We are about as sure as one can be that both the Europeans and US Fed will move to act in upcoming meetings to help the world economy. Europe has been wrong for so long, it has to be right eventually - even by mistake. They say a broken clock is correct twice a day, and so too shall the Europeans at some point. Markets have to hope that is sooner rather than later though. Oil has moved higher on this news, and our Utica plays continue to move off of their lows. We will be listening to more conference calls today and anticipate a lot to discuss in coming days with all of the data which should be discussed in the Q&A sessions of those calls.
Currently we are bullish of oil and it is at the top of our buy list, with a few articles in the works to discuss why, so keep a look out for those in the coming days. We are warming to coal, but still unconvinced based on the charts so continuing to play those natural gas stocks diversifying away from dry natural gas and getting into liquids and oily plays. At some point in the future we will make the jump but for now we will continue to ride our winners.
Oil & Natural Gas
With Kodiak Oil & Gas (KOG) breaking above the $8/share threshold the shares were catapulted higher, with shares ending yesterday at $8.58/share after rising $0.42 (5.15%) on volume of 7.6 million shares. We were asked yesterday about the company's hedges and how those were a big part of how the company earns money, but that is part of the business. You lock in prices at levels you like in order to lower your risk profile and this is most beneficial to small E&P plays with high debt loads. Yes the profits then show up as resulting from financial instruments, but it is derived from their production and operations in reality. On the downside it looks good and on the upside it looks bad but at the end of the day it allows many of the small to medium sized players manage their debt flows and project their cash flows with some accuracy going years out. For those not familiar with the industry, this hedging is what has saved many of the dry natural gas plays as they sell their production at levels roughly 2-3x higher than spot prices.
AK Steel (AKS) helped push all of the steel makers higher yesterday, including US Steel (X) and ArcelorMittal (MT). AK announced that they will enact a price increase for carbon flat-rolled steel products and this ability to raise prices saw the company's shares rise $0.37 (7.54%) to close at $5.28/share. The move also set shares of US Steel higher by $1.22 (5.62%) to close at $22.94/share on volume of 11.8 million shares and ArcelorMittal's shares to move higher by $0.40 (2.65%) to close at $15.47/share on volume of 7.5 million shares.
The sector has been hit hard as global growth has been slowing and this could be very good news for the industry if it is indicative of companies' ability to raise prices for other products as well. Not only could this be good for the steel industry, but for other industries which support the steel industry such as the iron ore miners and the coal producers. Nothing to get overly excited about at this time, but we should take notice and file this away under things to keep an eye on.
We have noticed that Freeport-McMoRan (FCX) has been creeping up with shares rising another $0.84 (2.51%) to close at $34.34/share yesterday. Volume has also gotten back to more normalized levels of around 17.9 million shares as investors have moved to regain exposure to those metals which give significant bang for the buck when it comes to increased demand from global growth. Also helping shares is the fact that it now appears a sure thing that we get action from both the Europeans and the US Fed in the next few months and if both of those events occur then we could see Freeport trading in the $40/share range regardless of their issues in Asia and Africa.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.