As we discussed in our general market commentary this morning, it appears to us that we are entering a phase within this bull market where we move from a general market rally where all boats rise with the rising tide towards a phase where stock pickers are the ones able to make the money. If you are a generalist, have no fear, it shall simply be a consolidation period for you which on pullbacks can be bought. This is the feeling we have at this time although we are still skeptical of some of these geopolitical events occurring around the world and rumblings of economic concerns from various parties around the world. Our concerns were helped by Berkshire's acquisition yesterday and their optimism to proclaim that they would like to do another deal.
Commodity prices this morning are as follows:
Gold: $1629.20/ounce down by $6.30/ounce
Silver: $30.22/ounce down by $0.133/ounce
Oil: $96.88/barrel down by $0.43/barrel
RBOB Gas: $3.1279/gallon up by $0.0113/gallon
Natural Gas: $3.13/MMbtu down by $0.033/MMbtu
Oil & Natural Gas
Yesterday we were a bit surprised to read in the Encana (ECA) press release (located here) that of their initial results in the Oklahoma side of the Mississippian Lime shale play were promising but that on the Kansas side of the play their results were lower than expected. There have been a lot of questions raised about the play with both SandRidge Energy and Chesapeake Energy both defending it, but with the recent news of trouble with some of the Trusts and now Encana indicating that maybe the play is not as uniform as believed earlier we might just see investors revalue the multiple they are willing to assign to these holdings in various companies' portfolios. Regarding the company's CEO search, it was discussed in the conference call (transcript located here) that it could take up to 3-6 months to hire someone. Shares finished the day at $18.18/share after falling $1.29 (6.63%) on the session.
The good news for Transocean, Ltd (RIG) shareholders is that they are one step closer to putting the Gulf oil spill behind them. The Federal judge in their case with the US government accepted the $400 million settlement the two sides reached for the company's part in the Macondo well blow out. The company also released later in the day their monthly fleet update and the value of new contracts since the previous month's update is approximately $530 million. Completing the trifecta of good news for the company was that Goldman came out and made comments regarding Nabors in which investors interpreted as the famed investment firm being bullish of the entire industry which pushed everyone higher. Transocean shares rose almost 4% on the news and closed at $59.30/share.
It seems that the coal sector will now be defined by who has the best management team as well as the ability to cut costs quarter to quarter and effectively maintain those cuts from one quarter to the next. This is what was behind the good news at Alpha Natural Resources (ANR) and led to the $1.18 (13.90%) rise in the company's shares during the session. We would point out that the shares are once again back above the $9/share level after having closed at $9.67/share yesterday but now we are forced to watch as others discuss the business and see whether the sector news can take the shares above the $10/share level or whether the stock is due for a retracement and some further consolidation. At the end of the day a loss is a loss as we were taught, however we also recognize the trying circumstances that the company finds themselves in with the current state of the industry so we must applaud improving results and/or beats when they do happen. The cost cuts help, but so too does the fact that thermal coal appears to be cheaper than natural gas moving forward, which could spark a renewed interest on the consumption side in switching back to coal from natural gas. Time will tell, but at least with the latest quarterly report investors know that Alpha Natural has time to turn it all around. The conference call transcript is located here for those interested.
The entire sector benefited from the news from Alpha, and Arch Coal (ACI) also saw their shares rise above an area which we have stated was important for psychological reasons recently; the $6/share level. Many get on us for not jumping on these names earlier, however we view buying with a contrarian view as a serious proposition and something to be taken quite seriously. We do it in order to make money, and achieve above normal returns and do not believe that simply being contrarian for the sake of being contrarian (essentially "betting") yields long-term results that justify risking capital. One would not stand at the intersection of two busy 4 lane highways and begin walking across the street in the crosswalk because the light turned yellow and you believed the cars coming at you would stop. That is a bet, one we are not willing to take. However, we are more than willing to let those cars stop and begin our walk across the street, that is the prudent and responsible action to take. This is the logic we apply to the current situation in coal, we will wait for confirmation (cars stopping a metaphor for the bleeding stopping for the sector) and then hop on board.
Chart courtesy of Yahoo Finance.
Wow, hardly begins to describe this run...
Our dislike for solar is well documented and over the past few years we have been correct in the direction of the industry. Lately though the solar plays have been rallying on a few snippets of good news and rallying hard. SunPower (SPWR) has had a very impressive run and as we discussed recently the $10/share level would be an important resistance point to break through, the quicker the better as it was becoming stronger. Shares yesterday broke through $10/share and rallied higher to close at $12.13/share as the stock finished up $2.22 (22.40%) on the session. Not a whole lot of news out yesterday other than a report from Greentech Media which discussed the residential solar financing industry growing from $1.3 billion for the year just ended, 2012, to $5.7 billion in 2016. Take that for what you will, but the market obviously liked it and that is something one cannot argue against.