5 Commodity Stocks Moving On News

Includes: AUQ, HK, NBL, PDCE, SLV
by: Matthew Smith

The oil and natural gas stocks continue to rise as investors continue to come back into the market and leave the safety of the sidelines. We think that precious metals need to join this rally in a meaningful way at some point in the near future but the question is when and not how. We already know about the easy money out there and the prolonged low interest rate environment so for investors with capital tied up there we recommend simply sitting tight and waiting it out. Merger and acquisition activity has begun to heat up and should it continue we would expect the equity side of the equation to be reevaluated based on that alone and not the growth in inflation which we see coming (to be clear we do not see hyperinflation, just higher rates than currently reported).

Commodity prices this morning are as follows:

Gold: $1690.50/ounce down by $0.30/ounce

Silver: $31.79/ounce down by $0.02/ounce

Oil: $95.32/barrel down by $0.17/barrel

RBOB Gas: $2.7554/gallon down by $0.013/gallon

Natural Gas: $3.41/MMbtu down by $0.013/MMbtu

Oil & Natural Gas

Yesterday Halcon Resources (NYSE:HK) shareholders approved an amendment to the company's certificate of incorporation which will allow it to increase its authorized common stock by roughly 333.3 million shares. This will bring the company's total authorized share count to 670 million shares. Also approved was the issuance of over 100 million shares in relation to the acquisition of acreage in the Williston Basin from two entities, as previously announced by the company. We would look for further deals as the company now has added currency to help assist it in assembling an attractive property portfolio for a larger player to eventually buy out.

We already disclosed that we exited our position of Rosetta Resources (NASDAQ:ROSE) earlier this week and stated at the time that although it was early in the trade that we had to do so due to options that will be exercised today. With the stock having closed at $49.47/share yesterday after rising another $0.98 (2.02%) we think that now is the time for everyone to exit the trade and move the capital to another trade. Yes we do like the company long-term, however it has moved higher on no news and nearing the level where it is priced for perfection. At this point there is no need to worry about an extra 1% upside, but rather the 5-10% downside which could wipe out all gains.

While we are on the topic of moving on no news, let's discuss PDC Energy (NASDAQ:PDCE) once again. We highlighted the stock yesterday morning after a strong move higher which set a new high and then in yesterday's session the momentum carried over. In our experience with resource stocks this type of price action on no news or other comments is usually due to the whisper effect, and if the company were to report some solid drilling results soon we would not count ourselves among the surprised. Do not get us wrong, we are holders of this stock and like its prospects but moves like this when news has not been the best are usually triggered by something. Needless to say we are watching this one closely at this time.

(Click to enlarge)

Chart courtesy of Yahoo Finance.

One could argue it is simply the company breaking through resistance, but usually a move like that is triggered by some news or market moving event...

Precious Metals

Not a whole lot has been said about Germany moving their gold back to the motherland. It is a nice headline which is certainly an eye catcher however it is going to be a slow process. The gold is currently worth $36 billion and the Germans will bring roughly 300 tons back from a vault in the U.S. and about 374 tons from France. One might wonder why this gold is not in Germany in the first place and this has to do with the Cold War and fears that the Soviets could invade and plunder the country's wealth. The locations chosen also doubled as locations where the country would be able to sell large amounts of gold due to markets being located there, so the sites were strategic for a number of reasons. Up until a few years ago Germany also kept gold reserves in London, but that has since been brought back and sits in Frankfurt.

It appears that this is a political move by Germany's politicians who have recently put pressure on the Bundesbank to take possession of the physical gold with the argument apparently being accountability and whether they know it or not a vote of confidence against both the U.S. and France in regards having to deal with their counter-party risk. We have not seen it yet, but a few years ago there were stories circulating that many gold bars held in the U.S. had been moved out and replaced by either spray painted bars or bars where they were plated or had a gold mold around some other metal. Now we think that idea is just preposterous, but it has popped up from time to time and with this event the news cycle will undoubtedly recycle it.

In our opinion this should have little effect on prices in the near-term for either gold or silver, but we still like physical silver or the iShares Silver Trust (NYSEARCA:SLV) and AuRico Gold (NYSE:AUQ) at these levels for long-term plays. There are plenty of other ways to play the area, but those are the two we like most this morning.

Disclosure: I am long PDCE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.