Our commodity portfolio took a hit yesterday, largely due to the foreign stocks we hold in the portfolio. The oil holdings performed strongest and rare earths were the weakest. We find ourselves in a holding period, where we are forced to wait for the news we are expecting on many of our holdings. It is frustrating to have to wait for news you believe to be inevitable and highly probable to be in your favor, but we will look at increasing our positions in these companies moving forward and quite possibly leverage up.
Oil is up this morning, to $106.66/barrel and many of our favorites have settled into a trading range. This is one of those times to begin to expand our knowledge of some of the plays and look at adding new positions and increasing those positions in which we already hold shares.
One of those plays we are looking at hard is Sandridge Energy (SD). We like the oily assets, the lower cost drilling than many of the other drillers and the quality of assets which they can sell to further fund their exploration and development efforts.
We saw an interesting article from Bloomberg today (see here) discussing how natural gas is hurting coal producers here in the US. It has been a story we have heard and been watching, but we were unaware of how bad it has gotten for the coal producers in Appalachia. Alpha Natural Resources (ANR) which closed a large acquisition of Massey Energy looks like it may have mistimed that move and shares are some of the hardest hit in the sector this year. Arch Coal (ACI) is another poor performer, and although it looks negative for the industry we are thinking that should the stocks trade lower we might be interested buyers. Coal is easily exported, and has a market worldwide for power production. This obviously raises the cost of business as companies have to pay higher transportation fees, but production needs somewhere to go. We are making no moves today, just adding these to our watchlists.
We think Chesapeake (CHK) might be a big winner should natural gas continue to displace coal in this country as they own fields across the country and near some of the largest population centers. Owning the fields is good, but they also own the infrastructure that transports and refines the product to get it to market.
We are seeing some of the largest crop harvests ever, not just here in America but worldwide. The developing countries are experiencing success in increasing yields on a per acre basis and with crops like cotton being planted more due to high prices, more fertilizer will be needed to replenish the soil. We think that Potash Corp of Saskatchewan (POT) is the best play as they own the keys to the industry. They are the largest producer and own stakes in companies across the world with key production assets. The stock has languished, but we are still bulls at these prices, and believe that the potash market as a whole is due for a move upwards.