We are seeing a bit of strength in oil recently, but are still wary as news that there may be a showdown in Europe brewing. There are more and more fronts emerging in this battle that Europe is waging literally against itself, and we always fear situations when the patient must be their own doctor. Commodities had a nice day yesterday, but we still find ourselves net bearish - not just of commodities but markets in general - but willing to play those companies showing momentum and outsized growth. Right now the only long positions we are adding are via LEAPs dated January 2012 in companies ramping up production in a big way and only paying that premium due to fears out of what may happen in Europe and China.
Oil & Natural Gas
Kodiak Oil & Gas (KOG) had a good day yesterday rising 5.8%, or $0.48, to close at $8.75/share on volume of 6.6 million. Shares got stronger throughout the day and closed near the highs, which is a very good sign especially when one considers that many of the E&Ps are around their 52-week lows and selling off into any rallies. Kodiak is not near its lows and seems to not be selling off into rallies, so if this can once again take out $9/share, we might very well see some fireworks on the horizon. Also of importance for investors to remember is that once Kodiak has their production tied into a pipeline, if oil prices were to fall into the $80/barrel neighborhood the company would not be impacted as they were fetching lower prices before based on having to truck to the oil to an area which was flooded with oil. So the story here really does appear to be strong.
Chesapeake Energy (CHK) was up $0.54 (3.42%) to close at $16.35/share. There was a lot of news flying around about this one yesterday and it seems that SunTrust Robinson Humphrey and Huntington Asset Advisors both believe that it is a probable takeover candidate at these prices and valuations for its reserves. Both think that it is a prime takeover candidate for one of the major integrated oil companies either here in the US or in Europe. Reuters also put out a story stating that the company had a meeting with its creditors this week, but it looks as if that is a regular meeting and nothing special - which is good news for shareholders.
Vale (VALE) rose $0.51 (2.79%) to close at $18.78/share on volume of 28 million. The stock finally got a bit of a pop, which came on the news that the company agreed to sell its coal assets in Colombia to a Goldman Sachs controlled entity for $407 million. The deal is a cash deal, and it probably beneficial to both parties as it gets Vale out of this small asset and allows the Goldman group in at an attractive price. Certainly a contrarian bet on their part considering the current coal market.
Walter Energy (WLT) was up $1.42 (2.84%) to close at $51.40. With the news of the sale of the Vale coal assets, we figured that Walter would get a bit of a pop as many speculate that this will be a takeover at some point. We figured it would be up more than it was, and certainly not trailing some of the other names out there like it did. One positive aspect of all of this news for those speculating on a takeover is that the Vale deal was with private equity money, meaning there are interested parties looking at deploying capital into the sector even with the current macro economic scenarios being talked about. With a market capitalization of $3.2 billion, Walter would be a much bigger target though.
Volume continues to lag for Potash Corp of Saskatchewan (POT), coming in at 3.4 million and equaling roughly half of the three month average. As volume lags so too does the share price performance, and the only positive sign we could gather was that the stock did not want to go negative yesterday. It did, for a few trades, but every other time it tested the previous day's close the shares bounced back. In this market one will take whatever good news they can get, but we certainly are not excited about this one right now.