This morning we want to shift our short-term outlook on natural gas towards a more bullish stance heading into the winter months. Oil prices are softening up, but so too are the rest of the commodity prices in recent sessions. We recognize that we will have to shift from a sector picking strategy to more of a stock picking strategy over the next few months in order to bridge the gap until late November and early December when the end of the year rally should take over and be the rising tide that floats all the boats.
Chart of the Day:
Oil has been slipping over the past few sessions and as it has broken through the $105/barrel level it has drawn our attention. We are now focused upon the $102-103/barrel level and will watch to see if WTI Crude falls below that range, which if it did would lead U.S. to believe that we could see sub-$100/barrel oil sooner rather than later. One does need to pay attention to the events overseas however as terrorists hit Kenya this weekend and the rest of Africa has been dealing with what seems an increase in terrorist activities.
We are also watching our leaders in the oil and natural gas E&P sector to see which way we may be headed. Cheniere Energy (LNG) fell 3.69% on Friday, but the shares remain above $30/share so we remain optimistic right now.
Commodity prices this morning are as follows:
- Gold: $1318.40/ounce, down by $14.10/ounce
- Silver: $21.69/ounce, down by $0.237/ounce
- Oil: $103.57/barrel, down by $1.18/barrel
- RBOB Gas: $2.6475/gallon, down by $0.0367/gallon
- Natural Gas: $3.641/MMbtu, down by $0.046/MMbtu
- Copper: $3.284/pound, down by $0.0365/pound
- Platinum: $1422.70/ounce, down by $9.90/ounce
We noticed while going through one of our watchlists that Cameco Corp. (CCJ) is once again below $20/share and yielding close to the 2% threshold where we have stated before that we see value for investors. Cameco should make up the cornerstone of any investor's uranium portfolio and even though the company will feel an impact from Russia ending its participation in the 'Megatons to Megawatts' program we think that their production growth will be more than adequate to make up for this going forward. The price of uranium on the spot market continues to remain weak, but Cameco is insulated from this via its long-term contracts. Readers should continue to buy this one on the dips.
In the past the great value here has been found around $17/share, but $19/share has also provided decent entry points especially when one considers the approximately 2% yield the shares offer there.
Source: Yahoo Finance
AK Steel (AKS) continues their pattern of letting down investors shortly after big runs. Every time investors seem to get a good piece of news either from the company or analysts it is quickly offset by the company doing something to destroy market cap. After last week's rise the company came out and provided guidance that was weaker than the market expected and also stated that a loss would be reported for the quarter. We still have a neutral stance as we stated last week (article here) on the stock and believe that it will outpace names like U.S. Steel (X), however because of the volatility and risk we do favor U.S. Steel. AK Steel is for traders and U.S. Steel is for investors.
Coal names felt the heat heading into the weekend with the sector red across the board. Walter Energy (WLT) led to the downside with shares falling $1.25 (8.32%) to close at $13.77/share as the industry continues to face headwinds from slower world growth and increasingly stringent U.S. EPA rules concerning coal fired power plants. Natural gas continues to remain cheap, increasing competition there and even though temperatures are falling quicker in the U.S. south than at any other time in recent memory natural gas prices remain soft.
Could Walter Energy rise with the rest of the coal names if natural gas prices rise over the winter and world growth picks up? We think it is a good possibility.
Source: Yahoo Finance
Our feeling is that this fall and winter are going to be relatively cold, especially when compared to last year's mild fall and winter months which should lead to some speculation in the natural gas complex. With that said we would expect a rise in those equities with exposure to natural gas and/or thermal coal. For our readers who are traders it might very well be time to look into opening a trade in anticipation of the cooler months ahead.