Seeking Alpha
Long/short equity, special situations, momentum, growth
Profile| Send Message|
( followers)  

We saw a strong market rally on Friday which carried many stocks higher, including those in the commodities space which was welcomed with open arms by investors as many got stronger throughout the day. We saw many of our oil and natural gas E&P plays move strongly higher and we are pleased to have been purchasing many of these at much lower prices over the past month or so. This is a great market to be building both investment and trading positions but one must keep the two segregated in this market because to move trades into investments is something we considered a trading sin. Pick your points and stick to them.

Oil & Natural Gas

After listening and re-reading the SandRidge Energy (SD) conference call we are a bit confused as to why shares were hit so hard. It appears that the analysts are missing the point and not respecting the assets which are sitting in front of them. You have to have capital expenditures in order to grow any business and some businesses require you to invest that upfront in large sums of money in order to have success. That appears to be the case with SandRidge and they are building a solid production base with their Mississippian and Permian plays. One of the big issues coming out of the conference call was that the company is not necessarily going to be selling anymore acreage, and at the end of the day we think that this probably added more pressure than the capital expenditures. One can view this two different ways and we are in the camp that it is not a bad thing, but rather a good one. Shares finished down $0.21 (3.19%) to close at $6.37/share on volume of 28.5 million shares.

Kodiak Oil & Gas (KOG) held on to their gains during the day Friday closing at $8.16 after rising $0.60 (7.94%) on volume of 12.5 million shares. The company continues to ramp up production and cut down on costs and most importantly for investors the company lacks significant exposure to the volatile natural gas market. We did see Kodiak shares finish above the $8/share level, which is a good thing for traders but it will be important to see whether they can continue their forward momentum at this point.

The next big earnings announcement from the E&P plays will come from Chesapeake Energy (CHK) today. Shares sold off into the close on Friday to close at $17.89/share after trading lower by $0.04 (0.22%) on volume of 17.7 million shares. It closed very near the day's lows and that type of price action ahead of earnings is not something which gives us warm, fuzzy feelings. The earnings will tell one story but the upcoming conference call should have some good information in it telling the long-term story for investors. We expect to get more color on the Utica and to hear further positive news regarding the Eagle Ford. Investors need to pay attention to the news regarding the Permian and Mississippian plays and the timelines for any sales.

Rare Earths

We are pleased that we sold our Molycorp (MCP) shares a while ago and did not keep them to complete a round trip, which the shares have now done as they closed below their IPO price. In Friday's trading investors saw shares finish lower by $4.58 (28.50%) to close at $11.49/share on volume of 21.1 million shares. The earnings were disappointing, and the company had reasons for it but we are left wondering how much weight to put behind these excuses. We have been spending less and less time analyzing the rare earths as of late, however Molycorp is one of the few actually cranking out material and are still in the running to be the first to open a mine and create a fully integrated supply chain.

Steel

ArcelorMittal (MT) rose $0.98 (6.96%) to close at $15.07/share on volume of 14.1 million shares. The stock is coming off of recent lows and it appears that the good news coming out of Europe is helping, although we would argue that the news needs to get much better in order to push shares higher. Investors should also know that the company's debt was recently downgraded to junk status so this could either mark a bottom or the beginning of trouble moving forward. Our guess is that we are seeing a bottoming here and that the metrics will be improving, but that is factoring in Europe purchasing bonds and fixing their issues at home.

Source: 5 Commodity Stocks Moving On News