If the news out of Europe is to be taken seriously, we know that Spain is having funding issues but the central bankers are discussing a more centralized financial center which the market likes, and likes a lot. Futures jumped about 100 points on that news which took us into positive territory after having been lower earlier this morning. This could provide cover for a brief rally in the commodities space, and for traders that means money can probably be made by trading those names which are highly leveraged to economic growth. Think copper and iron ore producers to name a few.
Oil & Natural Gas
We did a bit of buying yesterday as we stated that we might and now have pretty much filled our exposure to our liking on those stocks which were already in our portfolio with exposure to the Utica play in Ohio. So now we have to adjust our watch list and figure out what is on the top of our buy list this morning. So let's take a look:
In regards to the Utica we will probably have to buy some Chesapeake Energy (CHK) in the near future as many of the smaller players we liked have rallied in the neighborhood of 20% and those which are displaying value now represent an overwhelming percentage of our portfolios that they are in. Chesapeake will provide further diversification with the myriad of assets they have in their portfolio and after finishing higher by $0.46 (2.73%) to close at $17.28/share yesterday we still think that the shares offer upside for investors. The easy money has been made on the bounce off of the lows after the big boys moved in, but there is still some value present here, especially once the company displays that uncanny ability to once again sell assets at good prices for investors. The company also offers a 2% dividend that adds to the attractiveness here, but that is not why we will be buying.
Also of interest down the road will be Encana (ECA). The company's shares traded lower by $0.60 (2.94%) to finish at $19.78/share on volume of 8.8 million shares. The shares should have some support around these levels, assuming Europe does not fall off any fiscal cliffs. The dividend yield is at 3.9% right now and so long as that holds it should help investors by creating a floor and providing investors with yearly income which is roughly twice that of peers such as Chesapeake. The production profile here will be growing at the base level and in the categories which matter, namely the oil and natural gas liquids categories. Aggressive growth paired with an attractive dividend sure looks attractive to us this morning.
Coal
Coal stocks have been hammered the past two days after Peabody Energy (BTU) reported disappointing earnings coupled with a disappointing outlook. It has created a shakeout throughout the industry as the blue chip names are hammered but the lesser names are hit even harder. Shares in Peabody fell another $1.50 (7.30%) to close at $19.05/share yesterday with volume once again over the 20 million mark as 21.1 million shares were traded. Shares hit a new 52-week low in yesterday's session and having fallen below the $20/share level it has now fulfilled our prediction from a few months ago, which many did not think possible…a sub-20 Peabody.
Speaking of new 52-week lows, Arch Coal (ACI) also set a new 52-week low in yesterday's trading session. Shares finished at $5.31/share having lost $0.23 (4.15%) on volume of 12.9 million shares. The company does have earnings this week, but we would not expect anything good, as it is hard to imagine Arch somehow performing better than Peabody, not saying it is not possible but simply stating that it is a pretty long shot at this point.
CONSOL Energy (CNX) have seen its shares come under pressure on the heels of the Peabody earnings and issued guidance. Yesterday they fell in sympathy with the industry again, finishing down $1.61 (5.46%) to close at $27.86/share on solid volume of 5.98 million shares. The coal is killing the share price here, but we do have natural gas and what should be increasing exposure to oil and natural gas liquids moving forward due to their joint venture in Ohio's Utica Shale.
We do have a two day trade on in the coal sector but it is merely a day trade and most certainly not an investment. The chatter out of Europe looks like it may help the position, but the jobs numbers will probably be of more importance at this point. We may have to wait until next quarter until we are ready to make buys in the sector for our long-term positions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
