Oil has been nailed lately, and the price action there has forced prices lower in the equity market as well. Numerous stocks have been pushed down to levels where it has become 'make or break' for them and could provide for trading opportunities for that segment of our readership. We will continue to monitor those situations and report them as the stocks approach those levels as we have been doing and as we do again today with Kodiak Oil & Gas. If Christmas is going to be such a big year this year for retailers, we think that the economic news shall be strong enough to push oil back above the $90/barrel level and help our E&P plays move higher into the close of the year. We think that the prices being seen on many of these names right now will be near the low going into the end of the year.
Oil & Natural Gas
Don't look now, but Kodiak Oil & Gas (KOG) is now looking like it is going to test the $9/share level. It is setting up much like some of the other oil and gas plays we have watched suddenly break lower and just as the $9/share level served as an inflection point higher, it shall do the same on the way down. We would watch any positions held here, and potentially even hedge positions if one can find insurance at a cheap enough price (insurance being shop talk for cheap puts of course). Kodiak will report earnings November 1, 2012 according to the calendar we are using and it is fair to say we will see production up quarter over quarter and year over year. The key to the report will be the numbers and how much production the company is able to transport using pipeline rather than truck and what prices they are able to realize. As more production from the Bakken is able to be transported via pipeline, the producers will be able to see cheaper freight costs for those who must use truck and higher prices realized for production as the oil and liquids are transported to numerous markets rather than flooding just the nearest one - as has been the case. Shares finished yesterday at $9.12/share after falling $0.12 (1.3%) with 7.3 million shares traded. Remember, watch the $9/share level and whether shares breach that area in a move downward.
Newfield Exploration (NFX) saw shares fall by $5.86 (17.59%) to close at $27.46/share after the company announced quarterly results which fell short of Wall Street expectations. Although the report was bad due to the miss, the company did announced that they were reaffirming their guidance for production for the year. Also of note is that Newfield stated that they have had strong results in Central Oklahoma. We are not ones to put a lot of weight on meets or beats or misses on earnings numbers for resource companies with nice resource portfolios. We really like what we read about the portfolio and where the company is working to develop their acreage, this is one we will cover in depth moving forward and are quite intrigued at current prices. Seems that the company is in every significant play being developed right now, and that is where we want to be.
We received a few comments yesterday after our comments on gold, and we wanted to clear something up which seemed to cause some confusion. To put it simply, we still like Yamana (AUY) and its prospects moving forward but at current prices and with where physical gold has drifted we just really like our other recommendation now. This one has remained strong, but we like to look forward to where stocks are going and based off of that we think that our comments yesterday are spot on for those searching for capital gains over the near-term.
One gold company which we had turned bearish on and warned readers to sell was Freeport-McMoRan (FCX) and that call now looks better as the share price has cooled off after the company's earnings announcement. We are not super bullish here, but we do notice that shares have backed down to the $38/share level which we think opens up the door for traders. This is something which we have talked about before, but as always we want to warn investors of the pitfalls in the road ahead and with this trade there are many. First we have Europe to worry about, which is in more ways than many would think linked to China and vice-versa and also the implications of rulings in Africa and Asia regarding the ownership structure for the company's assets in those areas. We see 5-10% upside for traders here, so long as we do not have a general market sell-off.
We have talked about the railroads before in our articles here because of how they are influenced by coal and other commodities, but mostly coal. We watch these plays now due to it and watched as Norfolk Southern (NSC) fell $4.92 (7.45%) to close at $61.09/share on volume of 11.5 million shares. Of note is the fact that the company's shares hit a new 52-week low as the company was downgraded by analysts and investors were chased away. We are not ready to jump in just yet, but this is precisely the reason we recommended waiting as it takes time for these stories to play out. And it most certainly is as the company stated that coal volumes continue to decline, although the change has not accelerated but continued at their same pace.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.