Commodities Today: A Bright Spot In Solar, An Exodus From Coal And Lusterless Gold

by: Matthew Smith

We continue to shake our head over what is transpiring in Washington but find some kernels of hope in the reports that are circulating this morning that although a deal has not been reached that serious progress has been reached. If progress can be agreed to, maybe a deal can be agreed to as well.

Looking at commodities we think that they will trade in a funk so long as we have this legislative overhang, but have been paying particular attention to the oil and natural gas E&P names lately. There has been some revaluing going on and those companies presenting value are being highlighted right now.

Chart of the Day:

With the recent events in the western areas of South Dakota we think that cattle prices shall be interesting to watch. Entire herds were wiped out during the recent storms and it appears that the ranchers who owned many of these herds may be forced out of the business as they had not purchased insurance. It may be a small blip on the chart, but we still think that there may be some significance here for those who invest in livestock and agriculture.

(Click to enlarge)

Source: CNBC

Commodity prices this morning are as follows:

  • Gold: $1284.00/ounce, up by $15.80/ounce
  • Silver: $21.215/ounce, up by $0.261/ounce
  • Oil: $101.60/barrel, down by $0.42/barrel
  • RBOB Gas: $2.6389/gallon, down by $0.0292/gallon
  • Natural Gas: $3.789/MMbtu, up by $0.013/MMbtu
  • Copper: $3.3005/pound, up by $0.0315/pound
  • Platinum: $1388.80/ounce, up by $13.20/ounce

Elon Musk's Golden Touch ...

Mr. Musk's solar venture, SolarCity (NASDAQ:SCTY) has been a strong performer and risen even with doubts many shorts have brought up concerning the company. The company is rewriting how solar energy is thought of, moving from the power plant model to more of a home and self-sufficiency model which long-term should hold serious promise. Many shorts have pointed out the capital intensiveness of the business plan and the risks the company will face moving forward as it pertains to default risk and becoming something of a credit company. Say what you will about that, but we see both the positive and negatives of this move.

Is SolarCity rising again? It appears so, and with Elon Musk behind this name we are not betting against this one.

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Source: Yahoo Finance

So long as Elon Musk is involved here we think that this might be the one and only solar name we would even consider being involved in. Due in large part to his entrepreneurial abilities, but also because this is no longer a solar company but a financing company as well. If this model can be scaled up it could hold serious potential and for those worried about future financing for future deals we think that may be less of an issue than many think. There is always the possibility that Mr. Musk simply creates a financing company to finance automobiles and solar mini-plants that his companies produce. Currently that is not a problem as the company is able to raise capital via the equity markets and banks are taking advantage of credits for lending to clean energy projects, but look for some creative financing in the future if this ever becomes an issue.

The Coal Business, In Or Out?

In or out? That is the question many investors have been asking themselves over the past year or two as it pertains whether to be involved in the sector or not. The correct answer has been to be out of it and it appears that some companies are beginning to buy into this thinking as well. CONSOL Energy (NYSE:CNX) has announced that they are looking to lower their exposure to the coal sector while focusing more on their natural gas and liquids E&P business. The company saw shares finish Friday higher by about 4% after rumors were circulating that the company could be a takeover candidate and the company was forced to issue a statement (see press release here) which stated that the company was evaluating all of their options.

CONSOL Energy is one of the better names with coal exposure simply because they are not a coal company, but an energy company with coal exposure. If they were a coal company it would be a totally different story, but with their mix of natural gas and liquids properties we have always looked at CONSOL as one of the blue chips in the coal mix.

If you have to have coal exposure it has to be via CONSOL Energy. The chart tells the story as the name has underperformed the market but outperformed its peers in the coal sector.

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Source: Yahoo Finance

The speculation which took place in CONSOL's shares on Friday also benefited the other coal names with Alpha Natural Resources (ANR) also rising strongly. Readers will remember that we have pointed out many times that we do not think that Alpha Natural Resources is a takeover candidate or a candidate for activist investors right now due to their exposure to coal and the dismal state of the business right now. We understand the reasoning behind Friday's move as ETFs provide a rising tide that lifts all boats and we had a nice general market rally, but longer-term Alpha Natural's stock will perform on the merits of the company's assets and business and not this speculation.

Gold Losing Its Luster?

It sure seems that way, especially when one considers the fact that Barrick Gold (NYSE:ABX) closed Friday at $17.23/share and Yamana Gold (NYSE:AUY) finished the session at $9.18/share with both companies experiencing strong volume. The precious metals are being whipped around as the market adjusts day-to-day to the latest news out of Washington, but more importantly we think that these names are stuck in a short-term bear market in a best case scenario. We have believed that if one must be long gold to be long the physical metal and that has kept losses from being as dramatic had that capital been invested in gold equities, even the safer names like Barrick and Yamana, but those are still losses and hardly something to cheer. We continue to think that we want to be on the sidelines of the precious metals trade (on a whole) but think that the physical metals are the best of a bad trade with silver outperforming gold over the next few months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.