Energy & Commodities

Slumping oil prices are crushing profits across the energy sector. And it won’t be long before the sector’s weakest players are forced to take drastic action in an attempt to survive. (My colleague Joseph Hogue touched on this theme last month.) There are currently several hundred distressed energy companies, most of which are smaller, highly-leveraged shale drillers. Some of these firms have perhaps three-to-six months of solvency remaining. Thus, by summer, we should begin seeing a spike in asset sales, restructurings and other cash-raising maneuvers as cash balances dry up. #-ad_banner-#Mergers and acquisitions, or M&A, is especially popular in these… Read More

Slumping oil prices are crushing profits across the energy sector. And it won’t be long before the sector’s weakest players are forced to take drastic action in an attempt to survive. (My colleague Joseph Hogue touched on this theme last month.) There are currently several hundred distressed energy companies, most of which are smaller, highly-leveraged shale drillers. Some of these firms have perhaps three-to-six months of solvency remaining. Thus, by summer, we should begin seeing a spike in asset sales, restructurings and other cash-raising maneuvers as cash balances dry up. #-ad_banner-#Mergers and acquisitions, or M&A, is especially popular in these situations. Simply put, weaker firms are more likely to pull through if they combine forces with a competitor or are bought out by one of the stronger industry players. As struggling energy companies increasingly opt for M&A, they’ll need investment banking expertise to shepherd them through the process. A top energy industry advisor: Evercore Partners, Inc. (NYSE: EVR). While the name may not be as well-recognized as those of huge rivals like The Goldman Sachs Group, Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS), Evercore has an impressive track record. The firm was among the bankers involved in the high-profile… Read More

Many oil explorers and producers (E&P) are on the precipice right now. Years of high oil prices have led to a bonanza of land grabs and acquisitions despite premium valuations. Companies took on high levels of debt, reasoning that the revolution in U.S. production would mean cash flows could easily cover the interest. But now that oil prices have been cut in half, nearly $11.6 billion of that debt could be at risk of default. This earnings season, companies are expected to announce major changes to their capital spending plans to control the cash bleed while analysts continue… Read More

Many oil explorers and producers (E&P) are on the precipice right now. Years of high oil prices have led to a bonanza of land grabs and acquisitions despite premium valuations. Companies took on high levels of debt, reasoning that the revolution in U.S. production would mean cash flows could easily cover the interest. But now that oil prices have been cut in half, nearly $11.6 billion of that debt could be at risk of default. This earnings season, companies are expected to announce major changes to their capital spending plans to control the cash bleed while analysts continue waiting for a sign that the energy market has bottomed. All the uncertainty means high risk for investors… but also the potential for high returns for the companies that can survive until energy prices recover. #-ad_banner-#I am not naive enough to try calling a bottom in energy prices, but with this option trade, I don’t have to. In fact, today’s trade can give you the opportunity to minimize risk and amplify any potential returns, all while preserving capital if the trade doesn’t work out. Don’t Gamble With Your Money… Use Options to Minimize Risk and Preserve Capital The E&P space… Read More

Contrarian investing means going against the crowd, and nowhere in the market today is there a crowd bigger than the oil and energy stock naysayers. With West Texas Intermediate (WTI) crude oil trading around $50 per barrel, there are headlines almost daily forecasting prices moving into the $30s and even $20s. With oil prices down more than 50% from their highs last summer, energy stocks severely lagged the broader market for the better part of the past year. It seems no one is interested in them anymore, but this is the time when contrarian ears perk up. #-ad_banner-#In the early… Read More

Contrarian investing means going against the crowd, and nowhere in the market today is there a crowd bigger than the oil and energy stock naysayers. With West Texas Intermediate (WTI) crude oil trading around $50 per barrel, there are headlines almost daily forecasting prices moving into the $30s and even $20s. With oil prices down more than 50% from their highs last summer, energy stocks severely lagged the broader market for the better part of the past year. It seems no one is interested in them anymore, but this is the time when contrarian ears perk up. #-ad_banner-#In the early stages of a recovery from a bear market, not every group, even within a single sector, looks healthy enough to rally. However, oil services stocks have shown resilience over the past few weeks and some are even starting to move above resistance levels. Despite the daily news of a global supply gut, the shutting down of oil rigs as crude prices tumbled seems to be a recipe for a big bottleneck in supply one day. And even though global economies are still sputtering, they are improving, and with them, demand for energy. We are currently seeing what may be an… Read More

Fabled activist investor Carl Icahn doesn’t seem to care much about what short sellers think. On March 11, he bought nearly seven million shares, then worth about $93 million, of one of the most heavily shorted stocks in the S&P 500: exploration and production firm Chesapeake Energy Corp. (NYSE: CHK). The move boosted Icahn’s stake in Chesapeake by a percentage point (to 11% or roughly 73 million shares). Buying more of the stock may seem reckless considering its 55% price decline since June and exceptionally high short interest, which currently stands at almost 111 million shares. That equates to about… Read More

