Investors fled commodities again yesterday and unless the economic data can convince them otherwise they may very well take it down today too. We have had a bunch of emails lately asking about long-term investing opportunities here, and yes, we agree that many of the names we follow are at attractive long-term entry points. We would feel comfortable with readers deploying retirement money or accounts where the principal will not be needed for a few years into some of the oil and natural gas plays and the railroads at this time. We like both of those options at these levels and if coal were to fall back a bit more we could bless that investment as well (for long-term purposes).
Oil & Natural Gas
Another one of our Utica plays we follow, Rex Energy (REXX), saw shares rise yesterday after receiving an analyst upgrade the day before with a price target increase. It says a lot when a company can buck the trend and finish green when the rest of the market is flashing red, and we think that the groundwork is just now being laid for these plays to set up for a nice rally in 2013. We like the company's general location in the wet gas window and think that they are going to have a company maker property on their hands. The wet gas will also increase their margins and help diversify the company's revenue streams - moving away from dry natural gas and towards the more profitable natural gas liquids.
Iamgold (IAG) is the latest gold company to miss its mark on its latest quarterly results. Shares fell $2.89 (19.45%) to close at $11.97/share as the company missed solidly on Wall Street's expectations for both revenues and earnings. We are invested currently in a few small resource companies with exposure to gold, silver and other precious metals and that is where our exposure to this area comes from via equities. Those are plays for grand slam returns but for our realistic expectations regarding physical precious metals we own both gold and silver in physical lots for long-term investments. Right now it seems that it is too risky to try to gain this exposure via the equity market unless of course one was playing the ETFs and that would be equivalent to owning the physical 'stuff'.
AK Steel (AKS) saw shares get hit again yesterday as the company was pricing their secondary they announced along with their current quarterly earnings this week. Shares closed at $4.02/share, having fallen by $0.48 (10.67%), but never fell below $4/share which is where the secondary was eventually priced. The only good news here is that shares were able to maintain the $4/share level yesterday although we feel that today we will probably see the stock look to head lower as markets look like they are in for a rough day.
Coal continues to come under pressure, and Arch Coal (ACI) is one of those suffering the most since the election correction began. Yesterday the stock fell through the $7/share level and closed at $6.59/share after falling $0.44 (6.26%) on volume of 15.9 million. We are hardly surprised by this pullback considering the current market action, but would like to point out to our traders that when these finally do bounce back, it will be strong and fast. Then the bears will return unless we get good news on the fiscal cliff which would take the entire market higher.
The rail stocks have continued to fall as economic worries persist and coal continues to be scrutinized while shipments are scaled back. CSX (CSX) saw shares close at $19.59/share yesterday after setting a new 52-week low intraday. We think that the rails and coal are interlinked and one will not bounce without the other. Sure the rails could see the other segments of their business pick up first, but coal is a large amount of traffic for some of the lines and we think that alone will weigh on the industry as a whole moving forward. With oil in the Bakken moving to pipelines that are being completed it is hard to see where new capacity demand will come from if not from coal. For retirement portfolios we like the rails at these levels now.