There are a plethora of factors that affect the commodities market and even more so when conducting your due diligence on individual companies. On a daily basis you are faced with supply/demand concerns, pricing volatility, global demand, and not to mention the fundamentals of the company and trading activity. I have narrowed down the broader commodity market into three sectors, oil and natural gas, rare earth resources and coal. Below I have presented a short list of investing opportunities with supporting fundamental and technical metrics. While I believe each is a strong buy, each company has its own risk factors and I urge everyone reading this article to conduct their own due diligence before making a buy decision.
Oil and Natural Gas
Gulfport Energy (GPOR) is an independent oil and natural gas exploration and production company with principal producing properties located along the Louisiana Gulf Coast with additional properties in Colorado and Ohio. In total Gulfport has approximately 13,000 acres in Louisiana, 12,000 acres in Colorado and 128,000 acres in Ohio. Additionally, through their interest in Grizzly Oil Sands, the company holds approximately 200,000 acres in Canada.
Gulfport currently trades at ~$46/share with a market cap of ~3.5 billion and an enterprise value of ~$3.4 billion. Revenue and EBITDA for the trailing twelve months totaled approximately $249 million and $181 million, respectively. Revenues have nearly doubled since 2010 from $127.9 million to $249 million.
Since 2010, in which revenue has doubled, the stock has been volatile but provided nice returns for shareholders. Gulfport opened in 2010 at $11.69 and today trades at ~$46.00/share. Shorter term, the stock hit a low of $15.79 on June 25th and has been on an upward trend ever since.
Gulfport has increased dramatically over the last 6 months and I am watching closely for a pull back. The stock's 50-day moving average is currently at ~$41.25 which in the event of a dip below that there seems to be support at ~$36.00 where I will begin to slowly accumulate my position.
Rare Earth Metals
The rare earth metals sector has experienced its volatility and pressure in recent months led by Molycorp (MCP), a leader in the industry and producer and seller of rare earth and rare metal materials in the U.S. and international. Molycorp is currently trading at its 52-week low of ~$5.30. Amidst MCP's price decline, I began following Texas Rare Earths (OTCQX:TRER). In a similar trading trajectory to Molycorp last year, Texas Rare Earths fell out of favor with investors to close at a low of $0.25 on November 20th. Subsequent to that the Company reacted fast issuing a number of good news releases (here, here and here) as well as having the board of directors purchase their own stock. The company today is at ~$0.60 with volume spiking the week of March 25th to about 2 million shares over a three day period.
Texas Rare Earths is a mining company engaged in the acquisition, exploration and developing of mineral properties particularly focused on their 950 acre Round Top property in Texas. The company conducted a Preliminary Economic Assessment in June 2012 which found an estimated over 1 billion metric tons of measured, indicated and inferred resources containing 531 grams per ton or over 1 billion pounds of rare earth elements. Among other elements, the PEA estimates approximately 123 million pounds of uranium which would range in the top 15 in the world. There is also evidence of beryllium contained at the property.
As I mentioned, the company and insiders have invested heavily in themselves. In January 2013, it was announced that the company and insiders collectively purchased over 1.5 million shares of common stock or over 4% of the shares outstanding based on 36.6 million shares. Between early October and the time of the release, the Board of Directors purchased approximately 980,000 shares. Of note is that the company stated in this same release that the cash on hand is sufficient to fund operations through 2014.
Although the stock today trades at ~$0.60, major funds invested over $18 million in TRER at $2.50 per share. While the stock has had a nice move up over the last 5 months, I anticipate it will continue to move up as it pushes through additional resistance levels.
Alpha Natural Resources (ANR) is the nation's leading supplier and exporter of metallurgical coal for use in the steel-making process and major supplier of thermal coal to electric utilities and manufacturing industries. As of December 31, 2012, Alpha Natural operated 107 mines and 26 coal preparation plants in Northern and Central Appalachia and the Powder River Basin.
Fundamentally, trailing twelve month revenues and EBITDA totaled $6.97 billion and $1.75 billion respectively. Based on an Enterprise Value of $4.2 billion, EV/EBITDA is approximately 2.4x. Technically, the stock is trading between their 200-day and 50-day moving averages. A move above their 50-day (~$8.64) could move the price towards $10 and a move below their 200-day (~$8.03) could move lower towards their first support level of ~$7.00.