Today will be a big day for commodities as we will move one way or another based on what comes out of Europe from the leaders of the continent and those charged with leading the European Central Bank. They need to be more like the US and less like themselves, and if this were to happen over the next few months we would see a huge rally across the world and a rebound in Europe and China's economic growth rates. That is really the key for commodities, and after the US Fed passed on action this meeting to allow the Europeans to do some heavy lifting for once we are now at their mercy. If the ECB fails to react or fails to react accordingly then we shall see a decent sell off and the need for US policy makers to step in and rectify the situation.
We are going to highlight two companies today who reported earnings and traded higher yesterday along with some stocks to watch if we do get the news out of Europe that the market desires.
Oil & Natural Gas
Talisman's (TLM) shares continue to trend higher after their deal with the Chinese to sell a minority stake in their North Sea assets. Yesterday shares traded higher by $0.90 (7.28%) to close at $13.27/share as the company reported results which beat analysts' expectations, but were down against comparables. The stock finished near the highs for the day and traded a healthy 11.9 million shares. The company is big in both the Marcellus and Eagle Ford Shales here in the US, and is a big dry natural gas player. So as prices rise, this should help shares as free cash flow is generated to help further drill out their really attractive properties. The story is getting better here, but we still think that there are better areas to play in the sector than Talisman.
EXCO Resources (XCO) saw its shares rise $0.46 (6.53%) and close at $7.50/share on volume of 11.9 million shares after reporting its earnings. The company handily beat the estimates for bottom line results, however they missed on the top line. The company's production is heavily skewed towards the dry natural gas which has been hit hard over the past year, but prices appear to have bottomed and are actually moving higher quite strongly. Wilbur Ross has to be happy, but we have a long way to go before investors who got in at that time actually break even from those entry points.
The European Trade
This morning we want to point out three possible trades which could be intriguing if the ECB gives investors something to cheer. We think that Alpha Natural Resources (ANR), Kodiak Oil & Gas (KOG) and Freeport-McMoRan (FCX) could provide investors with outsized gains relative to the market should we get serious action out of Europe's leaders. We are not buying these this morning, but simply pointing out that these would be good options if that news does come out. All three were down yesterday, with Freeport and Kodiak trading on lower volume than their recent averages . Freeport is a trade on the copper and gold sectors and Kodiak on oil - we think it is one of the best junior oil E&P plays out there with much of their production skewed towards oil rather than natural gas.
Alpha has been on a tear recently, and has looked strong on days when it should have been down so we have seen strength building here. Any good news out of Europe which could help their economy would also help China's and this would most certainly be bullish for the entire coal industry. We just think that Alpha provides the most liquidity and leverage when trading and that is why we have traded it ourselves and decided to highlight it this morning.