Archive for the ‘Natural Resources’ Category

Natural gas prices

Sunday, April 15th, 2012

Natural gas is at a 10-year low, and it’s hard to believe it can go much lower. Its competitors should benefit if natural gas increases in price. As the price rises, demand will increase for the alternatives. And, as the price of electricity rises, the margins should rise on the production of electricity from coal and solar. Slate blog on that idea.

  • Some stocks are MEMC Electronic Materials Inc. (WFR) and the ETF Guggenheim Solar (TAN). Hedge fund manager Daniel Loeb has a position in WFR. I’m also interested in Waterfurnace, a geothermal play which trades in Canada as WFI.TO and on the Pink Sheets as WFIFF.PK. However, solar stocks have been so pounded lately, that I suspect they represent a better deal at this point.
  • Coal-burning utilities suffer when natural gas and electricity prices drop, and likewise would benefit if they rise. GenOn Energy, Inc. (GEN) is cheap, near a 52-week low, has been profitable (barely) despite the difficult pricing environment, and has some efficient coal-burning plants.
  • Wilbur Ross, an expert in turnarounds and special situations has taken a large position in EXCO Resources Inc. (XCO), a natural gas producer.

How to own oil–not refiners, not natural gas. Oil.

Wednesday, June 29th, 2011

It’s hard to own oil. Most of the ETFs that present themselves as vehicles for owning oil do a poor job of it. They own futures, rather than physical oil. Most of the major oil companies are a mixture of oil, natural gas, and refining operations. For example, Exxon-Mobile now only gets 60% of its value from oil production.

Tickers of major companies with a high percentage of their value from oil production: PBR, CVX, SU, CNQ, OXY, PWE, IMO, CEO. All of these get around 75% or more of their current value from oil production. (The rest is from natural gas or refining.) Source:

The four major ETFs for oil invest in futures contracts: USO, OIL, DBO, and USL. The first two have underperformed the WTI spot price index horribly, while the latter two have underperformed slightly. DBO has a longer track record than USL. You can compare the performance of stocks and ETFs to the price of West Texas oil at Bloomberg:

BNO is an ETF that tracks Brent oil–most of the oil sold in Europe rather then the US.

Why care more about oil? It is unique. Natural gas, coal, solar, hydro, wind, nuclear are ways to contribute energy to infrastructure. Mostly, they go into the electric grid, or sometimes directly to industry use. They compete with each other, and so each is less unique. Oil has little competition. There are no hybrid Boeing 747’s. The majority of the planet living on little income is not considering a Prius Chevrolet Volt for its next purchase. Biofuel is growing, but small, and potentially limited because it competes with food production. Oil is more needed, and thus more potentially profitable.

International Oil (Russia, Brazil, Australia)

Sunday, December 12th, 2010

These countries have cheap stock markets (i.e. low average PE ratio) and plentiful natural resources:

  • Russia (RBL, RSX, CEE)
  • Brazil (EWZ, LAQ)
  • Australia (EWA, KROO)

CEE and LAQ are closed-end funds (CEF) that invest in Eastern Europe and Latin America, with high concentrations in Russia and Brazil. However, neither CEF is trading at a juicy discount at the moment. KROO has a higher weighting in natural resource companies than EWA; the latter is overweighted in banks, bad because Australia’s housing market looks bubbly.

Fund managers like Russia and Brazil:

According to the latest UBS survey of top fund managers, 48% say Brazil will deliver the best performance in Latin America, Europe, the Middle East or Africa next year — but 33% are going with the emerging consensus and saying they think Russia will win the prize.

However, OPEC seems to be of the opinion that the current $90 oil price is overpriced, and the fair-value range is $70-$80. See the Bloomberg story: OPEC Dismisses $90 Oil Price as ‘Blip,’ Maintains Output Quotas

Source for international PE ratios is the Financial Times. Peru and Canada are resource-based economies that look overpriced.

Disclosure: I own EWZ.