We are going to look around the commodity space outside of the oil and gas sector this morning. We recognize that most of our profits have resulted from trading in the oil and gas plays, but we need look to see where we will eventually deploy that capital and profits moving forward. We are still accumulating shares in those companies, which will be increasing production on a significant scale, but want to find the next play for ourselves and our readers.
We would like to point out that the U.S. 10-year is ticking higher and seems to be indicating that investors are rotating back into equities. It seems that the European fears are dissipating and a market rally could be on the horizon with ample firepower as money comes out of bond funds and is reallocated in equities. If this happens, look for the U.S. dollar to fall relative to other currencies and thus commodities head higher. It is a pattern that has occurred many times in the past, and shall once again when the economy turns.
Valero (VLO) rose $0.42 (1.47%) to close at $29.02/share on volume of 8 million shares, which grabbed our attention because shares were quite close to hitting a new 52-week high yesterday. Oil refiners across the board are showing strength, and rightfully so. Since June, shares in Valero are up almost 50% and we are not even in hurricane season yet. The industry has the wind at its back as there is cheap crude to be had with oil production up in remote parts of the U.S. with no way to make it to overseas markets, thus an abundant supply of below-market price crude. This environment will not last forever, but these are the times when the refiners make their money to hold them over for when the rougher times come around.
Agrium (AGU) has continued its run over the past few weeks, with the help of an activist hedge fund. The hedge fund wants the company to split its potash operations from its retail division and unlock value for shareholders. We are left shaking our heads at this request as the mix here has enabled the company to outperform its peers. Investors seem to be betting that something gets done here as shares rose another $1.59 (1.61%) to close at $100.37/share on volume of 1.3 million shares. The close was another new 52-week high, which seems to be the norm for shares now. We still like the company, but would dislike a split as it would take the diversification the company has achieved out of the equation.
Molycorp (MCP) is a stock that in the past we were quite bullish on but sold out for over a 100% gain. The stock has done a round trip and in fact is now trading near all-time lows. Shares fell yesterday by $0.90 (7.46%) to close at $11.16/share, closing just above the new all-time low reached during the session. A lot of this is due to the bubble being popped, but until companies in the industry get mines opened and production flowing Molycorp will continue to have to pay high prices for ore to produce metals, which supply huge margins. If only the company could get its own mine open and find a heavy rare earth element producer to sell it material. We do not find these levels attractive for investment and would wait until we have more answers on the company's Mountain Pass mine and production for other players in the industry.
Cameco (CCJ) is one of our favorite ways for U.S. investors to play uranium as it offers plenty of liquidity and is a real company with significant production. If uranium prices catch fire in 2013 and 2014 as we suspect then shares will move higher as well, possibly even dramatically. Volume was 2.8 million shares yesterday, a far cry from the days of the last uranium bull but still quite respectable when one looks at the rest of the industry and how volume has dropped off a cliff. Shares rose $1.38 (6.52%) yesterday to finish at $22.53/share, which is a level where we would feel comfortable opening a position. We will be making some moves at the end of the year to adjust the portfolio, and we will allocate some capital to uranium so Cameco will be one we focus on.
Investors cheered as Barrick Gold (ABX) said it is in talks to sell off an African subsidiary that has caused the company headaches in the past. The move highlights the value on the company's balance sheet, and with that revelation investors pushed shares higher by $1.38 (3.98%) to close at $36.07/share on volume of 9.5 million shares. The entire industry moved higher and if we were to see a few more deals like this within the industry then we could see an entire revaluation of the gold miners' shares. With the new CEO at Barrick, it would not surprise us to see further asset sales down the road with the company keeping its best mines and possibly using the cash from sales to buy other top-notch assets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.