06
Jul
Wrap – Week Ended 7/3/13
Main primary weekly wrap comments will be included in the Monday post in the Week That Was section but just briefly as to highlighted areas of the wrap table below.
1) Yet another reason to dislike UNG as a way to participate in a recovery in natural gas. Flat on the year vs the gassy indexes (up 10% plus), and vs the front month and 12 month strip (up 8% and 6% YTD respectively), and let alone vs our gassy names like REXX which is putting in new highs. Over time, UNG is a losing proposition due to its structure. We prefer gas growth stories with a new angle (like with REXX and the Utica and Upper Devonian) where production is rising and per unit costs will fall over time leading to margin growth as we patiently wait for the recovery in natural gas prices. See last Wednesday's free post here for a run through of supply (production plus net imports) vs demand. Production has bascially stalled for 18 months now and demand remains strong (Industrial is chalking up new monthly records) and should reaccelerate later this summer on the gas-fired generation front on the currently improved pricing of gas relative to coal.
2) We have written for months now that WTI is ahead when it noses above $95. At $103 we continue to see it as over inflated given still relatively tepid domestic product demand (there has been some improvement on the distillates side and gasoline is "OK, not great") but gasoline and crude inventories remain bloated and one week's good numbers heading into the holiday are not enough to support this recent rally. This move is worries over Egypt and a bit of holiday light trading and these kinds of moves attributable to non-major-producing-country fears are almost always fleeting. We're not changing things in the ZLT other than the occassional balancing trade and adds on weakness in certain names that are catalyst heavy in the back half of 2013. But we also don't see this move in domestic crude prices as sustainable and would note that for shorter term players (which we are not) the impact of a retracement back down into double digits is often more punishing to the name than the precediing rally. We own what we own for a number of reasons and are not by these kinds of dips other than to view then as potential adding opportunities. See the WIOWIO page for the highlights of Why We Own, What We Own and if it's not in there for you, ask us in the comments section during the week.
3) We have also written for months that valuations for our E&Ps remain in moderate territory and do not reflect current commodity pricing except for those few names that appear perpetually expensive due to their location inventories (and those are largely gassy names) and a couple of names that are turnarounds with high debt levels and therefore seemingly squashed TEV/EBITDA multiples. So we are comfortable with our stories and continue to add slowly and opportunistically to several names outside of the Top 5 ZLT positions. The Blotter is updated and the ZLT holdings pie graphs were updated last week. We're up 18 to 22% depending on the portfolio mix YTD.
Tune in next week for an updated pre 2Q high points catalyst list along with a number of non-owned but requested name updates. Have a great weekend.
wondering if any merger activity goes on this weekend. traditionally Mondays after a holiday generate merger news and we haven't seen a blockbuster energy takeover in some time. (well unless you consider LINE's attempt to take over BRY as one).
July 6th, 2013 at 7:45 amZ: Did Hedgeye try to take any credit for the SEC inquiry? Does anyone have any forensic accountant friends that have looked at the MLP accounting issues in question and try to put them into a historical perspective? I have a friend I will ask.
July 6th, 2013 at 10:24 amMCF Two volume spikes off the lows. Near resistance 36.41
http://i1223.photobucket.com/albums/dd503/zorgnak/MCF_zpsf36ecee9.png
July 6th, 2013 at 10:34 amMCF looks interesting down here. Haven't followed it in some time, but would you say they are more gassy assets than oily?
July 6th, 2013 at 11:05 amZorg.
oddly enough MCF found support at the same level when markets cratered in 2009
July 6th, 2013 at 11:08 amalso first time since April that the prevailing high is higher than the previous low
July 6th, 2013 at 11:18 amI'm always grateful for your realistic warnings to the somewhat foolish hotdogs among us (me, for example) who trade way too frequently. Thanks for reminding me that what spikes up non-fundamentally is bound to sharply revert earthbound, often with a painful thunk. I'll be taking some short term profits while the Egytian turmoil keeps some of my oilier equities rather peaky.
