It probably sounds like we are just tooting our own horn or simply looking for data which backs up our thinking, but we want to stress that as it pertains to the oil and natural gas E&P plays that is not the case. There really is good news there and a strong current taking these names higher. Many of the headwinds have disappeared for the time being and we are seeing shareholders benefit. The most recent example is highlighted in our comments on Anadarko Petroleum (APC) this morning.
Chart of the Day:
It is an ugly one year chart and could get worse as we see gold crossed back below the $1300/ounce level.
Commodity prices this morning are as follows:
- Gold: $1277.40/ounce, down by $5.10/ounce
- Silver: $19.28/ounce, down by $0.243/ounce
- Oil: $105.14/barrel, down by $0.16/barrel
- RBOB Gas: $2.9037/gallon, down by $0.0114/gallon
- Natural Gas: $3.291/MMbtu, down by $0.027/MMbtu
- Copper: $3.135/pound, down by $0.0365/pound
- Platinum: $1424.80/ounce, down by $3.00/ounce
Oil & Natural Gas
After the bell yesterday Anadarko Petroleum announced that the board had increased its quarterly dividend by 100%, yes they doubled the dividend - no typo there, from $0.09/share to $0.18/share. This has been one of the strongest mid-tier names in the independent E&P names and now investors are going to be able to further reap those rewards. This is why we like names where production is growing and most of the assets are in safe areas. The fact that the company was also an early mover in the liquids shale plays also helps and is a reason why their growth has not slowed like many of the "Big Oil" companies which are running into roadblocks and huge financial costs to bring on new projects. Anadarko has the business model those names need to be employing as the results and dividend increase highlight.
The dividend increase could be enough to propel this stock to new 52-week highs over the next few sessions.
Source: Yahoo Finance
Investors did take EXCO Resources' (XCO) shares lower by 9.34% yesterday as the shares closed at $7.96/share after the company held a conference call (transcript available here) to discuss their quarterly results. The company beat on the top line but missed by $0.01/share on the EPS figure analysts were expecting. The price action yesterday was probably a bit overdone as you saw hot money exit after having rushed in following the company's recent property acquisition. Buying on dips such as these here before those results are fully realized might be the way to go as we think higher liquids production is a must in the industry.
Valero Energy (VLO), a name we have been bearish of since the highs, saw shares tick higher yesterday and break through key moving averages. The shares were up nearly 4% on the session to close at $36.53/share after the US Environmental Protection Agency, or EPA, reversed course on the biofuels initiative they had issued earlier. This should benefit the refiners as they can use less ethanol in their fuel mixes and should drive down costs and give margins a little boost. Overall a positive, but we still want to see results. Remember, this stock is a bit different from the other refiners in that they own a bunch of filling stations and are looking to find ways to increase shareholder value. So Valero should outperform the sector, but right now our thinking is still that the sector underperforms the E&P plays so this call is really one based upon expected performance and valuation.
Part of the reason we discussed physical gold yesterday was due to production issues that always seem to plague the miners these days. Yes some companies have excellent production/operation histories, but more often than not these issues can creep up on the best of them. Yesterday saw Allied Nevada (ANV) shares get hit hard as investors reacted to news of higher production costs and the delaying of a mill as a new feasibility study is performed. Long-term that is always the correct call, but when investors see moves like that where management is calling into question a project or has to have a new study done because market conditions have changed that much ... well let's just say it is never a good thing. Shares finished lower by nearly 26% and the stock closed at $4.37/share on volume of 15.6 million shares. It was a big day for investors yesterday and for readers who want to take a look at the conference call transcript it is located here. We recommend reading conference calls such as this as you can gain insight into overall industry trends.
This chart pretty much tells the story. As gold prices have fallen, producers' margins have been destroyed and their stock prices have declined sharply. ANV hit fresh lows yesterday.
Source: Yahoo Finance
Although Allied Nevada inflicted most of the damage it suffered itself yesterday, other names saw weakness as investors fretted about the Fed's tapering. Yamana Gold (AUY) saw shares trade lower by $0.70 (7.24%) to close at $8.97/share on volume of 13.2 million shares and many other solid names in the industry were lower by the mid to high single digits (on a percentage basis). We stress that buying right at these levels is probably not the way to go, but rather waiting on this pullback and making a purchase if it looks like Europe and China are heading lower in economic terms. As we stated yesterday, we like the white metals far more than yellow as it pertains to precious metals.