Commodities have hung in quite strong lately, surrendering little of the gains they added during the big run up. We expected more of a pullback, and we still might get that but at this point in the midst of earnings season we have been pleasantly surprised by the price action.
We have jobs numbers and other economic data out today and that could very well push the markets, and by extension commodities, one way or another. For now it appears they will open green so long as the jobs numbers are respectable.
Oil & Natural Gas
Today we are going to focus on the natural gas and oil portion of the commodities arena, as we see some good price action and what appear to be attractive prices.
Rosetta Resources (ROSE) has bounced back nicely from its recent lows set before it was announced that they would be added to the S&P midcap index. That gave support to the shares and allowed them to bounce back above the $40/share level. Yesterday the shares had another strong day before backing off a bit, but still managed to close up $0.85 (2.02%) to finish at $42.85/share. Volume was relatively strong with 1.2 million shares traded. This is a $50/share stock and we would begin accumulating here based on the company's assets in the Eagle Ford Shale alone.
While discussing oil and natural gas this morning we want to reiterate our bullishness for all things Utica. Specifically we like Chesapeake (CHK), EV Energy Partners, LP (EVEP), Gulfport Energy (GPOR) and Rex Energy (REXX). As of right now we would recommend being buyers of EV Energy Partners and Gulfport Energy - and in fact we have been aggressive buyers of deep in the money calls for EV Energy Partners, so we have put our own capital on the line here and really do like the risk/reward ratio.
We already had Rex Energy report earnings, and they were fair. Nothing really blew us away, but that is to be expected when developing a play and getting everything prepared for the big buildouts. The shares have been quite strong, so we would only add on pullbacks at this point.
We think Chesapeake will have some interesting news regarding the Utica in the Q&A session of their conference call and would expect to learn more about the oily portion of the Utica play this quarter. We could see a surprise asset sale prior to the quarter ending, but since they have made no promises that we are aware of like in prior situations we would not expect this.
Quickly looking at Gulfport this morning, we think that it was unfairly punished when commodities were taken down and oil especially. The financing by company backers has been called into question, but the assets are there and no one is questioning those. The $20/share level is a very fair area to be accumulating shares for another run up to the $30s. It is still our opinion that this is a $50/share stock based on the assets and development plan of the company.
We will have more regarding the Utica in an update we are working on, and will discuss the oil results a bit more as well as a more in depth discussion on our outlook. Until then good trading.
Disclosure: I am long EVEP. I am long both the shares of EVEP as well as various call options for the Jan '14 date.