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Have Natural Gas Prices Hit Bottom? PDF Print E-mail
Written by David Sterman - Street Authority   
Thursday, 24 July 2014 07:07

It's been a summer of open windows and dormant air conditioners in the Eastern U.S. as the mercury has failed to break 85 degrees on most days and night-time lows fall down to the mid-50s in much of New England.

And that partially explains why natural gas prices are plunging to seven-month lows. Gas-fueled power plants are operating at a low hum as electricity demand has been unusually tepid. When you consider that late July typically represents a turning point for summer temperatures, this may turn out to be a year without any major heat waves. Good news indeed for residents in the Eastern U.S. after enduring an unusually dispiriting frigid winter.

As demand for gas remains subpar, gas storage facilities are re-filling at a rapid rate, turning gas back into a buyer's market. That's a quick change from six months ago when gas was being consumed at a faster-than-normal rate. And the resulting price collapse has left many to wonder: Will gas prices keep plunging, or have they hit bottom?

b61a2 NATGAS Chart 7-22-14

The answer to that question: Gas prices are likely to keep falling.

Tepid demand is likely to lead to more increases in the amount of gas in storage, and with each weekly update from the Energy Information Administration (EIA), gas prices will likely move down another leg. A commodity needs a catalyst to reverse direction, and natural gas prices have no positive l catalysts on the near-term horizon. Also, recall that gas prices were historically closer to $3 per thousand cubic feet (MCF) before last winter's polar vortex, so there's no reason to think that the current $4 per MCF price range represents any sort of bottom.

But the continued erosion in gas prices means that you should now be monitoring this commodity. Because when a bottom is in, there could be a solid snapback in prices. That's because the supply side of the equation continues to be a question mark for some investors. Though exploration for oil and gas in the nation's shale regions remains robust, geologists will tell you that such deposits are at their production peak in the first few years of drilling before a steady rate of depletion takes place. And many productive gas wells have already been gushing output for several years now. Looked at another way, the most promising shale segments have already been staked and newer areas of gas development hold lesser output potential than the first wave.

As it stands, falling gas prices are likely to deter gas producers from tapping more wells. According to Baker Hughes, the number of rigs dedicated solely to gas production in North America has fallen from 369 a year ago to a recent 311. That's down from 1,500 in 2008 and represents the lowest figure since 1993. To be sure, today's wells are more productive, but the laws of depletion argue against maintaining their pace of prodigious output. Thus far in the shale gas revolution, we have yet to see a sharp drop in depletion rates. But as news of depletion rates starts to trickle in, sentiment toward this issue could shift quickly.

Pivoting back to the other end of the equation, when will demand rebound for natural gas? We'll find out as we approach the coming winter season. One of my favorite indicators is the Siberian ice pack. Last autumn, this indicator again showed an uncanny ability to predict temperature patterns in North America over the ensuing winter. If you are looking at natural gas as a commodity investment, or natural-gas related stocks, then I encourage you to repeatedly monitor this website beginning in early October.

Taken together, both the supply and demand side of the equation portend a further drop in gas prices. So avoid the temptation to start bottom fishing. As an example, several analysts gave recently sung the praises of Rice Energy (NYSE:RICE), a fast-growing gas producer. "Rice's Marcellus well designs achieve the best reservoir drainage of the group currently," note analysts at Cannacord Genuity, who see shares doubling to $51. But as this company's stock price chart shows, investors are paying more attention to gas prices right now than company-specific outlooks.

b61a2 RICE CHart--2 7-22-14

Risks to Consider: If you directly invest in natural gas producers, you need to keep an eye on their balance sheets. Some of these firms are counting on firm natural gas prices to support their capital spending programs and debt burdens and falling gas prices may imperil their cash flow.

Action to Take -- The outlook for a further drop in gas prices suggest you should start gathering a watch list of favorite gas names. Some of them like Rice Energy are steadily sinking. But when a floor is in, such stocks will represent solid upside potential again. And as I noted in my follow-up look at the polar vortex theme key commodity-specific exchange-traded funds (ETFs) represent better leverage to prices than the underlying gas producers.

In the past year, Street Authority recommendations on individual stocks have gained +72%, +26% and +60% all in less than six months... and recently, their trades could have made you +26% in 42 days and +42% in less than one month. Click here to get the free trading advisory -- Trade of the Week.

