I don’t spend much time finding very short-term trades, as regular readers know. Staring at my screens and trying to find a great long-term trade hasn’t been a breeze either. It’s not that the trends aren’t there to be found; it’s more that there are few ways I see right now to put them in actionable motion.
But noting those trends are the first step and I see three of them, with the actual trades following later. They are:
1- The inexorably rising price of crude
2- The relative advantage of US Exploration and Production and
3- The Liquid Natural Gas opportunity
Finding trades to go with these energy trends is the trick (and one I’d like to hear your opinions on), so let’s go through the trade opportunities on each of them as I see them today.
I’ve written dozens of columns on the trade opportunity in oil itself. With an increasing global demand profile and a rising cost in procuring the average barrel of crude, it’s far, far more likely we’ll see $125 oil before we see $75 oil – and $150 oil after that. One opportunity I’ve continued to see (and hold) is back month crude futures, which continue at a (lesser but still holding) backwardation, meaning that crude priced two years from now is actually trading MORE CHEAPLY than now. That still presents to me as perhaps the best trade in the investment world.
But most investors aren’t comfortable with a long-term futures position.
The stock opportunity that follows from a long-dated higher crude price are the Exploration and Production companies, and US E+P’s hold a distinct advantage over the rest of the world because of new shale opportunities, first-rate technology and advantaged government leasing and tax policies. I’ve gone through my favorite E+P’s and spoken about them often, so no further discussion is needed here. What I’d rather like to find is a sleeper E+P working in a newer shale area that hasn’t already experienced the exponential share price rallies like many successful E+P’s in the Bakken and Eagle Ford shales.
That hasn’t been easy – and forced me to find target prices to increase positions in already bloated shares of E+P’s like Cimarex (XEC), Pioneer Natural Resources (PXD), EOG Resources (EOG) and Continental…