Fabled activist investor Carl Icahn doesn’t seem to care much about what short sellers think. On March 11, he bought nearly seven million shares, then worth about $93 million, of one of the most heavily shorted stocks in the S&P 500: exploration and production firm Chesapeake Energy Corp. (NYSE: CHK). The move boosted Icahn’s stake in Chesapeake by a percentage point (to 11% or roughly 73 million shares). Buying more of the stock may seem reckless considering its 55% price decline since June and exceptionally high short interest, which currently stands at almost 111 million shares. That equates to about 19% of the float. However, time should prove Icahn right about Chesapeake, even if the near-term looks ugly. As the second largest natural gas producer in the United States, next to Exxon Mobil Corp. (NYSE: XOM), Chesapeake is highly vulnerable to the natural gas supply glut resulting from North American overproduction. The glut pushed the price of natural gas down by more than 40% since last June, to around $2.65 per million British Thermal Units (BTU). Despite that drop, natural gas prices remained high enough in 2014 for Chesapeake to finish out the year… Read More

When it comes to the energy sector, history has a way of repeating itself.  Energy drillers purse debt-fueled growth when times are good and face a debt hangover when energy prices head south. It’s happening again. The energy sector may face roughly $11.6 billion in bond defaults, according to a recent Bloomberg News article. Understandably, that has made many equity investors leery of this slumping sector. #-ad_banner-#But has the commensurate plunge across the oil exploration and production (E&P) sector been overdone? And if so, might it  present a buying opportunity, both for investors and larger players?… Read More

When it comes to the energy sector, history has a way of repeating itself.  Energy drillers purse debt-fueled growth when times are good and face a debt hangover when energy prices head south. It’s happening again. The energy sector may face roughly $11.6 billion in bond defaults, according to a recent Bloomberg News article. Understandably, that has made many equity investors leery of this slumping sector. #-ad_banner-#But has the commensurate plunge across the oil exploration and production (E&P) sector been overdone? And if so, might it  present a buying opportunity, both for investors and larger players? The shale boom led to inflated asset values. Now, the reverse is true. The value of shale producer’s reserves have fallen more than 25% since 2013, from $18.52 per barrel to$13.60 per barrel at the end of 2014. That figure has likely fallen further in 2015. I recently wrote about how the long-term demand for oil should help rebuild pricing. As a result, companies with near-term liquidity needs, but appealing longer-term fundamentals, could now be cheap enough to attract larger buyers. Consolidation Has Commenced We may already be witnessing asset-rich firms attracting the interest of cash-rich buyers. Read More

There’s a huge disconnect in the market right now… and it has created an even bigger opportunity. So far in 2015, oil prices have plunged 16%. Yet, during that same time period, fuel prices have jumped 6%. History shows we can make a 69% gain in the coming months thanks to this anomaly if you know where to invest. Let me explain… There’s a huge supply of oil in the market. The most recent EIA Petroleum Status Report showed an inventory build of 10.3 million barrels of oil, more than double analysts’ expectations for an increase of four million. As… Read More

There’s a huge disconnect in the market right now… and it has created an even bigger opportunity. So far in 2015, oil prices have plunged 16%. Yet, during that same time period, fuel prices have jumped 6%. History shows we can make a 69% gain in the coming months thanks to this anomaly if you know where to invest. Let me explain… There’s a huge supply of oil in the market. The most recent EIA Petroleum Status Report showed an inventory build of 10.3 million barrels of oil, more than double analysts’ expectations for an increase of four million. As you can see from the chart below, inventories (blue) have not just been growing… they’ve been consistently exceeding expectations (orange line) for most of 2015. Generally, oil producers slow production if they see a glut of supply, but that hasn’t been the case here. With nowhere for the crude to go, storage prices are at a premium, and one of the only ways to move that oil out of storage is for oil prices to fall. Well-respected analysts at both JP Morgan (NYSE: JPM) and Goldman Sachs (NYSE: GS) believe oil is likely to stay below $50 for… Read More

The past few years have been cruel to gold, a casualty of a relentless bull market in stocks and, more recently, the U.S. dollar. Since October 2013, the price has plunged from nearly $1,800 an ounce to about $1,150 — roughly a 35% drop. The bear market in gold blindsided most precious metals investors. In the early days of the Great Recession, many were convinced that gold — and not stocks — had many years of big gains ahead. These gold bulls assumed that the Federal Reserve’s massive “money printing” program would lead to runaway inflation. Yet six… Read More

The past few years have been cruel to gold, a casualty of a relentless bull market in stocks and, more recently, the U.S. dollar. Since October 2013, the price has plunged from nearly $1,800 an ounce to about $1,150 — roughly a 35% drop. The bear market in gold blindsided most precious metals investors. In the early days of the Great Recession, many were convinced that gold — and not stocks — had many years of big gains ahead. These gold bulls assumed that the Federal Reserve’s massive “money printing” program would lead to runaway inflation. Yet six years and three rounds of stimulus later, inflationary pressures remain non-existent. This is why you may be surprised to hear that now could be the best time in a while to own the yellow metal. With the global economy in flux, there are several potential catalysts for substantially higher gold prices in 2015. A Hamstrung Fed After a long stretch of zero-rate policy, investors are finally realizing the Fed wants to start raising interest rates as soon as possible, maybe as early as June. This has been a headwind for gold recently, because higher rates would further boost an already… Read More

