With the German court approving the EU bailout, we see Asia and Europe are higher this morning along with futures here in the US. The commodities are higher as well with gold, silver and oil all higher on our screen this morning and we continue to like how we have the portfolio positioned with exposure to precious metals (with a heavier weighting to silver than gold) and oil and natural gas companies drilling in wet gas areas of America's shale plays. So long as the story is the world economy turning around and higher GDP gold, investors can mimic our trade with precious metals, but once it becomes a story of cheap money and a rush to devalue currencies we would recommend quickly rotating to an inverse trade where gold would be the higher weight and silver a much smaller position. If that rotation is made, we would maintain the same overall capital allocation in precious metals.
Oil & Natural Gas
SandRidge Energy (SD) continues its march higher, with shares rising $0.08 (1.12%) to close at $7.20/share on volume of 9.5 million shares. The stock has broken higher after trading in a range finally moving through its upward resistance. It has been helped by the rise in the price for oil, even though most production is hedged, and general optimism in the sector by investors. We maintain that the shares will move higher by the end of this year, especially with Chesapeake Energy closing a deal in their largest play before that time. We like momentum, and this stock currently has it. We remain bullish until such time as it appears we have topped out here, so we will continue to keep readers posted.
Houston American Energy (HUSA) saw shares close at $1.42/share after rising $0.32 (29.09%) on volume of 1.2 million shares. The company announced that they had commenced drilling on the Zorro Gris #1, the third well on a block in Colombia named CPO 4. This has been a volatile play over the past year and is a player in Colombia which has proven a good place for doing business for numerous names over the years. For our non-domestic names with exposure to overseas markets this is one of the names we are currently reading up on. We want to see if there is any opportunity here for investors to make some outsized gains, and if we do in fact find some, we will be sure to cover it here in the future.
Valero (VLO) set a new 52-week high yesterday after shares rose $0.75 (2.34%) to close at $32.77/share on volume of 8.2 million shares. We continue to be in awe of the refiners and the margins they are current sporting, but in the back of our mind we are wondering how long it can last. It takes us back to about 8 years ago when the same arguments were being made about lack of refinery capacity growth and such, however now it seems that cheaper oil and spreads created by America's new energy push are what are driving results. This is what is keeping us bullish at this time, but as soon as we begin to see spreads close and oil prices rise to be more in line with world prices we will move to a neutral to bearish stance on the entire industry. Just something we wanted to point out this morning for those looking ahead.
Both Alpha Natural Resources (ANR) and Cliffs Natural Resources (CLF) rose strongly as commodities had another strong day yesterday and those with coal exposure seemed to outpace the general market and the commodity space in trading. Alpha saw shares rise $0.53 (7.66%) to close at $7.45/share, which continued its march higher after setting new lows just before the news out of China that it would invest in a stimulus plan. It is funny how quickly market sentiment can change, and that same sentiment is what has lit a fire under Cliffs as well. The shares finished above $40/share once again as the risk-on trade returning and investors looking at coal and iron-ore producers in a different light. Although the stocks usually bottom before their financial results do, the market knows this next quarter is supposed to be weak for many of the players, so that is one piece of information to keep in mind when placing bets on the sector (speaking of coal here, not the iron-ore exposure Cliffs has).