We are building up our funds to buy on the weakness we are seeing in certain commodity plays these days. We believe that we are still in a bull market for commodities, just one of the small pullbacks that take place during those runs. We are currently overweight in the oil and natural gas and precious metals names right now as that is where we see the next move higher coming from. We like the small cap names in both of those areas most and the biggest names in those industries least.
We will have crude inventory numbers out today which is a number that was once much more important than it is today, but nevertheless it is still newsworthy from time to time and serious investors must keep up with it.
Oil & Natural Gas
Yesterday we watched as SandRidge Energy (SD) fell $0.27 (3.67%) to close at $7.08/share and settle at levels which shall either provide a bounce higher or provide upwards resistance should shares fall below the $7/share level. We have been adamant in our belief that SandRidge is a long-term play on the health of the American and worldwide economy via oil prices coupled with the growth plans via the drill bit. This is a name to buy on weakness as we see bullish news ahead in the short-term regarding assets sales from competitors in their area and further drilling success in their main play.
One of our biggest winners from this article series recently has been AuRico (AUQ) and yesterday's price action was a result of the company selling a mine for $750 million, putting on display for investors the hidden value within the asset portfolio which we have been discussing. We still believe that the shares are worth over $10/share, and although shares rose by $1.32 (20.56%) to close at $7.74/share (and are up sharply from the lows set earlier on the bad earnings and operational results) we believe that there is plenty of value still present here. Look for a pullback here to buy shares if you do not already own any as there is no need to chase issues higher in this market.
Yesterday refiners got slammed as the Justice Department stepped up and took what appeared to be a strong stance on consolidation. There were not any deals blocked, but more information has been requested and it appears that any deals will come under a lot of scrutiny. Tesoro (TSO) was a big loser with shares falling $2.29 (5.59%) to close at $38.70/share on volume of 10 million shares. Investors are worried about their latest deal for the Carson refinery as that would put a majority of refining capacity within the control of the company and competitor Chevron (CVX).
Speaking of Chevron, the company came under pressure as earnings disappointed. Shares finished the day at $112.45/share after falling $4.91 (4.18%) on volume of 16 million shares. After yesterday's action the yield is now up to 3.10% which is a pretty nice payout for an energy play that is not a flow through entity. We tend to shy away from the super capitalization energy plays and instead invest in easy to understand E&P plays, but Chevron is a stock which we have watched for a while and one on the short list for retirement money to be invested in.
We also saw shares in Valero (VLO) fall below the $30/share level as shares fell by $1.93 (6.15%) and closed at $29.47/share. The news out of California is not good for the industry as it makes them public enemy number one, but California has a history of regulating themselves into paying sky high energy rates (think electricity and gasoline). Valero had high volume in yesterday's session with 19.4 million shares traded. For investors looking to add exposure to the refiners we would recommend the current pullback as a possible opportunity for an entry point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.