This weekend we looked through our watch lists and picked out some of the better names. We will be watching these over the next few weeks, but we wanted to highlight a few of the names today along with a couple of names which have been showing up in questions in our email box over the past few days. We want to address all of your questions, but find articles the best way to address those names which tend to create the most emails. So keep the questions coming either via email or the comments section on our articles and we will try to answer them all in a timely manner.
Oil & Natural Gas
We received a question regarding Gulfport Energy (GPOR) asking what to do with the shares off of recent highs and there is but one answer, to hold strong and add on dips. Long-term we believe this one is worth a lot more as they have the Utica indicating that it will be a company maker while also having an interest in a company with exposure to the oil sands in Canada and plans to start a new company with their Permian assets. Yes there is some financial engineering going on here, but we believe short-term the Utica has the power to move shares higher while long-term the other two will allow the company to scale up with the added financial liquidity there. Remember we have two more weeks and we will have another conference call to digest and hopefully some more positive indicators via the drill bit. We expect more good news.
Rosetta Resources (ROSE) had bounced back from recent lows, but shares are still within range of our buying range so we are still focused here. If history is any indicator, we think that we see the $42/share level hit somewhere in the near future and thus our entry point opened for trading. For those following us in looking to get in on this play, we would recommend setting up a full position with half being for trading purposes and the other half for long-term investing. We believe there is a 10-20% upside profit available short-term with greater returns over time.
Halcon Resources (HK) continues to see shares trend lower. Most of it has to do with the secondary one of their larger shareholders did not too long ago, and since this is more geared towards supply and demand on the share side, we think that shares will roar back once institutions step in with long-term holders to help balance out the supply/demand ratio. The company has a great management team and some pretty good properties, always a winning formula in our experience and the reason we are adding this to our short list of potential buys in the next few days.
Investors in Chesapeake Energy (CHK) have been strong recently. We discussed the fact that natural gas futures were headed higher and that with less dry natural gas focused drilling we would see a drop in overall production and hopefully enough of a drop to continue to aid prices in their move upwards. It is appearing that a perfect storm is brewing for Chesapeake shares as their unhedged natural gas production is increasing in value while the company has focused on increasing production of oil and natural gas liquids - all of which are positives for top-line growth. Couple that with the stronger margins afforded with NGLs and oil production and the falling drilling costs due to all of the new rigs hitting the market now and it is easy to see the bottom line improving too. This is a good play on a recovery in natural gas prices and pays a 1.7% dividend to keep you around. It is not a great payout, but better than most natural gas investment vehicles.
Lastly we would like to revisit rare earths and our comments on Molycorp (MCP). We have received a few emails asking us where we stand on this one and nothing has changed as we believe that at current prices the shares are somewhere between fairly valued and overvalued. Yes the company offers investors a nice trading vehicle on the back of rare earth pricing, but the bottom line here is that the company is going to have a multiple of somewhere in the neighborhood of 12-18 for the price-to-earnings ratio. This current $10-13/share range covers that initially and once the company demonstrates that it can indeed run their mine effectively and yield heavy rare earths, then we will revisit the situation but until then we fail to see anything changing.
Disclosure: I am long GPOR.