 

 
Upcoming Catalysts for Uranium & Oil & Gas Plays, Precious & Base Metals, PDF Print E-mail
Written by Streetwise Reports   
Wednesday, 23 July 2014 11:20

Timing the market is sometimes more important than finding the right equities. But if you can time the market and find the right equities, that can be the most direct path to success. Jocelyn August, senior analyst and product manager with Sagient Research'sCatalystTracker.com, follows catalysts that move resource stocks with regularity, sometimes 10% or more. In this interview with The Mining ReportAugust discusses some upcoming catalysts in the precious and base metals spaces, and names others in uranium and oil and gas.

COMPANIES MENTIONED: ALAMOS GOLD INC. : ANTOFAGASTA PLC : AUGUSTA RESOURCE CORP. : BANRO CORPORATION : BULLFROG GOLD CORP. : DULUTH METALS LTD. : FX ENERGY INC. : HUDBAY MINERALS INC. : HUDBAY MINERALS INC. : PRIMERO MINING CORP. : TASEKO MINES LTD. : URANIUM ENERGY CORP. : URANIUM RESOURCES INC. : ZARGON OIL & GAS LTD.

The Mining Report: The top catalysts Sagient Research follows tend to move resource stock prices 6–10%. What are the top three catalysts in precious metals equities?

Jocelyn August: The top three catalysts for absolute movements—either up or down—in precious metals are the ones that help investors determine the potential success of a project, so we're looking at preliminary economic assessments (PEA), government approvals or permits—that's when a company actually receives the decision—and resource estimates. The PEA is on top, with about an 8% movement, either up or down. When we look at only positive movements, the PEA remains on top, with a move of more than 12%. A positive PEA has a big effect on the stock price. Feasibility study results and the start of drilling round out the top three for positive movements.

For negative catalysts, government approvals or permitting decisions are highest. When a government doesn't approve a permit, that's obviously going to hurt the share price. That will send a stock down more than 9%. Also in the top three are construction and prefeasibility study completion. We see this particularly when construction has been delayed from its original timeframe. A prefeasibility study may let investors know that the project isn't as robust as expected, which definitely results in a negative stock movement for the company as a whole.

TMR: Are the catalysts similar for base metals?

JA: We see similar large catalyst movements here. Government approvals/permitting is a large mover, as well as the start of drill testing and feasibility study results. A lot of these are where we see whether the project is going to be successful.

TMR: And uranium equities?

JA: In the uranium space, the highest absolute move comes from a resource estimate. That's about 7.7%. Production starts and feasibility study completion complete the top three.

TMR: Which three catalysts typically move stock prices the most in the oil and gas space?

JA: In the oil and gas space, we've noted that for absolute catalyststhe top three that move stock prices are drilling- and testing-related. Testing completion, testing starts and testing results are all part of the development pipeline for exploration and production companies, and tend to move share prices around 6–7% in either direction.

When we look at just the positive stock movements, the same three are on top. A testing start is the highest, at about 7.85%. Testing completion and testing results follow, at just over 7%.

For negative stock movements, test completion and testing results catalysts remain in the top three but are joined by regulatory filings, usually a filing for a permit or government approval. That's the filing phase, not the approval stage.

TMR: Given your experience tracking investment catalysts, when is the best time to buy a resource company pre-catalyst?

JA: If you expect that it's going to be a positive catalyst for the company, the best time would be at least a month before the catalyst, so you can get the stock run-up. Any less than a month and you will probably miss it. But it can be difficult to precisely predict when those catalysts are going to occur. Some companies keep delaying their results or announcements.

TMR: Do these catalysts move large companies in the same manner they move small-cap equities?

JA: We obviously see higher percentage movements with small-cap companies than with large caps. Small caps tend to have fewer assets, so if something happens with one of those, it has a greater impact than it would with a larger company.

TMR: If companies are late with announcements for feasibility studies, environmental assessments, production starts or well testing, does that lessen the impact of those catalysts?

JA: It definitely does. When these companies are late with their announcements it becomes much more difficult to anticipate when the event is actually going to happen. And if a company frequently misses deadlines and does not make timely announcements, then obviously it becomes much less credible. When the company finally makes that announcement, it's already been factored into the stock price, and the impact of that one specific catalyst is going to be far less.

TMR: Your subscriber-supported CatalystTracker monitors stock-moving events. What are you seeing in the different commodities?

