Commodity stocks took a bit of a breather yesterday as the general market turned lower after investors were turned off by economic news. At this moment US futures are higher, but it will be interesting to see how the market reacts to the details being released of the Republican proposal to the White House which was turned down. We heard the overview, but we want to see if there are any ideas which could be taken away from that proposal and included in a bipartisan agreement…and soon.
Oil & Natural Gas
There are times we do not mind being incorrect, especially when being incorrect in the short-term does not jeopardize our overall view of things and makes readers money. We thought for sure that we would need to see oil moving higher to the $90/barrel area to get shares of SandRidge Energy (SD) to break back above $6/share after the large run-up the shares have experienced. This has been a great play after rising well over 20% since the lows set during the conference call, however we do see less upside available here than in some of our Utica plays - especially if one believes that the company is at least 3-6 months off from an announcement of a sale of their Permian assets.
Yesterday investors saw shares in Kodiak Oil & Gas (KOG) fall below the $8.50/share level and just after doing so being unable to break above that level a couple of times before heading lower. Shares finished the day at $8.29/share after falling $0.29 (3.38%) on volume of 7.3 million shares. This has been a train wreck in slow motion as the stock has broken through nearly every level of support on the way down and it will be interesting to see if the shares reverse course quickly now with this move turning out to be a shakeout of weak hands or whether this is a longer term correction after a period where the stock was so strong relative to the industry.
Cliffs Natural Resources (CLF) saw shares set a new 52-week low in yesterday's session, continuing a trend that has been ongoing with the downturn in the coal and iron ore markets and highlighted in recent weeks after the company was downgraded on fears that its high production costs could result in a recovery taking longer and the need to shut in production. The shares were also downgraded due to these reasons, but at this time it does appear that management is serious about keeping the dividend at current levels and should that continue then the yield will have to come to the rescue of shares at some point.
For readers who bought James River Coal Company (JRCC) at the lows we thought the shares would retreat to recently, we want to first congratulate you on a good trade but now advise to take profits. The stock has had a huge run while other in the industry continue to suffer, see the comments on Cliffs Natural Resources above, and we need to be honest with ourselves that this is merely a trading vehicle and not an investment vehicle. At these levels the profits need to be booked and the gains need to be redeployed to the next play - that is successful trading.
Uranium is probably going to be one of our speculative plays for 2013 as we see a lot of developments pushing the price of the other yellow metal higher. The Russians are going to dominate the landscape in the industry and just as they have pushed prices on Continental Europe higher for natural gas, expect much of the same for uranium prices once the 'Megatons to Megawatts' contract expires. With that said, we do like American uranium production companies and if you are looking at the space then Uranium Energy Corp (UEC) is an excellent play. Currently trading at $2.38/share, the company's shares have been bouncing off recent lows and forming a bit of an uptrend. Yesterday the shares closed strongly, missing the day's highs by $0.01 on the close.