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Commodities have taken their lashings in stride this week and actually put together a decent day yesterday in spite of the general market. We have seen a lot of paper losses and gains this week but at this point we are pretty close to breakeven which we believe says a lot about the state of the current bull market and maybe even more about the risk-on/risk-off trade. Yield is being sought and as investors become less concerned about the return of their capital and much more as to the return on their capital we believe that a rotation into stocks will be the only answer. Why has this taken so long you ask? Well we have had a bunch of mini flare ups around the world and many Americans only have a few chances per year to alter their retirement funds' investing strategy so this could very well be a 2-3 year rotation.

Commodity prices this morning are as follows:

  • Gold: $1412.20/ounce, up by $19.60/ounce
  • Silver: $23.61/ounce, up by $0.365/ounce
  • Oil: $88.75/barrel, up by $1.02/barrel
  • RBOB Gas: $2.7733/gallon, up by $0.0178/gallon
  • Natural Gas: $4.399/MMbtu, down by $0.002/MMbtu

Chart of the Day:

Although things are said to be improving in the coal industry and natural gas prices are rising, these charts sure look ugly. They look even uglier when told that they are a one year performance too.


(Click to enlarge)

Chart courtesy of Yahoo Finance.

Oil & Natural Gas

In all of our years of investing in commodities there are a few rules we have come to respect and trends we have learned to follow. One of them seems to be applicable to Apache (NYSE:APA) at these levels, and that is when a premier company is trading below its peer group and the assets are worth far more than the share price indicates; well simply put one should be a buyer. It is a contrarian play but also a value play and something which has worked numerous times in the past in regards to Apache and similar names [think Anadarko (NYSE:APC)]. Apache shares hit a new 52-week low of $69.85/share during yesterday's session, even as many of its peers trade at either 52-week/all-time highs or well above their lows. Our long-term investor-type readers should be able to appreciate this name, especially with a 3-5 year investing horizon.

Admittedly it is not the best graph to demonstrate our argument but compared to ExxonMobil (NYSE:XOM), you can see when it has underperformed it has always been a buy.


(Click to enlarge)

Chart courtesy of Yahoo Finance.

Coal

Coal shares got a nice boost yesterday as natural gas rallied and is beginning to reach levels where coal used to be cheaper and Peabody Energy reported a stronger than expected quarter with some positive comments. With the new pollution control standards and all the scrubbing equipment it is difficult to throw out an exact figure these days, but in our opinion it is safe to say that the conversation shall soon turn to natural gas being replaced by coal. That does not make us bullish coal, for we are still in the camp that thinks natural gas has gotten ahead of itself as at any point the natural gas producers could ramp up production by running at full capacity and/or beginning to drill once again. Which might also cause the power companies to look at how and when they do make the switch.

Both Alpha Natural Resources (NYSE:ANR) and Arch Coal (NYSE:ACI) were the big winner yesterday with both seeing their share prices increase over 7% and volume surging. Although we discussed natural gas earlier, the big news was Peabody and their comments on the thermal coal segment which piggyback on the price of natural gas moving higher. As we have said before, we want to be results driven investors in the coal sector but until those results begin to show up in the numbers we have to refrain at this time as we have seen far too many head fakes thus far in "the recovery".

Cliff Watching

One name which did not participate in yesterday's broad move higher was Cliffs Natural Resources (NYSE:CLF) which is highly leveraged to the coal and iron ore markets. The shares finished up a few pennies, however we are more concerned with the fact that they also hit a new 52-week low of $16.96/share earlier in the session before rallying to finish in the black for the day. That was most certainly not bullish behavior and leads us towards the conclusion that this one may have a bit further to fall relative to the rest of the industry.

Steel

Speaking of iron ore and the such, AK Steel (NYSE:AKS) continues to underperform and after hitting a new 52-week low of $2.76/share yesterday before also rallying, like Cliffs Natural Resources, we think that the worst is probably over. This does not make us buyers of the shares, but it does make us profit takers. So any readers who are short this based upon our comments a few months back should look to cover as we think most of the easy money has been made and playing this for a bankruptcy or for another few quarters would be foolish at this point as you risk all your gains in order to increase your percentage gain by a measly couple of points. It is time to move to the sidelines rather than be a pig now.

It sure has been a beautiful looking chart for shorts with nice action from the upper left to the lower right.


(Click to enlarge)

Chart courtesy of Yahoo Finance.

Source: 5 Commodity Stocks Moving On News