Commodities had a decent day yesterday, and some of the names we pointed out in yesterday's article also turned in solid days which surprised us to an extent. It simply demonstrates that if you look in the right places in the current market that there are some attractive buys out there, and should the elected government officials here in the US figure out our current predicament then we could see significant rallies higher. This is the time to go shopping, but we recommend doing so methodically and certainly not all at once. One should space out the buys over time.
Oil & Natural Gas
It appears that CNOOC has accepted the Canadian government's conditions for the Nexen acquisition which we view as a positive. The demands were not outlandish and certainly something which probably would have been undertaken by the company in the first place. This is good news as the government was not too stringent and actually quite reasonable, which leads us to believe that other players in Canada might be in play now. We had been pretty tough on Talisman Energy (TLM) thinking that their takeover premium had vanished, but it now appears that we might see this see a bump up as Asia has not been locked out of Canada's resource plays. We still think that Talisman needs to improve their operational results, and with a new CEO that will take time as he molds the company into a leaner, higher margin focused player in the industry.
Magnum Hunter Resources (MHR) saw shares recover $0.45 (13.08%) to close at $3.89/share on volume of 4.6 million shares yesterday. The stock has been battered over the past few weeks and yesterday's rally was a nice breather for long-term shareholders who have been involved here. We have avoided the shares and allocated capital elsewhere, and after our weekend reading we continue to rank Magnum Hunter Resources outside of our top picks list. That is always subject to change, especially should some impressive drill results come in but at this time it appears that one would do better to allocate capital towards names which are ramping up drilling and reporting solid drill results. That is what we are doing at this time.
Speaking of getting bumps, shares in Kodiak Oil & Gas (KOG) moved higher by $0.25 (2.84%) yesterday to close at $9.06/share on volume of 4.2 million shares. The move upwards was not impressive by itself, but where that move took the shares was. The close above $9/share we have previously stated is important and moving below that level is bearish as much as being above it is bullish. This is one of the oily plays in the sector and their lack of dry natural gas, and even natural gas liquids, should benefit the company moving forward as they do not have issues with over production pushing prices lower. If oil prices were to fall here in the US due to overproduction, there would be a way to export it, unlike with the dry and wet natural gas production (we understand that the natural gas liquids can be exported, but right now it is not a big market, nor easy to do as infrastructure lacks in certain regions).
It appears that the bleeding has stopped for investors in Molycorp (MCP) as the shares popped $0.50 (8.16%) to close at $6.63/share on volume of 8.1 million shares. The rare earth company has come under pressure as they have regulatory issues which need to be resolved and investors wanted little to do with that investigation. We still have our doubts about the whole HREE mining they have discussed and hope that they instead focus upon their processing and LREE mining operations first. The company already has plenty on its plate, and adding that at this point we think would be counterproductive and lead to a disappointment for investors.
Looking at Freeport-McMoRan (FCX), we might want to recommend another trade here should it appear that we are close to solving this whole 'fiscal cliff' nonsense. The shares finished up yesterday $1.49 (4.05%) to close at $38.28/share while trading 15.9 million shares, and that is at the high end of our buy range. Our long-time readers will remember that we like to recommend trading this with a buy around $38/share to sell in the $40-42 range. It is something which has worked in the past and with the economic news upcoming we think that it may very well work again.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.