We had a big day in the portfolios yesterday, both the retirement account and personal taxable account, due to excitement over the Utica. We will be forced to address at least a portion of the portfolio as far as the Utica is concerned as we have January 2013 Call Options which will have to be reinvested either through a rollover into new call options or a move into more shares.
We are evaluating our options (no pun intended!) here and looking for maximizing the bang for our buck as well as our leverage to the play while also minimizing risk. Thus far we have done an excellent job of managing risk but with option premiums having increased dramatically recently this may be harder to do moving forward.
Oil & Natural Gas
We have been trying to call readers' attention to Gulfport Energy (GPOR) and other E&P plays in the Utica shale for some time now. Yesterday we even highlighted here to show their latest well result and said that the shares would move higher off of the news, and boy, did they ever. Shares rose $5.12 (16.14%) to close at $36.85/share on extraordinarily high volume of 5 million shares. The 52-week high was almost taken out in yesterday's session, and with what appears will be an up day in the US it will be interesting to see if the shares can move through that level or if we retrace a bit after the big run-up. For readers who did not see it, the company saw an analyst raise their price target on its shares to a level very near our initial $50/share prediction. In the coming months we may have to adjust our prediction, as even we may not have been bullish enough.
With all the success Gulfport is having it will be interesting to see when we can begin to track Chesapeake Energy's (CHK) move towards this area of the play. Gulfport has had the biggest wells across the board, with Chesapeake having solid results across other parts of the play but we will be interested to see how far this sweet spot of the play extends to the north and the overall potential for Chesapeake when we are able to quantify that.
The past few weeks have been rather difficult for AK Steel (AKS) shareholders with shares having been clobbered over the span of a few days after the company announced charges for the fourth quarter and a secondary stock issue. Yesterday, however, the company received an upgrade from Dahlman Rose which removed their sell rating and moved the stock to neutral. Also helping rally shares was news that insiders, including the Chief Executive Officer, have personally purchased shares. We think that shares are probably stuck around these levels due to that recent secondary, however, yesterday's $0.21 (5.54%) move higher to close at $4.00/share was impressive and could lead any remaining shorts to cover.
We have been watching firms such as Vale (VALE) and Freeport-McMoRan (FCX) and it seems to us that these two names are setting up for a big move. At this time it is hard to say whether that move will be higher or lower, but if one is a believer that the fiscal cliff is solved efficiently without any political maneuvers or scare tactics used on the public then obviously it appears that the move will be higher. A lot of economic activity is being held back as those who build America are awaiting news of what the applicable laws will be in only a few months.
There are actually homebuilders awaiting this agreement before they build new homes as they do not want to have the politicians scare the public the same way they did last time and leave the homebuilders stuck with completed homes but a consumer either unwilling to take on the risk of homeownership or financial institutions unwilling to allow qualified potential home buyers the financing to assume ownership of those homes. We would expect a wave of economic activity to be released once an agreement is reached and when building takes off so too do the share prices in Vale and Freeport-McMoRan.
Disclosure: I am long GPOR.