Daily Gains Letter


Fear of Ebola Now Creating Weakness in U.S. Stocks?

By for Daily Gains Letter | Oct 22, 2014

Ebola Scare Is Affecting U.S. StocksThe fear of Ebola has caused an increase in pressure towards the U.S. stock markets, particularly in the travel sector and aviation stocks. The concern is real, and if it is allowed to grow in the United States, Asia, or Europe, we could see a significant decline in travel demand that could impact the next few quarters, as my stock analysis would suggest.

The impact on the aviation space has been evident already, as we have seen travel-related stocks come off their tops; albeit, much of this also has to do with the current stock market risk, based on my stock analysis.

However, a big plus to the travel sector has been the major decline in oil prices to the $80.00 level for both West Texas Intermediate (WTI) and Brent crude. My stock analysis indicates this has translated into lower costs for jet fuel and gasoline—which would help to drive up demand for travel, if not for the Ebola fears, so travel by plane is likely to be most affected.

My stock analysis suggests that the market weakness is an investment opportunity to accumulate travel-related stocks, whether they are the airlines, chain hotels, or online travel operators—but the online travel operators are what I’m most interested in.

The following are what I believe to be good examples of the kind of top online travel operators you can put on your stock investment radar, based on my stock analysis.

The “Best of Breed” in the space is the granddaddy of the online travel sector—The Priceline Group Inc. (NASDAQ/PCLN). For some of you who have been active in the stock market for … Read More

Why Now Is the Opportune Time to Invest in Gold

By for Daily Gains Letter | Jun 18, 2014

Two Investments Benefiting from the Geopolitical Tensions in Iraq & UkrainecGold and oil are finally seeing some upward lift, but it has more to do with the geopolitical landscape than inflation and economic growth.

As I said in recent weeks, the price of gold could be headed higher, but only if we see a rise in geopolitical tensions. That’s what we are witnessing at this time, so there could be quick money to be made.

While the Ukraine situation appeared to be settling down, the destruction of a Ukrainian aircraft with soldiers on board will not help the already tense situation. Russia has also halted the flow of oil into Ukraine after failing to reach a compromise on only owing for past oil and the price for future oil. This failure could cause a bottleneck not only in Ukraine, but also in Poland and other European countries that depend on Russian oil. Of course, in the worst-case situation, this could impact growth in the eurozone at this critical time when the region is still fragile, with high unemployment and mixed economic renewal.

We also have the massive uprising in volatile Iraq, where the brutal ISIS (the Islamic State in Iraq and al-Sham) rebel militia is spreading its control in the country, now marching on Baghdad. The negative implications of ISIS increasing its control over the country could wreak havoc not only on the oil production out of Iraq, but it could also create geopolitical instability in this already volatile region that also includes tensions on Syria and Iran.

The two events will likely drive safe haven buying in gold, which has been moving higher after bouncing off some support around … Read More

Geopolitical Events Boosting These American Stocks

By for Daily Gains Letter | Mar 19, 2014

American StocksWhen it comes to Wall Street, oil isn’t the only commodity investors are seeking stable supplies of—you can add platinum to the list.

Besides being home to great beaches, South Africa is also home to the vast majority of platinum. South Africa produces roughly 80% of the world’s total demand for platinum. Together South Africa and Russia (both geopolitical hotspots) mine 90% of the world’s annual supply of the precious metal, which is around 130 tonnes per year, equivalent to six percent of the world’s annual gold production.

Labor strife that has gripped South Africa over the last two years at the country’s three biggest platinum mines has brought the industry to its knees, with the global output dropping by more than 40% in just a few weeks.

Rising production costs (South African platinum is located in deep subterranean seams) and wage demands have led to a number of labor strikes. The first one to make us sit up and take notice occurred in August 2012, when South African police shot and killed 34 miners. More recently, wage strikes at some of South Africa’s biggest platinum mines are almost into their second month.

