This morning we are seeing gold bounce off of the $1765/ounce level and moving higher to the $1770/ounce level. We will also be watching natural gas prices as they have risen over the last week and we are noticing cooler temperatures in the US starting to set in. Even in the South the temperatures have been cooler and this could help burn off some of the excess storage we have from last year. Remember, we are beginning to like the natural gas story, but would rather investors invested in the companies targeting NGLs and oil in the shale plays with the dry natural gas as a byproduct rather than investing in pure dry natural gas plays. It is important to invest in companies which have diversified their production base.
Oil & Natural Gas
Halcon Resources (HK) closed Friday at $7.33/share and having watched this stock since the start of the big fall after the announcement from the large shareholder that they were going to do a secondary we believe that the worst is now over. It is our belief that shares will now build a base to then move higher with that move being news driven and fundamentally driven as new long-term investors are brought in to accumulate those recently released shares. We do want to make one thing clear here and that is we believe that the shares will outperform others in the sector, but will still face the same headwinds as the industry as a whole. So if the industry falls 10%, we would expect Halcon to fall less than that, and should the oil and gas plays rise 5% we would expect Halcon to rise more than that. It is relative now.
Another play we believe has potential to outperform both short-term and long-term is PDC Energy (PDCE) which has a really nice portfolio of land in the Utica wet gas window. The company is around Gulfport's (full disclosure: Gulfport is a company we own) acreage and should be in the same sweet spot. Now shares have come under pressure recently as the company announced that they would be going it alone in the Utica and not taking on a joint venture partner. Wall Street did not like it due to short-sightedness, but long-term that bodes well for the company and its investors as they will be able to reap all of the rewards of the excellent acreage portfolio they accumulated recently. We like current levels for an entry point and will become shareholders ourselves in the coming weeks.
Cameco (CCJ) continues to flounder around the $20/share level and is offering investors a myriad of trading opportunities to make money. This trade may be above some of our readers or outside of their comfort level, but we think that investors could buy a position in the shares and sell calls against that position to net 5% gains up front and the potential for another 2-3% if the shares do in fact get called. We would be looking at buying shares at current levels, selling calls for December and waiting to see how that plays out. If you get called you made some decent money while also getting a decent dividend and if you do not get called you made 5% off of the sale of the calls and got the added benefit of the yield from the dividend. This is something to think about as we begin to set up the uranium trade for next year.
We have a few companies reporting earnings this week and Mosaic (MOS) is one of them. The company's shares are trading near the 52-week highs and they will report their earnings on Tuesday. We expect the numbers to be somewhere in the neighborhood of the consensus, but we are not expecting them to knock it out of the park or miss badly. Long-term the high crop prices for corn, soybeans and the like shall help drive demand for potash and in turn push earnings higher at Mosaic, but we think that will be felt later on rather than now. That is one earnings call we are anxious to hear in order to get a handle on when we need to go bullish potash again (readers will remember we thought that this would be the year potash outperformed the commodity space, but that was not the case and we called that trade off with only Agrium having moved significantly higher).
The China Trade
Vale (VALE) has been a part of the China trade since we started that and whenever the shares have fallen below $18/share recently that has been a good entry point for traders. The shares are currently at $17.90/share after falling $0.26 (1.43%) on Friday on volume of 15.7 million shares. We would give our blessing to a trade here if shares fell further and investors could get in around the $17.50/share level. If $17.50/share does not hold, investors need to be aware that the bottom is further down and that they should plan accordingly (i.e., do not use margin for this trade as things could quickly blow up).