Between the plunge in oil prices and economic sanctions, the Russian economy is taking a one-two punch. Even as stocks markets in the United States, Europe and Japan are hitting new highs, the Market Vectors Russia ETF (NYSE: RSX) has plummeted 19% over the last year.   #-ad_banner-#Such periods of distress can also spell opportunity. Recall the investing maxim: be fearful when others are greedy and greedy when others are fearful. That’s the tack being pursued by Exxon Mobil Corp. (NYSE: XOM), which has taken note of a huge opportunity in lower asset… Read More

Between the plunge in oil prices and economic sanctions, the Russian economy is taking a one-two punch. Even as stocks markets in the United States, Europe and Japan are hitting new highs, the Market Vectors Russia ETF (NYSE: RSX) has plummeted 19% over the last year.   #-ad_banner-#Such periods of distress can also spell opportunity. Recall the investing maxim: be fearful when others are greedy and greedy when others are fearful. That’s the tack being pursued by Exxon Mobil Corp. (NYSE: XOM), which has taken note of a huge opportunity in lower asset prices, a weak ruble and one of the biggest energy finds on the planet.   Putting The Shale Revolution To Shame In the United States, the revolution in shale exploration and drilling has been the big story in energy for the last several years. However, surging production growth has led to oversupply and falling crude prices.     Even as oil prices plummet, long-term energy demand remains intact. In its 2035 energy outlook, BP forecasts 0.8% annualized demand growth of liquids, to 4.97 trillion tons of oil equivalent. Compare that to production growth of  0.7% annually to… Read More

All major U.S. stock indices closed lower last week following three weeks of higher closes, except for the small-cap Russell 2000, which was up just 0.1%. Despite last week’s setback, the major indices are still in the black for 2015 and are being led by the tech-heavy Nasdaq 100 and Russell 2000, up 4.8% and 2.4% respectively. These indices typically lead the market higher during healthy bullish trends. The two strongest sectors last week were consumer staples and consumer discretionary, the latter of which saw the largest weekly increase in sector bet-related investor assets according to… Read More

All major U.S. stock indices closed lower last week following three weeks of higher closes, except for the small-cap Russell 2000, which was up just 0.1%. Despite last week’s setback, the major indices are still in the black for 2015 and are being led by the tech-heavy Nasdaq 100 and Russell 2000, up 4.8% and 2.4% respectively. These indices typically lead the market higher during healthy bullish trends. The two strongest sectors last week were consumer staples and consumer discretionary, the latter of which saw the largest weekly increase in sector bet-related investor assets according to my own ETF-based metric. #-ad_banner-#‚ÄčThe Consumer Discretionary Select Sector SPDR ETF (NYSE: XLY) has outperformed the S&P 500 SPDR ETF (NYSE: SPY) by 3.3% since I identified positive asset flows in the sector on Jan. 5, and has outperformed by 4.9% since I first identified consumer discretionary as a potential buying opportunity in the Dec. 8 Market Outlook. Seasonality Supports Recent Market Strength In last week’s report, I discussed an emerging breakout from… Read More

Boom or bust. Those are the contrasting views investors seem to hold for clean energy provider SolarCity (NASDAQ: SCTY). The company — and its business model — have been fodder for both bull and bears.  Right now, it looks like the bears are holding sway, as shares of this controversial stock have plunged 40% in the past year. Yet, I believe the bulls will have the last laugh.  SolarCity installs and leases rooftop solar panels on residential homes, which accounts for about three-quarters of sales, and commercial structures. The rapid plunge in solar panel costs, coupled with low… Read More

Boom or bust. Those are the contrasting views investors seem to hold for clean energy provider SolarCity (NASDAQ: SCTY). The company — and its business model — have been fodder for both bull and bears.  Right now, it looks like the bears are holding sway, as shares of this controversial stock have plunged 40% in the past year. Yet, I believe the bulls will have the last laugh.  SolarCity installs and leases rooftop solar panels on residential homes, which accounts for about three-quarters of sales, and commercial structures. The rapid plunge in solar panel costs, coupled with low interest rates, has enabled the company to provide electric power for lower rates than most utilities charge. Sales have increased from $32 million in 2010 to $255 million last year, and they are expected to exceed $750 million next year. That rapid growth has led to industry market share approaching 40%. #-ad_banner-#‚ÄčSolarCity broke ground on a Gigawatt factory in Buffalo, N.Y., in September. It is expected to be fully operational in 12-24 months, and the company plans to spend $5 billion over the first 10 years of the lease. The factory will produce leading-edge solar panels with electricity conversion rates… Read More