With no end to the labor disputes in sight, many are calling on the government to step in and usher miners back to work. The sense of urgency comes with stockpiles of platinum at the largest producers expected to last only until the end of March, after which, platinum prices could move significantly to the upside—or rather, much more than they already have. Platinum prices are up 6.6% since the beginning of February and are currently hovering … Read More

Three Airline Stocks I Think Are Ready to Rebound

By for Daily Gains Letter | Mar 17, 2014

Three Airline StocksThanks to a number of different factors, airline sector stocks have been on a tear. And thanks to an inverse relationship with the price of oil, strengthening consumer sentiment, the expected increase in business travel, and the (eventual) arrival of spring and summer, the airline sector looks poised for further gains.

Oil prices experienced sharp gains between 2007 and mid-2008, subsequently tanking in step with the stock market and bottoming in early 2009. Since 2010, oil prices have risen in the shadows of the sputtering U.S. economy—neither soaring nor really pulling back.

That said, oil futures slid last week immediately after weekly data came out that showed U.S. crude oil supplies were up more than forecast. Analysts had expected crude oil inventories to climb from 1.4 million barrels in the last week of February to 2.1 million barrels for the week ended March 7. Instead, oil inventories surged to 6.2 million barrels. (Source: “Summary of Weekly Petroleum Data for the Week Ending March 7, 2014,” U.S. Energy Information Administration web site, March 12, 2014.)

Oil prices are also down after the U.S. said it would hold its first test sale of crude oil from its emergency stockpile since 1990. While the government insists its modest offering of 5.0 million barrels of crude is a result of the dramatic increase in domestic crude oil production…others think it might be a subtle nod to Russia. The markets don’t seem to care either way. Oil prices are down 6.5% since the beginning of March, trading near $98.00 per barrel.

Now granted, the price of crude oil will rebound. That said, the airline sector … Read More

Four Companies Rewarding Patient Investors

By for Daily Gains Letter | Mar 13, 2014

Patient InvestorsThere’s more to renewable energy than just wind and sun. And thank goodness for that, because our interest and investment in traditional renewable energy sources like solar panels and wind farms seems to be on the decline.

The amount spent on deals to finance clean energy and efficiency projects tanked 12% in 2013 to $254 billion—a quicker pace than the 9.1% drop in 2012 from a record level of $318 billion in 2011. (Source: Goossens, E., “Clean Energy Support Falls Again to $254 Billion in 2013,” Bloomberg, January 15, 2014.)

The drop in investment and interest in traditional renewable energy sources is a setback when you consider annual investments in renewable energy sources need to double to $500 billion by the end of the decade—and then double again to $1.0 trillion by 2030. That represents a huge clean energy investment gap.

Decreased interest in some renewable energy sources also comes on the heels of the discovery of abundant sources of non-renewable energy, like shale oil. And since we don’t really like change all that much and prefer the path of least resistance, our dependence on non-renewable energy sources like oil is not going to diminish anytime soon. That said, the scales will eventually tip in favor of renewable energy sources.

With that in mind, when it comes to your investments, some analysts recommend allocating five percent of your retirement portfolio to clean energy.

After years of silence and disappointing investors, optimism on the heels of a number of large contracts are helping companies that make fuel cells reward really, really patient investors.

Plug Power Inc. (NASDAQ/PLUG) got the fuel cell … Read More

How the Ukraine/Russia Situation Is Misleading Investors

By for Daily Gains Letter | Mar 7, 2014

Misleading InvestorsSometimes, what seems obvious on the surface isn’t necessarily the best way of looking at a situation. The recent crisis between Ukraine and Russia is a perfect example.

A very basic fundamental analysis of the situation would lead one to conclude that if hostilities were to break out, one of the results would be a disruption to the oil and natural gas supplied to Europe. This makes sense, since many pipelines and oil/gas fields are located in Ukraine and Russia.

What most people don’t realize is that stocks traded here in America could be negatively impacted and could perhaps have their earnings outlook downgraded due to such an event, even though the price of oil and gas might rise.

One point to make is that natural gas is more of a local commodity, so fundamental analysis cannot be extrapolated on a global basis, since transportation is far more difficult than oil.

The earnings outlook for some non-Russian companies could have issues, since many firms have agreements or outright equity stakes in Russian companies.

