5 Commodity Stocks Moving On News

June 5, 2012  |  includes: CHK, KOG, LNG, POT, SD

Oil is just below $84/barrel this morning and Rex Tillerson is now discussing exporting natural gas so there is some excitement in the energy arena. We also saw coal stocks hit lower levels during yesterday's trading session before rallying. The energy sector is very beat up at this point and these levels are quite attractive. Not quite attractive enough to move in and do our long-term investing, but we feel that the sector is due for a 1%-3% move higher as a sector with some of the higher beta names due for a 5-10% rally individually.

We may look to initiate some trades today, but we would expect that we would be out of these trades by the close of today's trading and at this time we have no idea where we would look. We want to see the open and relative momentum to see if this is even worth attempting in this market, but it does seem that some issues have begun to bottom out after being pounded 50% lower in some cases. As a rule of thumb we will look only to extremely beat down stocks and/or those who are increasing production in case we get stuck in the trade.

Oil & Natural Gas

The big news yesterday once again came from Chesapeake (CHK) as the company announced that they will replace four of their board members with independent directors. Carl Icahn will get one seat and three seats will go to Southeastern Asset Management, the largest holder of Chesapeake shares. These new directors will need to approve the new independent Chairman and will compose about half of the board, which has nine members total. This news sent shares up $0.94 (6.03%) to close at $16.52/share on volume of 37.9 million.

There was also heavy trading in SandRidge Energy (SD) shares as investors traded 17.9 million shares between them. The stock made a run at getting above $6/share for the close but could not, closing down $0.07 (1.17%) to close at $5.89/share. It is important to note that the company put in a daily low exactly $1 above the current 52-week low. The entire energy sector is weak, and that is undoubtedly a large part of the reason for the shares to have slumped so as there is a lot to be excited about this stock long-term. Investors would be wise to be patient here as the underlying story here remains very positive.

Like SandRidge, Kodiak Oil & Gas (KOG) has seen its shares hold up relatively well as other E&P companies languish near their 52-week lows. With shares now trading at $7.17, having fallen $0.19 (2.58%) yesterday, we see $7 becoming a very important level. Falling through the $9/share level and not being able to get back above was one thing, falling through $8/share was another…but if shares fall through $7/share the next step is most likely $6/share. We do not think that it will get quite that bad, but this is one E&P play not near its 52-week low, so anything is possible.

Shares in Cheniere Energy (LNG) took quite a plunge yesterday as investors reacted to Barron's reporting that the CEO/President/Chairman sold 130,000 shares. Volume spiked to 16 million, nearly three times the company's three month average, to close down $0.85 (6.75%) to finish at $11.75/share. At one point during the trading session, shares were down over $2/share but luckily for shareholders the stock did bounce off of its lows for the day. Also of significance were reports that Exxon may be eyeing exporting natural gas. This would not be good news for LNG as it would most likely push prices higher as it would clear out the glut in North America and depress prices in foreign markets, thus crushing the margins investors are expecting the company to be able to realize.

Potash                

We have stated numerous times how disappointed we were with the way Potash Corp of Saskatchewan (POT) has performed, along with its peers, in this market since the beginning of the year. It has been uninspiring to say the least and yesterday's trading only added to this thinking as shares set a new 52-week low and in the process also put in a nearly 2-year low along with the rest of the fertilizer stocks. Volume was 6.7 million and shares actually rallied back to close down only $0.09 to close at $37.44/share. We are not bullish right now…but if you got 'em, hold 'em, if not wait - referring of course to shares in the company.

By Mathew Smith

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I may initiate a position in one of the above for the trading day only depending upon price action in the morning.