We have reviewed some of the conference calls at this point from our Utica plays and really like what we have heard. It appears that the wet gas window is the area to be and with that said we may be giving out a few new recommendations in the next few days or weeks. We do like oil and natural gas right now, are warming to coal and watching in amazement as the grains move sharply higher. Looking at the metals, we are weighing whether we want to re-enter that trade or not and specifically looking at silver. Before entering that trade we would like to see central banks ease a bit, but at these prices the risk/reward ratio does appear attractive, thus why we are torn. We would buy physical silver if we were to buy more and stay away from the exchange traded paper.
Oil & Natural Gas
Last night one of our favorite oil and natural gas plays, EV Energy Partners, LP (EVEP), reported earnings. We were less concerned about the financial results and far more concerned with what they would report in regards to the initial results from their Utica oil window drilling program. On the surface it was a bit disappointing to us, but we are not going to rush to judgment on the results as it is not an apples to apples comparison with competitors who have reported results. Further it is the first well that has been drilled and one well does not shed light on how an entire play will turn out. There will be a conference call this morning to discuss the quarter as well as the exploration results and probably an update on the Utica monetization process. We will be listening to the conference call, but regardless of what is said we will hold our shares and options and keep our current holdings at least at current levels. So we could be buyers if a big pullback were to occur. Shares closed up $1.15 (2.14%) yesterday to close at $55.03/share on volume of 190k.
We received the question yesterday asking if we were buying coal stocks yet, and the answer to that is that we are not today but the time appears to be quickly approaching from the numbers we are looking at. Alpha Natural Resources (ANR) rose $0.95 (15.08%) to close at $7.25/share yesterday on strong volume of 30.9 million shares. Arch Coal (ACI), also rose sharply as investors bid shares up by $0.49 (7.07%) to close at $7.42/share with 17 million shares traded. Volume was above the three month daily average at Arch as well as Alpha and the strong volume with volatile price movement seems to have become the norm here.
We will be buying shares once the charts confirm it, but our investing in the Utica plays has paid off pretty well up to this point and although our trade is not outperforming the results in the coal sector by as much as we thought they would, we are still green on the difference and the trend is confirmed where we have parked our capital. We would like to see a leveling out in coal stocks at these levels going into next quarter and if we can see this ahead of next quarter's earnings we would then become buyers. Remember, we will move into the blue chip names first.
Investors in Freeport-McMoRan (FCX) have to be happy this morning as shares closed at $36/share after rising $0.38 (1.07%) on volume of 13.8 million shares. The company did trade a bit above that level during the session but this is an important area for the shares. Currently they are trading at a three month high, and if we can see shares trend a bit higher we will see whether the company can break through some upwards resistance. It has been our opinion that we need some closure on the questions surrounding Asia and Africa and the tax regimes and ownership issues, but if the risk-on trade is back (as it appears that it is) then all bets are off and shares can rise back above the $40/share level even with those outstanding questions.
We have talked before how we were quite wrong on our potash trade we liked at the beginning of the year, but it appears that being bullish of one of our three picks was the correct trade. The pure plays were not the correct trade, rather diversification was to be valued. Agrium (AGU) is the company we are referring to, as their shares almost set another 52-week high yesterday on the strength of the farming bull market. The company supplies farmers with potash and other supplies via their network of stores and they are diversified among geographic areas due to acquisitions the company did over the past few years - namely in Australia. The draught is hurting the corn crop, but pushing prices up across the board and with crop insurance and other tools at the farmers disposal many of them will not be harmed irreparably coming out of this as they would in times past during draughts of this magnitude.
Disclosure: I am long EVEP.
Additional disclosure: I own the stock and LEAPs at various strike prices.