We had a good day in our portfolios yesterday with many of the E&P plays bouncing back and some unexpected rallies in stocks held in other countries. It seems that risk-on is reentering the market in Canada, and that money and mindset generally trickles down to US shares as many of those companies have dual listings and such. Two days ago we purchased LEAPs in junior E&Ps which should be doing JVs on Utica land going forward, none of which are listed in this article or that we have mentioned recently, but we do believe that value exists in the area at current prices. We have some really good conversations on Twitter regarding these issues, so feel free to follow (@theinvestar).
Oil & Natural Gas
We usually view conference calls as a chore, something which has to be done in order to get the information to be successful in this line of business. Periodically one runs across an executive or company where the conference calls are actually enjoyable and we will be listening to Chesapeake Energy's (CHK) on May 1st which we have always thought was one of the better ones to have to listen to. We should get some really good information on this call regarding the wet gas window of the Utica and maybe even their take on the oil window. There will be a lot of questions asked, and it could get testy with the latest Reuters articles, but this is one of the most interesting and knowledgeable management teams out there so listening to them is a must - regardless of your opinion on the CEO.
SandRidge (SD) will be another company we pay attention to next week and they are in the same boat as Chesapeake in regards to management's knowledge and the cash flow issues moving forward. SandRidge is a more focused on their plays and a smaller company, but they have plenty to share and are in a unique position as they are not trying to make the transition from a natural gas play into an oil and wet gas play, but simply trying to become a larger oil company. In our book that is good debt and probably puts them into a better position than Chesapeake when looking at the business plan moving forward.
We figured that the Fed would shift to raising rates sooner, and effectively that is what happened as more members of the FOMC are coming around to the idea that 2014 will require rates to rise with the growth that they are anticipating. That pushed the PMs lower, but we saw a rally off of those lows. This may have been a short-term low, or a bottom - it is something we will have to watch but we think that being out of this market yesterday was the right call. When growth and inflation pick up, that is when we will want to reenter the trade.
We continue to watch coal for future investment potential, but still maintain that it is not yet cheap enough to move into. We will be watching Alpha Natural Resources (ANR) and Arch Coal (ACI) who report earnings on May 3rd and May 1st, respectively. Conference calls and the accompanying presentations are always good to read over and listen to leading up to an investment as you can get a feel for the business and any trends that may or may not exist. There is a learning curve anytime you move into a new investment, and it is better to get that out of the way while money is not on the table rather than when you have moved in and have capital at risk.
Potash Corp of Saskatchewan (POT) saw its earnings come in lower than expected and they guided lower for next quarter and full year 2012. This is not good and we will have to take a look at the potash plays moving forward now. We figured that this would be the play for 2012 on agriculture, but it seems that the only agriculture stock doing well now is that fruit company traded on the Nasdaq which was featured in Forrest Gump. We will have more to say once we have had an opportunity to digest this earnings release and also having taken a look at the other players once again.