Category Archives: dvn

Jubak: Natural Gas Not Bottoming Yet

According to Jim Jubak of MSN Money and author of The Jubak Picks: 50 Stocks That Will Rebuild Your Wealth & Safeguard Your Future, he doesn’t see natural gas bottoming for 3-12 months due to excessive supply and falling demand. His suggestion for anyone interested in playing the natural gas market is to seek out companies with the strongest balance sheets. His two favorite are Devon Energy (DVN) and Ultra Petroleum (UPL):

I think natural-gas prices are going to be lower in a few months than they are now. I think hedges are going to be more expensive (and contribute less to profits) and that companies are going to have hedged a smaller percentage of production in 2010 than in 2009. And I think we’re finally going to see a drop in production from some as storage space gets increasingly tight.

And that will mark the low for this cycle. I’d expect to see that bottom sometime in the next three to 12 months. Sorry that I can’t be any more specific, but so much depends on when the economic recovery arrives and how strong it is when it does knock on our doors.

That said, I don’t expect stock prices at this bottom to reach quite the depths of the end of 2008. We should be able to see a recovery by then, even if it won’t have done much of anything yet for natural-gas prices. For a rule of thumb, investors might see a retracement of about 40% to 60% of the gains from the lows. For a stock such as Chesapeake Energy, that would mean a price of $14 to $18 a share.

And we should be able to see that, given slow action on global climate change, natural gas will be a key, if not the key, transitional fuel as the world tries to reduce its use of oil and coal, both of which add more carbon dioxide to the atmosphere when burned than natural gas does.

As an aside, Jubak has a new website, Jubak Picks, with free investment recommendations. I have added him to my blogroll.

Jubak: Buy Commodity Stocks Now (Yes, Now)

Jubak’s 10/17 article highlights his favorite commodity stocks and his reason to bullish (long term) on certain commodity stocks. He’s bullish on:

TC (book value of $6.49/share), $17 price target for Dec 2009
CHK, target price of $39 a share by December 2009.
YARIY target price of $38 a share by December 2009.
PBR target price of $41 a share by December 2009
He’s currently looking to sell FCX and RIG.
He also says DVN, FSUMF, and UPL are holds.

Disclosures: I am long CHK and FSUMF

Jim Jubak’s 8/26 article focuses on the falling production of the major oil producers and is bullish on the long term trend in oil prices because of the mismatch between rising demand and falling production:

The big Western oil companies have been locked out of the most promising areas in the world for oil exploration. It’s not just that these companies control only 13% of today’s oil production — down from 50% or more in the 1970s — but that they have so little access to the most promising areas for future production.

National oil companies in countries such as Russia, Iran, Saudi Arabia and Venezuela control access to roughly 80% of the world’s existing and probable oil reserves. And that percentage is rising as more countries move to take back or reduce exploration and production agreements signed with the international oil majors.

There are three ways he proposes investing in this trend: 1) Smaller oil and natural-gas companies that are showing big increases in production now and that have announced substantial discoveries that will go into production in the next decade. Names he includes, DVN, UPL, CHK, and APA. 2) National oil companies with the world-class technology to exploit the next generation of difficult geologies. There are really only two names here, PBR and STO. 3) The “pick-and-shovel” companies that supply drilling pipe, fittings, deep-sea drilling rigs, and oil-exploration and field-management services. The three names here, SLB, RIG, and NOV.

As of Aug. 26, he’s adding PBR to Jubak’s Picks with a target price of $85 a share by March.