Commodities got crushed on Friday, due mainly to U.S. economic news but also because China had horrific economic news themselves. Oil fell down to $82.63/barrel and put a lot of pressure on all energy equities, although we must note that coal equities hit 52-week lows across the board (a majority of them) early in Friday trading before rallying throughout the day to actually be one of the better performing sectors in trading. Gold may be where the next bull market appears, but with the fickleness of the gold bulls over the past few months and with a need of many fund managers needing to take funds off the table we are not sure that the gold bears will allow this to get into a bull run.
We are holding off on buying any new positions, but certainly refining our "wish list" to nibble at as prices head lower. Remember we like companies which have growth profiles, not growth based on underlying commodity price increases but actual production growth. With production growth one can see their companies prosper even in a flat market for their underlying commodity and even sometimes in a down market with that same commodity - so long as production growth outpaces the price falling.
Oil & Natural Gas
Chesapeake Energy (CHK) was down sharply on Friday as oil collapsed. Shares closed down $1.32 (7.81%) on volume of 39 million. The company did announce a new discovery in the Anadarko (APC) Basin which looks very promising, being very wet with a heavy skew towards the oil. Investors need not worry about this being a new money pit, because the company has this acreage already HBP'd (Held By Production) so intense drilling is not necessary as it is in the Utica and Mississippian.
Sticking to the "things will get worse before they get better" theme we have been discussing as it pertains to coal, we saw what seemed the entire sector hit 52-week lows during the day. Alpha Natural Resources (ANR) did reach single digits, which is something we have previously discussed and in the process was in the group which hit new 52-week lows (although it did not finish at those levels). Shares closed at $10.43/share down $0.05 (0.48%) on volume of 13.7 million. Coal stocks, as a sector, were strong, far outpacing the general market and that is something to take notice of. Although we think these plays have further room to head lower, we think there are other sectors out there which can go much lower simple because coal has already taken many of its hits.
Goldcorp (GG) was up $3.17 (8.75%) to close at $39.40/share on volume of 12.1 million. Gold was a big winner Friday, and it was strong enough to not only get above $1600/ounce, but actually close above $1600/ounce. Investors need to watch and make sure that the bears are not able to seize upon the profit taking in gold or any weakness, because that has been how each of these bull rallies ends over the past few months.
Freeport-McMoRan (FCX) had a strong day when one looks at the general market and most of the commodity markets as well. When compared to the precious metals markets though it lagged, but one must remember that this is a copper stock first and a gold stock second. Diversification paid off yesterday by minimizing the blow of horrible economic news. Volume was 21.9 million and the shares finished up $0.03 to close at $32.07/share. If one wants to play the gold market, there are far better pure plays out there, if one wants to play copper at this time, our recommendation is to not.
Vale (VALE) was down $0.25 (1.37%) to close at $18.06/share on volume of 25.8 million. We have noticed that the shares have put in intraday lows at $17.96/share a few times and that this seems to be a support level. It will be interesting to see how long this one can remain closing above $18/share as we see poor economic news piling up and some of the company's biggest export destinations' demand cool. Yes shares have been hit hard already, but it is not our opinion that this recent base is the lowest that shares will go. Bad news has piled up, and the world economy seems to be slowing considerably so it is but a matter of time before shares are repriced. That is how we are playing this one, and after that sell-off, assuming that Europe and the world are not falling apart, we want to be buyers of this one - either shares or options, but we do not know at this time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.