Total- An Inflation Hedged Income Opportunity?
Total SA, the large French oil company, is currently just above its 52-week trading low of $49.78. Total, who's symbol is TOT, is trading at $50.34 per share with a dividend according to a 5/5/10 CNBC.com quote of $3.09 per share or around 6.07%. That is a nice spread over the new low yield offered by the 10-year Treasury Bond of around 3.55%, and close to spreads seen on junk bond rated senior bank loans. The yield is pretty nice in my opinion, but how is Total Valued?
Total has around $22.5 billion in long-term debt and around $17.5 billion in cash and short term investments, and this gives us around $5 billion of net debt ( There are around 2.223 billion shares outstanding or around $2 dollars and change of debt per share.). If we take Total's current stock price and add in the debt per share we see that the enterprise value comes to around $52 to $53 dollars per share.. Market Watch puts the median earnings estimates for this year at $6.06 per share and next year at $6.70 for earnings yields of around 11.65% and 12.64%, which of course was after Total paid taxes of around 55%. Pretty good earnings yields in my opinion. Looking again at current interest rates and where interest rates are likely to go over the intermediate term, I think the valuation/earnings yield of Total looks pretty good in my opinion, but what about yours?
If inflation unexpectedly kicks up or just comes along which a lot of smart people (i.e. Buffett) think is a likely outcome over the next few years given our elected officials lack of ability to do the right thing then one would expect the dollar to again fall and things like real assets like commodities to rise in value. Thus, I believe an important commodity like oil is likely to rise as well and give investors a possible hedge against inflation. What do you think? Of course Total isn't the highest yielding oil stock (Think BP) but of course they don't have a geyser of oil spill into the Gulf of Mexico either. Any feedback welcomed. Thanks have a great day.