Is the Commodity Party Over
Steel, agriculture, oil, coal, natural gas - what do all of these have in common?
They recently surged and recently bombed, almost at the same time. That has all th ehallmarks of a sector rotation - big money moving in and then out.
There is no doubt that a lot of related companies surged purely on momentum. That’s why we waited for a significant pullback before jumping in. Because the fundamentals are still strong. With oil still up 40% since last year, why the pullback to 5 month lows?
Look at coal. China is experiencing blackouts because of major coal shortages
http://www.bloomberg.com/apps/news?pid=20601080&sid=aiyKnEEj9qZ0&refer=asia
“Coal inventories at State Grid, the country's biggest power distributor, were enough for about 11 days of consumption as of July 6, compared with 12 days in April and 15 days in March”
Want coal? Better buy it and ship it in (hence my OSG and why I also went with DSX before getting stopped out)
I keep checking my assumptions and asking the question: was I snookered on oil/coal/natural gas? Put differently, was this pump-and-dump or are funds just doing a bit of sector rotation in and out, and then back in. All signs point to a positive future for these energy related stocks, so I am sticking with them.
I think this was ashort term need for cash and the fattest stocks got taken down. I thought a 15% hit was the pullback but it looks like a 30% pull back was on th ecards. We have 6 months for our options, and that's plenty of time for the money to roll back in
OIL
My premise is basic.
1. Upside potential. In the last quarter, oil prices were up 40% and the same this quarter so far. Natural gas is up 30%. That’s a lot of upside potential
2. Better profitability. Independent companies are interesting because they have lower operating costs and can be profitable where the big boys can’t be.
3. Consolidation potential. Always a potential with the massive cash floating around.
4. Dividend increase potential. Again, lots of cash may lead to more dividends.
5. Earnings are close and this is pre-earnings jitters
MUR – A very integrated company: extract, refine, and retail oil. The key areas of interest to me are:
* Increasing extraction at higher oil prices
* Increasing retail sales thanks to Walmart co-locations
I expect triple digit returns this quarter and going forward: higher oil prices and higher retail sales. Analysts expect a 50% increase in EPS, but I could see it even higher.
I also see this as undervalued: from Oct 2007-March 2008, the stock traded $70~$80. Meanwhile, oil has doubled in price. In fact, at today’s price, they are up only 30% in 1 year. And the forward P/E is 7.
DUG – Our anti-oil price move. Staying with it for a while because I see major efforts to drive oil down to $120.
WLL – Oil and gas extraction. They will benefit from higher fuel prices.
SM – An independent oil producer. Very bad. They collapsed under the 50DMA and look to still be sinking. That’s a 30% pullback in 1 month. At this point, the stock is up 20% in a year – less than the price of oil.
MMR/PXD/SD – Independent gas/oil producers.
MEE – Coal producer. Down 30% despite a major coal shortage?
CLF – Steel and coal go hand in hand. They are a major owner in an Australian mine and that is valuable because of proximity to China. The recent move to buy ANR is about coal.
OIL/GAS INFRASTRUCTURE
GTLS – Fuel storage. Also, I think they may be enjoying an export benefit from the weak dollar
UNT – A contract driller. When oil goes >$100, everyone wants to sink a well. I look at UNT as the equivalent of shovel makers during the gold boom in California. They don’t have to find oil to do well.
CPX – Drilling equipment and service provider
SE – The largest natural gas transmission company in North America.
FRO/OSG – OSG is up ~$5 since we bought. China must import more food and coal, that means busy times for tankers.
http://investerms.com/top_news/558.html
Follow this logic. Tankers (they carry oil) cost ~$100K per day. So folks were making them run fast, moving oil back and forth. That increased operating costs (faster speeds use up more fuel).
So now they will slow them down. That will likely do a few things.
* Marginally reduce oil supplies
* Increase tanker revenues: this reduces availability of tankers while not affecting days rented out. That could mean higher prices.
They recently surged and recently bombed, almost at the same time. That has all th ehallmarks of a sector rotation - big money moving in and then out.
There is no doubt that a lot of related companies surged purely on momentum. That’s why we waited for a significant pullback before jumping in. Because the fundamentals are still strong. With oil still up 40% since last year, why the pullback to 5 month lows?
