Pengrowth Energy, Gold Miners ETF: Value in Commodities

Earlier this year I commented that Tele Norte (TNE) looked like it might offer investors a value after buying/merging shares of Brasil Telecom (BTM). Although I did not predict the huge drop in the fall, I would say that, for the long-term investor (those holding for approximately a year up to three years or so), TNE looks ripe.

I myself have decided to try to see if I can balance a few quicker trades. If one is interested in avoiding some of the complexities of the financials, then commodities might be way the to go. Although I might sell at any time, the market may change quickly, and you should do your own due dilgience, I've recently found that Pengrowth Energy Trust (PGH) and Market Vectors Gold Miners ETF (GDX) were good values.

I bought PGH under $8 and GDX at around $30. Both are likely decent intermediate and long term plays, respectively. Also note that GDX especially is volatile these days. Of these three suggestions, I think that PGH is the strongest one to two year play. Note: the Canadian Royalty Trusts have long ago notified shareholders that they will be have to pay more taxes in 2011, so this should already be discounted in the stock price -- but with a PE around 9.3 today, this stock should rise even without the high dividend (which may be reduced, but even so should be higher than most energy companies (eg - see ExxonMobil (XOM) or the other Canadian Royalty Trusts such as Enerplus Resources (ERF)).

Remember my positions may change at any time, so do your own due diligence. Otherwise please advise if you notice something I may have overlooked!

Disclosure: Author holds positions in GDX and PGH

Comments

[Chemist29:]

PGH Just recently cut their divvy (distribution) by 25%, hopefully further reductions will not be necessary, but we'll see. They also did not raise their dividend during the massive rise of oil to 147, and they are reducing capex so it seems like a good play to me. Plus, they have significant amounts of oil/gas hedged at around 80 and 90, somewhere around 40-50%? Not sure about that too lazy to check.

Jan 01 09:55 AM

[iclarius:]

Chemist29,

PGH has 57% of its daily output locked in at $86.34 Cdn/bbl (13,000 bbl) for 2009 and 24% at $93.16 Cdn/bbl for 2010. For 2009, 43% of its nat gas output is locked in at $7.98/MMBtu and 22% of its 2010 output locked in at $8.64.

Seems like PGH management knows what they are doing and hedged their bets so well and it paid off.

In addition, the company socked away funds to support their present dividends by not increasing the dividend during the boom days. Kudus for their management.

Jan 01 11:42 AM

[silverwood:]

I have to give the author thumbs up for his choice of PGH. As other posters have indicated they have hedged a portion of future production and have cut the dividend by 25%. I hated to see my monthly distribution drop but I have to agree this was a wise discision in these current market conditions. Because they wil remain a Trust until Jan. 2011 they will be required to distribute most of their profits to unitholders. So if we do see marked improvements in the price of oil/nat gas in 2009, then quite possibly we would get an increase in distibution rate. At the same time captial appreciation in the share price. I believe the world wide goverment stimulus plans will increase demand for energy, especially the renewed drive for infrastructure improvements.

Jan 01 01:25 PM

[sammy so:]

There is a discrepancy between the price of gold (GLD) and the gold mining stocks (GDX). Gold is up 25% over the last 3 months while gold miners are up 100%. Something has to give and I bet that the gold mining stocks (GDX) will move down in the near term. I think Russia has to sell a lot of gold to support the currency because they are not earning the foreign currency they need.

Jan 02 02:22 AM

[Rayn:]

An unfortunate aspect (to me) of PGH is that it is an MLP (at least on my broker statements) which means eventually I will have to sell it from my IRA portfolio.

Jan 02 08:29 AM

[andyn:]

PWE also seems to be good, as they have also locked in the high oil rates for 09 and 2010.
Moreover,they have consolidated by buying other properties around their acerage.

Their dividend has been safe so far... of course, if oil keeps dropping, all bets are off. But I think oil will settle around $55 this year.

So PWE here at around $10 with a dividend yield of 20+% is a great investment.

Jan 02 08:42 AM

[macsmart:]

GDX can be turned into a cash cow. I sell covered calls on it every two months. If it happens that it gets called away at a dollar or so higher than the call, I buy it again on a dip, and repeat the process, thereby returning it to being a cash machine.

It has lagged GLD for the past couple of months, so it is currently catching up. Ordinarily it is more volatile than GLD, in that rises faster than GLD, and also goes down more when gold declines. However, there are no options on GLD. But with GDX, you can make money selling calls or buying puts depending on gold's direction. There are monthly calls and puts at every price point.

Jan 02 10:50 AM

[otbricki:]

Gold is too high now IMHO. So as it drops the miners will have to come down even more.

Other commodities though are on my short list, although the historical pattern has been that stocks lead a recovery while commodities track economic recovery.

So we might see equities go up first.

Jan 02 07:05 PM

[surferonice:]

On Jan 02 02:22 AM sammy so wrote:

> There is a discrepancy between the price of gold (GLD) and the gold
> mining stocks (GDX). Gold is up 25% over the last 3 months while
> gold miners are up 100%. Something has to give and I bet that the
> gold mining stocks (GDX) will move down in the near term. I think
> Russia has to sell a lot of gold to support the currency because
> they are not earning the foreign currency they need.

Sell a lot of gold to support the currancy?

Jan 02 07:38 PM

[K. Argenta:]

I still maintain you should still buy "Canroys" at least untill 2011, when the Canadian goverment changes the way it taxes "Canroys"(%38.5), but for now it's %15,which is on the dirt cheap. As far as Gold going up, I like it as I have a lot of it.(American Eagles,Mexican PESO,Maple Leaf). Gold to me is a "hedge" for emergencys,give or take. I see 'oil' hitting $80.00 a bbl at the end of the year. I feel sorry for the people in the "Ukarine", you either pay Russia's price or you freeze to death,witchever comes first. You should be glad your not living in Britian where gas is $5.00 a liter, not quite a gallon. I think gas will get to $4.00 a gallon before years end, so get your tanks filled.

Jan 06 09:58 PM

[Private Trader:]

Chemist 29, iclarius, thanks for the fundamentals. Overtime, I am beginning to observe that, while fundamentals are involved in my trading choices, most of all, I am a bargain hunter and momentum trader. But your, silverwood's, and everyone's reasoning are helpful as they provide grounds for me to consider staying in these positions longer. Thanks all; also, while I am not certain, it seems to me that it may be possible to avoid any taxes on PGH by putting it into a Roth IRA instead of a regular IRA account. I highly recommend this, although I believe the increased demand for oil, will continue to keep PGH attractive (as silverwood mentions) regardless of the Canadian taxes. If possible, I will try to write a brief article tonight on another great prospect: PNNT (Pennantpark Investment Corp.).

Mar 26 12:34 AM