JA: I was looking at some catalysts that occurred over the last six months, and base metals look pretty hot, especially copper. Over the last six months, we've seen 28 copper-related catalysts, which had an absolute average change in the stock of 7.81%, plus or minus. In the precious metals space, we see an average for all the catalysts we follow of closer to 5%. For all the base metals, we recorded 47 catalysts and saw an absolute average change of 7.5%.

TMR: What's happening with the catalysts in the energy space over the same timeframe?

JA: The percentage moves were a lot smaller, in general, for the last six months or so for energy. Gas drilling catalysts were 5–5.5% on average, whereas oil drilling catalysts were more like 4.5%.

TMR: Let's get to some catalysts that investors can zero in on. What are some near-term catalysts in the precious metals space?

JA: We're looking at a construction decision at the Cerro del Gallo silver-gold project operated by Primero Mining Corp. (PPP:NYSE; P:TSX) in Mexico. That should occur between now and the end of August.

TMR: Is a construction decision one of the bigger catalysts?

JA: We consider it a go/no go decision. That is definitely a larger mover, probably about 5.6–6%. That's obviously going to depend more on the size of the company and the project. But if Primero decides to proceed with construction, then commercial production is expected in 2015.

TMR: How about some others?

JA: We're looking for a commercial production start at Banro Corporation's (BAA:TSX; BAA:NYSE)Namoya gold project in the Democratic Republic of the Congo (DRC). That one is imminent. Banro has been doing a lot of updates on that project, so it should be before the end of Q3/14.

TMR: When that's up and running, it's projected to produce 124,000 ounces a year, isn't it?

JA: That's correct. And that's Banro's second asset. The first is Twangiza, a gold mine that's also in the DRC.

TMR: Are there any other precious metals companies with catalysts?

JA: We're also looking for some catalysts from Augusta Resource Corp. (AZC:TSX; AZC:NYSE.MKT). It has a lot of things going on at the Rosemont gold-silver-copper-molybdenum project in Arizona. Augusta is the subject of a takeover bid from HudBay Minerals Inc. (HBM:TSX; HBM:NYSE), but we're looking for a couple things. First is a Section 404 permit for clean water, as well as the record of decision for its environmental impact study. Both of those should occur by the end of Q3/14.

Another one we're following is Alamos Gold Inc. (AGI:TSX). We're waiting for environmental impact assessment approval for its Aği Daği project in Turkey. It's currently under review by the Turkish Ministry of the Environment and Urbanization. Alamos submitted the final environmental impact in February, so we're hoping that it is going to give us an update when it publishes its Q2/14 earnings in August. The company had its first project in Turkey approved—the Kirazli gold project.

TMR: What else is on your list?

JA: There is Bullfrog Gold Corp. (BFGC:OTCBB). We are waiting for some metallurgical testing results at Bullfrog Gold's Klondike silver project in Nevada. The company just released some results on July 15th, but we expect to see the final results in mid-September 2014.

TMR: How about the catalysts in the junior base metals equities space?

JA: In base metals, we're waiting for the completion of a feasibility study at Taseko Mines Ltd.'s (TKO:TSX; TGB:NYSE.MKT) Aley niobium project in British Columbia. The company is working to upgrade the previously announced resource for Aley so that it's compliant with NI 43-101 guidelines. Taseko is also expecting to have a metallurgical flow sheet finalized shortly. We're waiting for an update in its next earnings announcement, likely in August.

Another is Twin Metals polymetallic project in Minnesota, a joint-venture between Duluth Metals Ltd. (DM:TSX) and Antofagasta Plc (ANTO:LSE). We're looking for an updated resource estimate for that project, the completion of which is expected imminently, probably by mid-August.

TMR: Do you notice a difference in catalyst performance between an initial resource estimate and an updated resource estimate?

JA: We definitely do. Initial resource estimates will usually give you a much larger movement than updated resources.

TMR: Feasibility studies are sometimes updated, too.

JA: Yes. If a company has a feasibility study and it updates that study, investors probably won't see as large a move as they did from the initial feasibility. But if there is a big surprise—the numbers were a lot better or worse than expected—that can definitely move the stock more than a typical update.

TMR: What are some junior oil and gas companies with near-term catalysts that you can share with us?

JA: We're tracking a production start catalyst for FX Energy Inc.'s (FXEN:NASDAQ) Lisewo-2K well in Poland. The company successfully completed production testing on that well and we're expecting production to begin in Q3/14. If you go to CatalystTracker.com, there is a section where you can look at the top 10 positive and negative catalysts for the year. FX Energy has a couple of entries in both the positive and the negative. There's a lot of volatility with FX Energy.