A perfect example is BP p.l.c. (NYSE/BP), which has a 19.75% stake in Rosneft, a giant Russian energy company. Approximately one-third of BP’s production comes from this stake in Rosneft, which could impact the earnings outlook for the company if tensions rise. Of course, BP does have other assets, including a pipeline that does not go through Ukraine, which could see an increase in demand partially offsetting any decrease in the earnings outlook from their stake in Rosneft.

This is a situation where the fundamental analysis might seem simple, but the reality is that understanding the interlinked … Read More

How to Generate Premium Income in a Stalling Stock Market

By for Daily Gains Letter | Mar 6, 2014

Premium Income in a Stalling Stock MarketThe S&P 500 recently traded at a record-high, just before tensions in the Ukraine erupted and the global stock market declined as fear of an escalation and war intensified.

While the charts continue to show the stock market wanting to move higher after excellent gains in February, I still sense the upside moves will be more difficult to come by compared to what we saw in 2013. Even at this point, the Dow Jones Industrial Average and the S&P 500 are still negative this year.

If the stand-off between the Ukraine and Russia doesn’t escalate, I would expect the stock market to advance higher by year-end. If tensions erupt in the Eastern European region, we would likely see major selling across stocks worldwide; commodities such as gold, oil, and grains would edge higher.

If the stock market fails to find its footing—and especially a fresh catalyst—we could see mixed and volatile trading in the months ahead as the market looks for direction.

And if the stock market fails to get any positive leverage heading into the summer months, we could see some stalling in the stock market.

If the stock market does stall, an investment strategy to consider would be to write and sell some covered call options on your stocks in order to generate some premium income. This would also help to lower the average cost base of your positions, while also setting a selling price you would be willing to sell your stocks at. Of course, your goal would be to generate premium income and not look to sell stock, as I believe the stock market will head … Read More

Why Canadian Oil Plays Are More Attractive Than Their U.S. Counterparts Right Now

By for Daily Gains Letter | Feb 25, 2014

Canadian Oil StocksWhile the U.S. economy is hardly on solid footing, the fact remains that as the world’s biggest and most influential economy, the U.S. doesn’t have to be running optimally to keep the global economy chugging along. Though, it would be nice if the U.S. economy would gain sustainable traction. Until then, we will have to be content with its glacial pace of recovery.

And it is slow. In 2012, gross domestic product (GDP) growth was 2.8% and in 2013, it slowed to just 1.9%. Things are expected to get better over the next two years. U.S. GDP growth is forecast to hit 2.8% in 2014 and an even three percent in 2015.

The rest of the world will be playing catch-up. Well, save for the Chinese economy, which has a 2014 growth forecast of 7.5%. GDP growth in the eurozone picked up 0.3% in the fourth quarter of 2013—the third quarter of growth since the end of an 18-month recession. (Source: “Eurozone GDP growth gathers speed,” BBC News web site, February 14, 2014.)

The International Monetary Fund (IMF) forecasts that India’s GDP growth will hit 4.6% this year and climb to 5.4% in 2015. Brazil recently revised its 2014 GDP growth rate from 3.8% to 2.5%—which is still higher than analysts’ GDP growth forecasts of 1.79%. (Sources: Mishra, A.R., “IMF says India needs more rate hikes to bring inflation down,” Livemint.com, The Wall Street Journal, February 20, 2014; “Brazil cuts 2014 budget, GDP estimate,” Buenos Aires Herald web site, February 21, 2014.)

For investors who have been waiting for a broadly based global recovery, these are encouraging signs. It also … Read More

These Three Railroad Stocks Look Great

By for Daily Gains Letter | Jan 31, 2014

Three Railroad Stocks Look GreatBack in early October, I mentioned that some railroad stocks would be some of the biggest winners of the Bakken oil play in North Dakota and Montana and the tar sands in Alberta. My position still holds true today.

Since last discussing pipeline and railroad stocks, Canadian National Railway Company (NYSE/CNI, TSX/CNR) has seen its share price climb more than 10%. Meanwhile, Canadian Pacific Railway Limited (NYSE/CP, TSX/CP) is up more than 15% and Union Pacific Corporation (NYSE/UNP) has increased 14%.

