Commodity stocks were nailed yesterday with coal getting hit hardest and all other plays red as well to varying degrees. We remain cautious of coal prices and if the top coal company cannot provide good operating results or a decent outlook, then what does that say about the rest of the industry? Not a whole lot is the answer to that. Many will get their own chance to discuss outlooks and results in the next few weeks, so plenty of news to look forward to.
We have crude inventory numbers due out today which should continue to display just how much production of oil has grown here in the US as we expect to see above normal supplies - which would be no surprise as that has been the case for quite some time now. As bad as things are these days, we are seeing a few buying opportunities present themselves and even with the European issues we think that over the next few days we may find ourselves buyers of some small positions or added a little to current positions.
Oil & Natural Gas
Over the past few trading sessions we have seen many of our oil and natural gas exploration and production plays hit relatively hard. There are some really intriguing situations out there right now with risk/reward ratios looking attractive at current levels. We will probably find ourselves buyers in the next few days should we once again find these names at levels they were at before the last rally. Here are some of our favorites right now which are once again entering that attractive buying area.
Gulfport Energy (GPOR) broke through the $20/share level in yesterday's trading session as shares fell $1.03 (5.00%) to finish at $19.58/share. Volume was light with 737k shares traded which is about 30% off of its three month average daily volume. We think this is a buy below $20/share and if you can get it in the $17-19/share range then that would be really lucky. We will be watching this one closely as they do have earnings coming up soon and we think that investors will cheer the company's progress over the next 6 months in the Utica which we think can push shares up to the $50/share level.
Kodiak Oil & Gas (KOG) has fallen through two important levels in the past week and now it must regain its footing, but if one can get this around the $7-8/share level that would be a good level to accumulate shares to either start a position or add to positions already established. The volume remains strong here (7.6 million in yesterday's session), so there is no liquidity issue and the company's business is only improving with the moves they have taken over the past few months to lower costs and increase revenues - all while not needing production to increase at all to increase either the top or bottom lines as it most certainly will.
SandRidge Energy (SD) has long been one of our favorites for day trading and/or short-term trades to play bounces in the shares or industry as a whole. We like to buy as close to the $6/share level as that has proven to be a good entry point on more than one occasion. Like Kodiak, SandRidge is extremely liquid as it constantly trades over 10 million shares per day and after yesterday's $0.18 (2.75%) drop with shares closing at $6.36/share we are quite interested if we can fall another 3-5%. We think that once Chesapeake does their joint venture in the Mississippian that investors will push SandRidge shares higher and the company should have further positive drill results to announce this quarter. Investors should remember that last quarter the company found a sweet spot in the play which was producing extremely high amounts of oil.
We like all three of these plays as they have high exposure to oil prices and are increasing their oil production through drilling. Gulfport is the most diversified play, however SandRidge also has older assets in the Permian where it is quite cheap to drill and increase production which the company is currently doing. If one believes in the long-term price of oil and the economy pulling through then these are the plays to be accumulating in the areas we mentioned.
Iron Ore & Copper
We are combining these two this morning in order to discuss both Vale (VALE) and Freeport-McMoRan (FCX), both of which are facing the exact same headwinds moving forward from an economic standpoint. From a company standpoint, both of these plays have issues unique to them and that is the reason why both fell hard yesterday. First investors pushed Vale shares down to a new 52-week low as it appears that there is a revolving door in the executive offices as the company was forced to replace its CFO after he took a job at another company. Shares traded lower by $0.82 (4.47%) to close at $17.54/share as 35.5 million shares traded hands. The current yield of 6% looks to support the shares around this level, but we do not think there is reason enough to purchase the shares until after the earnings announcement. Hold off for a day if you must, but the economic issues in Europe and China lead us to want to continue to sit on the sidelines.
The same goes for Freeport-McMoRan when discussing global issues, however it looks like Indonesia is going to get a stake in the company's subsidiary there which will bring its total holdings up to the average we are typical of seeing globally. It will be expensive, but if that alone can save the company from having to sell a majority stake in its projects after 10 years of production then we think it is well worth it, although it appears that that is a big if. Freeport does say that their current operating agreement exempts them from that law, but these situations are fluid. The shares have still not yet reached the level which we have previously stated where we would be buyers, but we are getting awfully close. Shares closed at $31.68/share after falling $0.94 (2.88%) in yesterday's trading session.
DISCLOSURE: I own GPOR shares.
Disclosure: I am long GPOR.
Additional disclosure: I may initiate positions in the next 72 hours.