TMR: What are some others in the oil and gas space?

JA: We're also watching for an initial production response from a project that's being developed by Zargon Oil & Gas Ltd. (ZAR:TSX). It's the Little Bow alkaline surfactant polymer (ASP) project in Alberta. Based on its current construction schedule, the company is forecasting 140 barrels of oil per day incremental production in 2014. That's production response, and we're looking for the occurrence in Q3/14.

TMR: What about some uranium companies with catalysts?

JA: We're watching for a couple of catalysts in the uranium space. One is the production start of Uranium Energy Corp.'s (UEC:NYSE.MKT) Goliad in situ recovery project in Texas. The company expects to bring the project on-line in 2014. It's fully permitted for production and ready to go, but it's waiting for stronger uranium prices.

Another is a resource estimate and technical report for Uranium Resources Inc.'s (URRE:NASDAQ) Roca Honda project in New Mexico. We're expecting completion of that report by the middle of 2014. That could happen any time between now and the end of August.

TMR: How much do technical reports move these types of equities?

JA: We usually place them in the same category as resource estimates. Again, for a resource estimate, we're likely going to see an average move of 6–7%.

TMR: Do you have research that shows how shareholders use your service? Do they typically sell post-catalyst, or do they take more of a buy-and-hold tack, given that the catalyst movement probably indicates a well-run company?

JA: It depends on the shareholder's investment strategy. A trading firm would probably be buying and deciding how these catalysts will affect the stock in the short term. But long-term investors, like maybe a pension fund, are going to look for these catalysts to add value to these companies to help their portfolio grow in the short and long term. Moreover, they're going to look for the companies with good management teams that meet their milestones, and that have more of a balanced portfolio.

TMR: Parting thoughts?

JA: These kinds of event milestones are important. Whether you're investing in the short term or you're investing in the long term, the way that you invest based on these events might be different. But understanding those events and following these types of catalysts, especially those with the largest potential impact, can help you determine the companies in which you want to invest.

TMR: Thank you for your insights, Jocelyn.

Jocelyn August is the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient Research, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the Catalyst Impact Study: Natural Resources Sector. Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a Master of Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts degree in sociology.

Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit The Mining Report homepage.

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Check out Streetwise Reports' 2014 Natural Resources Watchlist Portfolio Tracker

The Watchlist companies were selected by industry experts based on a variety of factors, including promising fundamentals, good management and catalysts keyed to project development milestones, such as feasibility studies, drill results and financings. We will track the companies throughout the year: With our Portfolio Tracker, it is easy for readers of The Mining Report to do the same. 

CLICK HERE TO SEE THE NATURAL RESOURCES WATCHLIST.

 

DISCLOSURE: 
1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None. 
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: FX Energy Inc. and Primero Mining Corp. Streetwise Reports does not accept stock in exchange for its services.
3) Jocelyn August: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. 
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

 

 
3 Energy Stocks to Buy on Real Growth PDF Print E-mail
Written by Bret Jensen - Investors Alley   
Wednesday, 23 July 2014 05:51

One of the hallmarks of the rally in the stock market over the past year and a half has been driven by multiple expansion and not by earnings growth. The market has rallied some 40%, including dividends, over the past 18 months while earnings have only improved approximately 10% over that same time frame.

In addition, a good portion of this growth is from stock buyback activity rather than from organic increases in revenues or earnings. S&P companies bought back more stock in the first quarter of this year than they did in all of 2009 when valuations were much lower. This level of activity is now nearing the peak in 2007 just before markets started their epic decline.

One of the core reasons earnings are hard pressed to advance is due to tepid demand and revenue growth. Revenues for the S&P 500 are projected to only increase 3% to 4% year-over-year in 2014. Wage growth is running at just two percent domestically, just keeping up with inflation and overseas demand is hardly robust right now. Given that the operating margins of the companies in the S&P 500 are at record highs, there are very few operational costs left to cut.

This is why I concentrate on stocks and sectors that are seeing solid organic revenue growth to plumb for possible investment plays. One of these promising areas is energy services. Credit Suisse just raised their growth estimate for global drilling activity in 2014 to 6% to 8% from 5% to 6% previously. In addition, domestic energy service demand remains robust as oil and gas production continues to increase at an impressive rate. Some of these firms should also benefit as this fracking technology migrates to be utilized overseas; China just started the fracking process at a large commercial field. Finally, valuations in the sector are also very reasonable given the overall market multiple.