Look at coal. China is experiencing blackouts because of major coal shortages
http://www.bloomberg.com/apps/news?pid=20601080&sid=aiyKnEEj9qZ0&refer=asia
“Coal inventories at State Grid, the country's biggest power distributor, were enough for about 11 days of consumption as of July 6, compared with 12 days in April and 15 days in March”
Want coal? Better buy it and ship it in (hence my OSG and why I also went with DSX before getting stopped out)
I keep checking my assumptions and asking the question: was I snookered on oil/coal/natural gas? Put differently, was this pump-and-dump or are funds just doing a bit of sector rotation in and out, and then back in. All signs point to a positive future for these energy related stocks, so I am sticking with them.
I think this was ashort term need for cash and the fattest stocks got taken down. I thought a 15% hit was the pullback but it looks like a 30% pull back was on th ecards. We have 6 months for our options, and that's plenty of time for the money to roll back in
OIL
My premise is basic.
1. Upside potential. In the last quarter, oil prices were up 40% and the same this quarter so far. Natural gas is up 30%. That’s a lot of upside potential
2. Better profitability. Independent companies are interesting because they have lower operating costs and can be profitable where the big boys can’t be.
3. Consolidation potential. Always a potential with the massive cash floating around.
4. Dividend increase potential. Again, lots of cash may lead to more dividends.
5. Earnings are close and this is pre-earnings jitters
MUR – A very integrated company: extract, refine, and retail oil. The key areas of interest to me are:
* Increasing extraction at higher oil prices
* Increasing retail sales thanks to Walmart co-locations
I expect triple digit returns this quarter and going forward: higher oil prices and higher retail sales. Analysts expect a 50% increase in EPS, but I could see it even higher.
I also see this as undervalued: from Oct 2007-March 2008, the stock traded $70~$80. Meanwhile, oil has doubled in price. In fact, at today’s price, they are up only 30% in 1 year. And the forward P/E is 7.
DUG – Our anti-oil price move. Staying with it for a while because I see major efforts to drive oil down to $120.
WLL – Oil and gas extraction. They will benefit from higher fuel prices.
SM – An independent oil producer. Very bad. They collapsed under the 50DMA and look to still be sinking. That’s a 30% pullback in 1 month. At this point, the stock is up 20% in a year – less than the price of oil.
MMR/PXD/SD – Independent gas/oil producers.
MEE – Coal producer. Down 30% despite a major coal shortage?
CLF – Steel and coal go hand in hand. They are a major owner in an Australian mine and that is valuable because of proximity to China. The recent move to buy ANR is about coal.
OIL/GAS INFRASTRUCTURE
GTLS – Fuel storage. Also, I think they may be enjoying an export benefit from the weak dollar
UNT – A contract driller. When oil goes >$100, everyone wants to sink a well. I look at UNT as the equivalent of shovel makers during the gold boom in California. They don’t have to find oil to do well.
CPX – Drilling equipment and service provider
SE – The largest natural gas transmission company in North America.
FRO/OSG – OSG is up ~$5 since we bought. China must import more food and coal, that means busy times for tankers.
http://investerms.com/top_news/558.html
Follow this logic. Tankers (they carry oil) cost ~$100K per day. So folks were making them run fast, moving oil back and forth. That increased operating costs (faster speeds use up more fuel).
So now they will slow them down. That will likely do a few things.
* Marginally reduce oil supplies
* Increase tanker revenues: this reduces availability of tankers while not affecting days rented out. That could mean higher prices.
posted by Andrew at
1:54 PM
4 Comments:
I think this earning season we see a run up on the beaten down sectors like Financials,consumer services etc..on the presumption that they show better than expected results. In the energy I like RIG because it has less downside risk...
Did you consider that there were witching days involved? Thursday was witching day for oil; Friday it was options on equities; and this week it will be one for gold.
Yes, but the witching days did not run the way one expects, which is why I discount it as a factor.
With oil racing up, last week should have seen a classic short squeeze. Instead, prices tumbled.
It is possible that the last month was one big short squeeze. And that once the shorts covered, the demand fell out and oil prices dropped.
I don't know what that means about the future of oil prices except to say that they can and are very subject to manipulation
I like RIG too, but now that ATW has dropped (no doubt a post split drop) I prefer ATW
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