It seems we have been talking about how week commodity markets have been for a few weeks now, so it was but a matter of time before we would have to discuss the fact that both oil and gold finished at lows for 2012. This tells you something about the economy and is an indictment on the world leaders in our view. The economy is not too hot and not too cold, but it feels as though it is stagnating at this low rate of growth. This may be needed to set the foundation for a serious rally, but we worry that Europe's troubles may sicken China which then could lead us off of a cliff. We maintain that the Europeans need to increase their efforts to supply cheap money to their economy and jump start things because they have far too many countries with shrinking economies due to austerity measures. This is what the markets need to move forward, and no sector needs it more than the commodity sector at this point.
Oil & Natural Gas
Chesapeake Energy (CHK) was one of the few bright spots yesterday rising $0.71 (4.79%) to close at $15.52/share on volume of over 78 million. What really moved shares higher is that Carl Icahn is rumored to be accumulating a stake in the company, but it is interesting to note that he has neither confirmed nor denied these rumors at this point. According to Aubrey McClendon when he was asked about the situation he stated that he has a good relationship with Mr. Icahn. The market cap here is just under $10 billion and the stock yields 2.4% - we point this out to show how far the shares have fallen because no one is buying Chesapeake for the dividend.
SandRidge Energy (SD) should be a big winner once the funk in this market is over. We have spend considerable time looking into this one over the past month or two and there is a lot to like. The company is much more leveraged than some of the other names we have mentioned recently but they also have the financing and cash flows in place today to get to positive cash flow by their stated goal. With a beta just over 3 and an aggressive drill program, we should see this move smartly higher when Europe calms down and commodities begin their trend upwards.
Rexx Energy (REXX) was down $0.32 (2.95%) to close at $10.52/share yesterday. Volume on this one is generally low, and it came in at 1.4 million yesterday. Currently the company is leveraged to natural gas, but most of their production is hedged over the next two years - with a higher percentage hedged in the current year than next. The company has a large position in the Marcellus, but has smartly expanded into the Utica in an effort to increase the 'wetness' of their assets. The company recently announced an increase in its borrowing base which will further help the company develop their land holdings.
While the rest of the market has been whale watching in the UK, we've been preoccupied with Vale (VALE) watching. If one wants to talk about an awful trend, the stock seems to set a new 52-week low every time we look at it. After yesterday's action, the stock closed at $19.32 which was down $0.67 or 3.35% a share, the company now yields an impressive 5.7% looking at the dividends paid out over the past 12 months. One must note that earnings are headed lower with the stalling economy , and about those 52-week lows we previously mentioned; Vale set another yesterday.
Silver Wheaton (SLW) reported earnings yesterday and the market was not too happy with the results. The company missed on revenues and by a penny on EPS, even though they still managed to report record quarterly revenues of $200 million. The company declared a cash dividend of $0.09/share but with the earning the damage was already done. The shares closed down $2.06 (7.79%) at $24.40/share which was a new 52-week low.