Some of the generals of the market are falling by the wayside, however the market continues to be dragged higher by a mob of stocks hitting new highs. Stocks are not necessarily cheap at current levels, however there are signs that many of these alternative investments have now reached ridiculously high levels of valuation. Look no further than the US Treasury market and the minimal yields on various products due to the underlying prices being so high. This is a trend we shall need to pay attention to, especially as it pertains to high yielders in the commodity space, think the MLPs.
Commodity prices this morning are as follows:
Gold: $1665.70/ounce down by $0.90/ounce
Silver: $30.97/ounce down by $0.236/ounce
Oil: $95.90/barrel up by $0.02/barrel
RBOB Gas: $2.865/gallon down by $0.0104/gallon
Natural Gas: $3.371/MMbtu up by $0.073/MMbtu
Oil & Natural Gas
When we make mistakes we like to fess up to them, and although it is our belief that taking profits is never a mistake, we do recognize the fact that we were early taking profits in Rosetta Resources (ROSE). We had spent the previous few months advising readers to move in and out of Rosetta around a trading position as we later did between the low 40s and $48-50/share range but did not anticipate this latest move having so much strength. On Friday the shares were strong in response to the company's remarks concerning the well costs in the Eagle Ford and their quarterly production results. That release is available here and is a good read for anyone with exposure to the play. It is still our belief that the company is growing into its multiple and has a bit further to go before it can begin to set new 52-week and all-time highs moving forward.
Oil Field Services
Halliburton (HAL) continued the good news in the oilfield services sector as they reported good earnings and a solid outlook for the industry. During Friday's trading shares rose $1.91 (5.05%) to close at $39.72/share on strong volume of 32.6 million shares. So long as the shale players and conventional oil explorers continue to increase spending for exploration and production activities, then those who assist them and provide services in those pursuits shall do quite well. If you are bullish of the oil and natural gas E&Ps, then one must also be bullish of the oilfield services companies. There is much less risk associated with the services companies in our opinion so for investors who believe that shale plays or deepwater plays are far too risky for their portfolios, maybe a little exposure to servicers like Halliburton is the way to go.
On Friday Molycorp (MCP) announced the pricing of its secondary and shares rebounded from levels it was trading at in pre-market early that morning. Shares finished the day up $0.94 (13.30%) and closed at $8.01/share. The company traded 48.3 million shares and was one of the top traded stocks on the NYSE on Friday, falling behind only names which consistently find themselves in the top three spots each trading session. Many investors are not happy with the management of the company, and it is obvious that it was not all to blame on the previous CEO, Mark Smith. It seems to us that there is an institutional lack of understanding here and that one cannot assign blame to an individual but rather must assign that blame to the entire board of directors and executives in charge.
The precious metals sector has been hit hard recently, but when it comes to gold and silver we find ourselves long-term investors. Thus the short-term moves have little effect upon our holdings and about as little effect upon our sleep. Our silver is held in physical lots, as is the same for our gold, so selling it quickly would not be much of an option…which is how we had planned it. With that said, readers invested in AuRico (AUQ) need to lose any sleep over the recent pullback and may consider it an opportunity to purchase more shares in order average down or gain more exposure to this trade. Personally we would sit tight and just ride out our current position, but we do recognize that some readers are traders so setting up a trading position around the current core position is a move we could appreciate.
As is buying to open a position on this pullback in Silver Wheaton (SLW) which we have been waiting for. We are bullish of silver prices and have previously discussed our desire to go long silver in terms of the silver companies however their share prices had not fallen to the extent that physical silver prices had so we wanted to wait for an entry on that front. Well with the recent price action some of these names are now entering the buying zone and Silver Wheaton is in fact one of our favorite ways to gain exposure to silver with a little bit of leverage. Now that shares are below $35/share, we think that investors looking to gain exposure to silver need to take a look at this one and kick the tires a bit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.