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- Natural Gas Prices Hit Three Year Lows
- Insider Activity: Chaparral Energy (CHAP)
- Trump and Pelosi on Track for Debt Ceiling Debate
- Unusual Options Activity: Brookfield Asset Management (BAM)
| Natural Gas Prices Hit Three Year Lows Posted: 22 Jul 2019 03:00 AM PDT
Heat wave and supply glut weigh on commodity. Natural gas prices fell to $2.30 last week, one of the weakest weeks ever in terms of pricing. That comes amidst a summer heat wave that tends to spur demand for energy in order to power fans and air conditioners. While natural gas prices are at their lowest in three years, prices are also on track to be the weakest for the summer season in 20 years. In some parts of West Texas with high supplies and low storage, natural gas prices have even been negative—essentially paying customers to take it off the hands of producers. Years of shale fracking have led to large booms in supply, and we currently seem to be swimming in the stuff. However, there are some silver linings. As the cure to low prices in the commodity market is, well, low prices, the power sector is likely to increase plans to use coal-to-gas switching and other technologies. Natural gas is cheap, abundant, and burns far more cleanly for the environment than coal. Action to take: The space has been too cheap to ignore, as we have seen in recent weeks with large insider buys at oil and natural gas exploration and development companies. Buying into the space now, while things look their ugliest, is certainly a contrarian play—but the contrarian plays usually offer investors better market returns over time as sentiment changes.  |
| Insider Activity: Chaparral Energy (CHAP) Posted: 22 Jul 2019 03:00 AM PDT
Deep-value investment firm adds to stake. Last week, Strategic Value Partners, LLC, already a 10% owner, added to its stake in Chaparral Energy (CHAP). The fund bought 554,321 shares at a cost of just over $3.1 million. This follows on additional buys by the fund in recent weeks. Since April, the fund has seen its total holdings increase from 10.7 million shares to 13.1 million shares. Chaparral Energy engages in the acquisition, exploration, and production of onshore oil and natural gas properties primarily in the state of Oklahoma. Like other natural gas names right now, shares have struggled, falling over 77 percent in the past year against a gain of nearly 7 percent for the S&P 500 index. Action to take: With the summer months as a seasonally weak time for natural gas, it's no surprise that insiders keep adding to their stakes in these firms near here. And with a forward PE ratio of just 5, shares look attractive. Natural gas prices are now cheap enough to make a great alternative to other forms of energy, and prices will likely rise going into the late autumn and winter. Investors should look at shares—with an eye towards buying under $5. While they're unlikely to go as high as the old 52-week high of $19.48 anytime soon, in a rallying market for natural gas, they could move much higher as traditional stocks lag.  |
| Trump and Pelosi on Track for Debt Ceiling Debate Posted: 22 Jul 2019 03:00 AM PDT
House speaker rejected administration proposal. House Speaker Nancy Pelosi rejected an offer by the White House regarding the most recent debt ceiling proposal, increasing the likelihood of a government shutdown in the coming weeks. The Trump administration proposed a two-year budget cap agreement involving $150 billion in spending cuts from a menu of $74 billion in potential savings opportunities. The deal included no changes in taxes or revenues. With Congress heading into recess on July 26, and with the possibility of the U.S. losing its spending ability under current law by early September, little time will be available to reach an agreement on spending issues. Typically, debt ceiling debates throw some uncertainty into markets, so as we get closer to the budgetary ceiling in September, markets may start to price in this uncertainty. Treasury Secretary Steven Mnuchin said that the market should not be concerned. Congress limits government spending by law, and periodically needs to vote to raise the total amount of government debt. These debt ceiling votes are often mundane, but previous debt ceiling debates have turned political and ugly. In 2011, threats to stop paying interest on U.S. Treasuries during a debate led to a large market selloff amid rising fear and uncertainty. A government shutdown occurred at the start of this year thanks to the last major debate.  |
| Unusual Options Activity: Brookfield Asset Management (BAM) Posted: 22 Jul 2019 03:00 AM PDT
Shares likely to move higher by double-digits before year-end. Shares of Brookfield Asset Management (BAM) may be heading higher between now and December, based on a surge of the $55 call options there. On Thursday, over 3,250 of the calls traded against a prior open interest of 187, nearly a 17-fold surge in volume. With shares trading at $48.50 however, the options imply that shares are likely to move at least 13 percent higher between now and December expiration, 154 days away. As shares of Brookfield have never broken $50 in the past year, this is an unusual bet that shares will move to new all-time highs. Brookfield invests in mid-market companies with a focus on asset management in infrastructure space. The company owns and operates hydroelectric power facilities, interconnection and transmission facilities, and wind power operations among others, with investments all over the world. Action to take: With the option trading around $0.23, there's a low expectation of shares heading higher. But a company with diverse operations could make an announcement that sends shares rising at any time—such as a key investment or divestment. That makes for an interesting bet for traders at less than $25 per contract—any move in shares higher between now and expiration, even if shares don't move in-the-money, could cause the option to double or triple from here.  |
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