There are myriad ways to play the solid demand currently happening in energy services. Here are a few I find attractive at current levels.

hal

Halliburton (NYSE: HAL) andBaker Hughes (NYSE: BHI)have the most exposure to North America among the major energy services firms. Both just recently reported quarterly results that beat expectations and showed strong demand coming from the domestic drilling market. Both firms are also seeing even faster international growth.

Both companies are priced right in line with the overall market multiple even as their earning trajectories are much steeper than the S&P 500 driven by revenue increasing at a 10% clip annually. I like Halliburton a bit better here due to the market share leadership in domestic pressure pumping. Over 50% of these contracts should be renegotiated at higher prices by the end of the year. The company is also doing a solid job of providing “value add” services that are improving margins.

arii

For a backdoor play on the growth of energy services some of the railcar manufacturers are benefiting from the huge explosion of oil production over the past half-decade. Not only do they provide the oil tankcars that are transporting a significant and growing amount of the oil being produced domestically, they also build the railcars that haul the “frac” sand needed to get oil and gas from shale formations.

Many of my readers from late 2012 followed me into American Railcar (NASDAQ: ARII) until I sold the shares due to valuation earlier in the year made a tidy fortune. However, my favorite play in this space right now is Trinity Industries (NYSE: TRN).

trn2The company continues to benefit from increasing demand for its railcars and consistently beats quarterly earnings estimates. Trinity Industries has a market capitalization of around $7 billion and the backlog just in its railcar division is over $5 billion. Trinity should also benefit as demand in its construction and industrial segments picks up as the economy accelerates in the second half of the year.

Trinity is tracking to better than 50% earnings gain on back of an over 25% increase in revenues year-over-year in 2014. Despite its growth drivers, the shares go for right at 12 times forward earnings; a significant discount to the overall market multiple.

kegFor those investors willing to move out on the risk curve and looking for higher risk/reward play, small cap Key Energy Services (NYSE: KEG) might be worth a look here. The company has been dogged by poor guidance and an investigation into corruption at its smaller Mexican operation. The company also has a high degree of debt.

Key operates as an onshore, rig-based well servicing contractor. It is in the process of moving approximately 60% of its 40 rigs in Mexico to the United States where it is seeing solid growth especially in the Permian shale region. The company posted a small loss in 2013 and is on track to do so again in 2014.

However, the consensus calls for Key to post 35 to 40 cents a share in earnings in 2015 as revenue growth returns. Insiders bought a good slug of stock at these price levels last year and stock sells for just nine times the earnings it made in 2011 and 2012. Given its small size and slowly improving business fundamentals, I would not be surprised to find the company as a takeout target if M&A activity continues to be robust in the energy sector.

One of the few consistent job and economic drivers over the past half-decade domestically has been the oil and gas sector. In addition to providing high paying jobs and the benefits of increasing energy independence, the recent energy boom has rewarded investors and should continue to do so.

With the market looking as it does there are fewer and fewer places for the individual investor to find real profit potential from fast growing stocks. One of the few remaining is the small cap space, one that’s brought double and triple digit winners to my own portfolio and those of my readers. I’ve just launched a new small cap service called Small Cap Gems, and we’re offering a Charter Member discount. If you’d like to get in on this ground breaking new service or just want more information CLICK HERE.

Positons: Long HAL & TRN

 

About Bret Jensen

Bret Jensen is the small cap stock lead analyst with Investors Alley. Bret's small cap newsletter will focus on firms whose growth and value prospects are misunderstood by the overall markets, leading to double and triple digit gains potential. Previously Bret was Co-Founder and Chief Investment Strategist for Simplified Assessment Management, a fund in the top 5% for total returns its inaugural year, and a technology manager in the financial services industry.

 
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Mark Leibovit
23 July 2014 ~ Michael Campbell's Commentary Service

We intruded on Mark Leibovit's summer break and asked him for...   Read more...


On Real Estate

Over the past 3 or 4 years I have watched with keen interest (and participated) in the ups and downs of the American and Canadian real-estate markets. Recently published stats have fueled a bit of media frenzy which has become an interesting study in conflicting market noise.

Read the full article here

Food, Shelter & Clothing

Most of us think short term, smoke when we know it’s bad for us, eat junk food when we know we shouldn’t and make short term decisions on investing when we know there are long-term trends that are undeniable.

Read the complete article here

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