July 6th, 2013 at 12:56 pmCanadian train shipping crude derails. Very bad situation. Shipping crude by rail can be very dangerous.
http://www.cnn.com/2013/07/06/world/americas/canada-train-derailment-fire/
July 6th, 2013 at 1:55 pmre 7 – Out of pocket at the moment, will have more comments on Monday but suffice to say, it makes for a good Movie Quote Watch along the lines of "I've seen it before pal"
re 8 – unfortunate seems to be an understatement but also a runaway train is an extremely rare event. Pipes no doubt a bit more safe.
July 6th, 2013 at 6:38 pmAnother Solar company goes for Bankruptcy:
http://www.reuters.com/article/2013/07/05/us-conergy-insolvency-idUSBRE9640HP20130705
July 6th, 2013 at 6:54 pmfwiw, weekend reading: https://sumzero.com/headlines/energy/181-special-pdf-serious-inefficiencies-in-the-valuation-of-shale-assets
July 7th, 2013 at 12:51 amRE 11: Thanks for the article. Author makes some good points about street valuation models. However, no "undervalued" stocks are shown in the analysis. It does seem to imply that RRC and COG are not "undervalued". Are there any names the author can provide without being a subscriber, based on his analysis, that represent good undervalued stocks or that are under-priced by the street due to out-dated analysis?
July 7th, 2013 at 1:57 pmre: 12 I'm not a subscriber, I merely happened on the article whicle doing some reading. I too thought it was intelligently reasonsed but as far as E&P knowledge goes I am still in the lower-most grades of K1-12.
July 7th, 2013 at 2:34 pmre 12 – or you could just ask me Monday.
July 7th, 2013 at 3:15 pmRE 14: 🙂
July 7th, 2013 at 3:34 pmre: 14 tee-hee
July 7th, 2013 at 3:48 pmXLE Big Cap Energy looks ready for another leg up.
http://i1223.photobucket.com/albums/dd503/zorgnak/XLE78_zps7a47d613.png
OIH Stocks with strong demand volume.
http://i1223.photobucket.com/albums/dd503/zorgnak/OIH78_zpsba2c7c4a.png
Small and Midcap E&P names yet to get much volume
http://i1223.photobucket.com/albums/dd503/zorgnak/ZLT78_zpsfd078b73.png
July 7th, 2013 at 7:03 pmBakken stocks still the strongest E&P group…
http://i1223.photobucket.com/albums/dd503/zorgnak/Bakken78_zps8974dfe5.png
July 7th, 2013 at 7:44 pmNat Gas Stocks building demand volume
http://i1223.photobucket.com/albums/dd503/zorgnak/ZLTGas78_zpsc397f259.png
July 7th, 2013 at 7:58 pmTomorrow's post will be out a bit early in the morning, Week That Was, Near Term Catalyst List Update for the ZLT and more.
July 7th, 2013 at 8:08 pmCrude Oil Futures tagged 104 CLVN resistance and 52 week highs…Major acceptance lower at 95
http://www.charthub.com/charts/2013/07/08/crude_oil_multi_period_1307071811
July 7th, 2013 at 8:13 pmre 18/19 – I love it when a plan comes together. 😉
July 7th, 2013 at 8:16 pmNat Gas futures building a tight balance between support and major long term acceptance…getting ready for a move.
http://www.charthub.com/charts/2013/07/08/ng_master_1307071815
July 7th, 2013 at 8:16 pm$USD to the top of recent range and important breakout level at 85. Volume this month has been sketchy so I'd expect some retesting lower to the CHVN/volume pivot at 84. Support at 83.77.
http://www.charthub.com/charts/2013/07/08/dxy_master_1307071819
July 7th, 2013 at 8:31 pm#22… 🙂
July 7th, 2013 at 8:32 pmre: 22
and i think this is the beginning of a beautiful thing. between now and the end of year, both the oil and natural gas stories should play out nicely and many of the stocks we follow should finally get recognition
July 7th, 2013 at 9:06 pm