phoenix on and off line education programs. This is a name where most clients already have a significant gain and which has been volatile in recent months on continued concern over government regulation and on short sale rumors. The company reported their fiscal second quarter last week and beat the streets expectations on all metrics. With an extremely strong balance sheet and compelling free cash flow yield we believe the stock remains attractive. This could be especially true if the current momentum puts the squeeze on the stock’s sizable short position.
This week should be quiet as we head into a half day of trading on Thursday and a holiday on Friday.