By Pete Carmasino, chief market strategist, Chaikin Analytics
Everyone knows Enron is one of the biggest corporate failures in U.S. history... The company's stock peaked in August 2000. Its market cap was about $70 billion at the time. And leading up to that peak, everything seemed to go right for Enron... The company became the largest natural gas supplier in North America in the early 1990s. Then, just before the turn of the century, it went digital with EnronOnline... Nearly every energy-related business in the U.S. used the Internet-based trading operation for futures contracts. Through the end of 2000, companies made 548,000 transactions for roughly $336 billion on EnronOnline. It was the world's biggest e-commerce system. And yet, the story of Enron that we all know is one of greed and arrogance... The company's leaders thought they were the "smartest guys in the room." That phrase was used in the title of a 2003 book and 2005 documentary after everything came unraveled. Enron founder Kenneth Lay, CEO Jeffrey Skilling, and others believed they could get away with anything. Among other things, they used accounting tricks to lie about the company's revenue. The pressure from their lies caused one former executive to take his own life. And countless other people were wiped out financially. The company had roughly $63.4 billion in assets when it went bankrupt in December 2001. That made it the worst corporate bankruptcy in U.S. history until WorldCom the next year. Aside from lying about the business, Enron's leaders engaged in market manipulation that caused rolling blackouts in California in 2000 and 2001. Its traders would drive up the cost of energy by literally calling power plants and telling them to shut down for a few hours. That would cause an electricity shortage. In turn, prices would rise. And eventually, Enron would step in and sell electricity to the desperate citizens of California at elevated prices. You see, the company's leaders would buy a massive amount of power just before messing with the market. And they would sell the power back to the grid after creating the shortage. The company's market manipulation messed with everything from homes to traffic lights. It even led to the death of a man whose dialysis machine lost power in a California hospital. Enron was the epitome of corporate greed and arrogance. But I bet you didn't know the smartest guys in the room made their dumbest deal just before it all collapsed. And it shows the power of a "boring" business...
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Stocks Don't Have to Be Exciting to Generate Big Returns
In 1999, management spun off a part of the company that has grown into a huge winner for investors over the past two-plus decades. This business is now worth roughly $65 billion. Before separating from the parent company, this business was called Enron Oil & Gas. Today, it's known as EOG Resources (EOG). Unlike Enron, this company has real assets. It's not in the business of energy trading. And it doesn't use any accounting tricks to fool investors. When the smartest guys in the room spun off EOG Resources, their intentions were clear... They didn't think that part of the company meshed with their core business model. In short, they wanted to try to keep making money from trading energy – not producing it. What a dumb move... I looked at what a $10,000 stake would be worth if you would've bought and held EOG shares in January 2000. That's the first full year after the company separated from Enron. Your $10,000 investment would be worth roughly $388,000 today. The outperformance is astounding, too. EOG Resources has returned more than 15% per year in that span. And the benchmark S&P 500 Index's average annual return is less than 8%. So if you would've instead put your $10,000 into the index-tracking SPDR S&P 500 Fund (SPY), it would be worth about $67,000. That's significant outperformance. Take a look...
Now, I'm not saying you should run out and buy EOG today... The company's stock has struggled this year. And right now, it's in "neutral" territory in the Power Gauge. But the company's success proves an important point in investing... Sometimes, a "boring" business can be an incredibly profitable investment – even when flashier companies get the big attention. Good investing, Pete Carmasino
Marc Chaikin: 'Ask Me Anything'
In August, Marc Chaikin is doing something he has never done before. After a wild six months for stocks, Marc knows you may have many lingering questions. So, he'll be going on camera – NOT to discuss a specific opportunity, but instead to devote his time to answering YOUR most pressing questions.
But to do that, we need to hear from YOU. If something is keeping you up at night (whether it worries or excites you), we want to hear from you. Marc will answer as many questions as possible during his "Ask Me Anything" event next month.
— According to the Chaikin Power Bar, Small Cap stocks are somewhat more Bullish than Large Cap stocks. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Real Estate
+0.87%
Industrials
+0.34%
Information Technology
+0.34%
Consumer Discretionary
+0.24%
Utilities
+0.16%
Consumer Staples
-0.58%
Communication
-0.7%
Financial
-0.74%
Health Care
-0.92%
Energy
-2.19%
Materials
-2.61%
* * * *
Industry Focus
Aerospace & Defense Services
27
9
1
Over the past 6 months, the Aerospace & Defense subsector (XAR) has outperformed the S&P 500 by +21.10%. Its Power Bar ratio, which measures future potential, is Very Strong, with more Bullish than Bearish stocks. It is currently ranked #4 of 21 subsectors.
Top Stocks
ACHR
Archer Aviation Inc.
AIR
AAR Corp.
WWD
Woodward, Inc.
* * * *
Top Movers
Gainers
GPN
+6.51%
JNJ
+6.19%
APO
+4.8%
OMC
+4.62%
WBD
+4.57%
Losers
ANSS
-4.69%
VST
-3.78%
VLO
-3.77%
UHS
-3.76%
PSX
-3.59%
* * * *
Earnings Report
Earnings Surprises
GS The Goldman Sachs Group, Inc.
Q2
$11.24
Beat by $1.62
PLD Prologis, Inc.
Q2
$0.61
Missed by $-0.12
PGR The Progressive Corporation
Q2
$4.88
Beat by $0.45
PNC The PNC Financial Services Group, Inc.
Q2
$3.85
Beat by $0.29
MS Morgan Stanley
Q2
$2.13
Beat by $0.15
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This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
