Europe once again appears to be ready to rescue Spain, this time putting money on the table to put to work. China's economic news indicates that the slowdown in Europe continues to take a toll on the Chinese economy and we will be interested to see the details of this new Spanish bailout and whether it can be replicated to the other trouble spots across Europe. Commodities can hold steady and/or advance marginally on the back of US growth, but that too appears under pressure and fragile at this moment. Considering all of this, Europe simply needs to address its problems and get its act together as that appears to be the key to righting the ship.
Looking at commodities, yesterday was a pretty rough day, especially for coal. We saw a bankruptcy in the industry and that really dragged down many of the players in the industry, even the healthy plays. We have remained on the sidelines as it pertains to those issues and shall remain so for a bit longer until the data indicates that we make a move. It is usually best to let the dust settle in these instances as well before one takes any drastic steps.
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Oil & Natural Gas
Kodiak Oil & Gas (KOG) remains strong with shares rising $0.38 (4.52%) to close at $8.79/share on volume of 7.9 million shares in trading yesterday. We believe it is important that the shares remain above $8/share and would like to see it break through the $9/share level as that indicates that oil prices are remaining strong and the general market is performing well. In the shale plays we follow, it is hard to think of another E&P play with so much leverage to the price of oil and thus our propensity to playing this one when we think the price of oil is going to move. The company should see improved results over the next few quarters as they realize better pricing for their production and lower transportation costs as pipelines are built around their production areas. The shares performed well yesterday with the chart being one of those which rises from the lower left to the upper right and has the shares finishing near the highs for the day. We will probably be re-visiting this one in the near future.
Also of interest to us this morning is Chesapeake Energy (CHK) and SandRidge Energy (SD) as we see these as two companies which scare regular investors away. There is still significant value here unrealized and for long-term investors we like both plays. For those short-term traders we think that you can play both companies for the upcoming Chesapeake Mississippian monetization via a joint venture partner. Sure, one could play a myriad of riskier and far more leveraged plays in the area, but we like risk/reward situation with these two players and the liquidity they offer investors. There should be a wave of joint ventures and/or monetizations in the industry over the second half of the year and that will force investors to revalue the assets held by many of the E&P plays. This will be a story to follow moving into the close of the year. SandRidge saw its shares fall $0.02 (0.31%) to close at $6.41/share on volume of 9.1 million shares and Chesapeake fell $0.06 (0.30%) to close at $19.98/share on volume of 18.3 million shares.
Coal
We highlighted Walter Energy (WLT) Monday in our 'Today's Market News To Trade On' column (see here) and the bad news continued for the company in trading yesterday. Walter was setting new 52-week lows during trading even before one of its competitors filed for bankruptcy, a revelation which only sent shares down even lower and finally putting in a new 52-week low (and daily low) of $38.76/share. Shares finished at $39.37/share after falling $1.75 (4.26%) on volume of 4.2 million shares. It is hard to be bullish on companies in the industry, and even though this is one of the more attractive candidates - due to its assets and constant whisper of takeover talk - we cannot get excited at this time.
We have already started purchasing natural gas exposure via some of our favorite MLPs in the sector and CONSOL Energy (CNX) has assets which are similar, as they are located in Ohio's Utica. Due to the natural gas, natural gas liquids and potential oil exposure here via their joint venture in the Utica we will most likely invest here first when gaining coal exposure. Shares finished down $0.72 (2.32%) to close at $30.34/share on volume of 3.5 million shares and most of those losses were the result of the bankruptcy news hitting the market. We think CONSOL will make it through the crunch the market is going through and has the potential to really thrive as natural gas prices recover over the next 12-18 months coupled with the exploration success we suspect they will experience in the Utica.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
