Commodities Today: Energy Sector Buys And Updated Guidance At Kinder Morgan

by: Matthew Smith


Discuss why Chinese stocks are moving strongly higher and how it could be a positive long-term for commodities.

Look at KMI's reiterated guidance and DVN's news that CEO Richels will retire in 2015.

Explain why investors might want to look at Goldman Sachs 'Conviction Buy List' for potential buys in the energy sector.

Traditionally when China's Shanghai Composite moves higher various commodities ride the coattails of the index to gains. Right now that is not the case because the big gains taking place on the Shanghai Composite are not due to a strong economy but capital inflows from the recently activated exchange link. Just as regulators here in the US have looked to create new bubbles in the economy to replace lost economic activity and wealth from bubbles popping, regulators in China are looking for ways to replace the void left since the real estate market cooled off during the 'Great Recession'. Allowing outside capital to work its way into mainland China's financial markets is one way to inflate asset prices and costs the country nothing. Now Chinese officials really only have to worry about inflation cropping up again.

Chart of the Day:

The US Dollar Index is actually down today with the market's reaction to Mario Draghi's comments. The other big component of the Dollar Index, the Japanese Yen, however is trading at multi-year lows versus the Dollar. We might have seen a top put in on the Dollar Index as many are speculating that Japanese officials will try to keep the Yen from falling below the 120:1 exchange ratio.

Source: BigCharts

Commodity prices are as follows (at time of submission):

  • Gold: $1,209.10/ounce, up by $0.40/ounce
  • Silver: $16.59/ounce, up by $0.178/ounce
  • Oil: $66.24/barrel, down by $1.14/barrel
  • RBOB Gas: $1.7901/gallon, down by $0.0169/gallon
  • Natural Gas: $3.692/MMbtu, down by $0.113/MMbtu
  • Copper: $2.9135/pound, up by $0.0415/pound
  • Platinum: $1,243.70/ounce, up by $16.20/ounce

Kinder Morgan Updates Guidance

Following the completion of its consolidation of its MLPs into the parent company, Kinder Morgan (NYSE:KMI) updated its guidance for 2015. The company still sees a dividend of $2/share assuming that oil prices are at $70/barrel, although the company did not reiterate its previous dividend growth guidance moving forward. The $2/share dividend would be an increase of 16% over the current $1.72/share rate.

In the near-term Kinder Morgan should be insulated from the swings in energy prices as most of their production is hedged, however the worry for investors is the impact that lower energy prices could have on the company's excess coverage. That number is now $500 million, down from the $2 billion in the presentation that Kinder Morgan presented to the market back in August.

New Leader At Devon

Devon Energy (NYSE:DVN) CEO John Richels will step down at the end of July 2015 which will pave the way for the Board of Directors to promote Chief Operating Officer Dave Hager to the CEO position. Mr. Hager, who has worked in various positions at Devon, will take over the company as they continue to implement their plan to drill more onshore domestic wells in recently purchased areas such as the Eagle Ford Shale in Texas.

Looking At Goldman's Conviction Buy List

Goldman Sachs is largely considered one of the top stock picking firms and routinely publishes its 'Conviction Buy List' which includes the firm's best ideas in the market. If investors are serious about trying to play a rebound in the energy sector, it might be worth mining the energy names in the 'Conviction Buy List'.

According to an article we ran across on CNBC, Kinder Morgan, MarkWest Energy Partners (NYSE:MWE), Plains GP Holdings (NYSE:PAGP), Targa Resources (NYSE:TRGP) and Tesoro (TSO) are all currently included on the 'Conviction Buy List'. Our favorite names on the list are Kinder Morgan and MarkWest, but we have seen numerous articles and video clips discussing the merits of Plains GP Holdings.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.