We are sitting at 10% cash in our retirement account and we will be looking at putting that cash to work over the next month as we have mentioned before. We like to do long-term investing in that account, but this morning want to mention some of the short-term ideas we are looking at currently.
Oil & Natural Gas
We are going to hit on a few oil and natural gas plays this morning with two we would be buying, one waiting to come into the buy range and a third which it appears is headed lower in the short-term, but still has long-term potential. The two buys are not our favorite two buys in the sector, but they sure look attractive at these prices.
Chesapeake Energy (CHK) fell $0.46 (2.73%) to close at $16.39/share yesterday. Volume was 22.2 million which was above the three-month daily average. The stock has a 2.1% yield and we think that at the current price and with that yield, this is a great way to play the move from dry natural gas towards natural gas liquids and oil. The thinking here is that this is a good entry point as the market once again seems to dislike the stock, but a rebound is inevitable as commodity prices rebound. Remember, this past quarter we learned that Chesapeake placed hedges back on for their dry natural gas production so a good portion of the company's production is now hedged and they are impacted far less by volatility in the commodity trading pits than they were just a few months ago. Of course, for full disclosure we have been bullish from these low prices up to the low $20s, so that is something to consider.
Many, from Wall Street analysts to message board trolls, like to bash SandRidge Energy (SD) and their business plan and performance. No one was bashing them as the stock rose to $60/share a few years ago, but since the fall, everyone has suddenly become an expert. First, at current prices we see support at the $5/share level and think that based on that long-term support that we may have already put in the bottom. The stock will become a bit more volatile should the company succeed in unloading its Permian assets, a move we applaud. The company has a history of buying assets at a discount and building them up and creating premiums. Successful people in the industry do this, and CEO Ward would most certainly be in that group regardless of what one may think of the man. By selling the Permian assets now, the company will unlock the premium they have created there and be able to take their investment back out of the play along with their realized cash gain and redeploy it in the Mississippian play and make that land position more valuable. Yes production is lost and production growth slows with that transition, but long-term this looks like it will work so long as oil prices do not crash and natural gas prices remain stable.
Waiting on CONSOL
We have watched CONSOL Energy (CNX) for some time and believe that should the shares fall back below the $30/share level, they are a buy. One should not buy an entire position right away but average into one as we see the potential for another 10% downside and think that investors will potentially get a window to purchase shares between $27-30/share in the near future. With the natural gas and coal exposure, we think that this would be intriguing to play for a rebound in America, in China and worldwide.
Sell in November and Remember for December?
Readers know we have been bullish of Kodiak Oil & Gas (KOG) for some time. It is a trader favorite and has plenty of volatility and liquidity which in our book is quite favorable for certain strategies we use to deploy our capital from time to time. Shares yesterday fell $0.37 (4.20%) to close at $8.44/share on volume of 7.9 million shares. The shares were unable to break above $9/share and that is one of those levels which in the past has been fairly accurate in predicting the direction of the stock. That is if we broke through it we went higher, falling through it we went lower. We also fell below some other levels which we watch, and if we do not move back towards $9 and break through, then we would be in the camp which believes that shares are headed lower (although that would be for the near-term with the belief that they recover to prosper in the long-term). We would want to be long here for the end of the year and if this flair up in the Middle East begins to get serious enough to push energy prices higher.
The fallout continues at AK Steel (AKS) after investors were hit with the announcement of poor results coupled with the bombshell that the company would also sell shares to raise cash. Shares are now below that offering price of $4/share with the stock having closed at $3.63/share after falling $0.39 (9.70%) on volume of 51.8 million. It is on the short list of one of our least favorite steel plays, if not THE least favorite, and although we have agreed with the recent price action we think that the latest downturn might be more a function of the so called smart money, or big money, playing financial games. Secondaries are always accompanied by people and funds going long to go short and playing the fall. For case studies on this, simply look at some of the smaller commodity players north of the border and you can quickly educate yourself on some of the plays in professional players' playbooks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: No plans to initiate in the next 72 hours, but quite possibly over the next three trading sessions depending upon market action.