Of the oil and gas pipeline stocks I mentioned, Magellan Midstream Partners L.P. (NYSE/MMP) is up more than 15%, while Energy Transfer Equity, L.P. (NYSE/ETE) has soared almost 26%.

While a new pipeline was recently completed in the Bakken oil fields in North Dakota, thanks to a dithering President Obama, North American oil production continues to outpace oil pipeline capacity. That’s a boon for both oil pipeline stocks and railroad stocks.

After dragging his heels for five years, President Obama has still yet to render a decision on the Keystone XL pipeline that would connect Canada to Texas. Obama’s delay is nothing but good news for railroad stocks. Unlike a pipeline, the joy of sending oil and gas by railroad is that it requires no approval by the U.S. Department of State.

Regardless of what President Obama decides, oil and gas will continue to flow south, whether it’s through existing pipelines or by railroad stocks. And increasingly, it’s being sent by rail.

For the week ended January 18, U.S. railroad traffic increased 4.5% year-over-year. Petroleum and petroleum product carloads increased 13.3% year-over-year. In Canada, shipments of Canadian crude oil … Read More

How Investors Are Profiting as the Eurozone Crisis Makes a Comeback

By for Daily Gains Letter | Nov 21, 2013

Investors Are Profiting as the Eurozone CrisisMajor economic hubs in the global economy are in outright trouble, and each passing day there’s more economic data suggesting the slowdown is holding its own. Investors need to be wary about what’s happening, because it can affect their portfolio significantly.

The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.

Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)

Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)

Adding more to the … Read More

No Signs of Slowdown in These Oil and Gas Exploration Plays

By for Daily Gains Letter | Oct 22, 2013

Gas Exploration PlaysSometimes, economic forecasts are way off—in a good way. In late 2012, the International Energy Agency (IEA) predicted that the U.S. would surpass Saudi Arabia as the world’s leading oil producer within a decade.

It was announced last week that the U.S. is expected to best Saudi Arabia as the world’s biggest total supplier of oil this year (which includes natural gas liquids and biofuels). In 2013, the U.S. is expected to produce an average of 12.1 million barrels per day, which is 300,000 barrels per day higher than Saudi Arabia and 1.6 million barrels per day greater than Russia.

America’s position as the leading producer of oil and gas has surged as a result of shale oil found in the Bakken fields. According to the United States Geological Service, the Bakken—shorthand for the entire eight-million-acre Williston Basin area underlying North Dakota and Montana—contains 4.3 billion barrels of recoverable oil and gas equivalents. Others predict recoverable oil reserves could be as high as 24 billion barrels.

Lower 48 states shale plays Chart courtesy of the U.S. Energy Information Administration;

last accessed October 21, 2013.

Thanks to improved horizontal drilling technology and hydraulic fracturing processes, oil and natural gas producers can drill lengthwise through shale deposits. That means billions of once uneconomically unrecoverable barrels of shale oil are now readily available, helping kick-start the second biggest oil boom in history and turning the U.S. into the world’s top oil producer.

Over the last four years, shale output in the U.S. has increased by 3.2 million barrels per day. This is the biggest climb since between 1970 and 1974, when Saudi Arabia raised its own oil … Read More

Profiting from the Record Bakken Oil Haul

By for Daily Gains Letter | Oct 18, 2013

Bakken Oil HaulThere’s more to the Bakken in North Dakota and Montana and the tar sands in Alberta than oil. Oil may be the primary opportunity for most investors, but there are a number of interesting secondary and tertiary investing platforms to consider. And when it comes to oil and petroleum products, one of the biggest growth areas has to be North American railroad stocks.

Despite the fact that a new pipeline in the booming Bakken fields in North Dakota was recently completed, more ways to transfer oil are needed to keep up with production. That’s because North American production is outpacing pipeline capacity.

On top of that, continued resistance to pipeline infrastructure expansion in North America is putting pressure on rail systems to pick up the slack. And two of North America’s biggest railway companies have only been more than willing to do so.

In fact, the amount of oil and petroleum products being shipped by rail has soared. In 2008, just 9,500 carloads of crude oil and 220,000 carloads of ethanol moved throughout the United States by rail; in 2012, the combined figure for crude oil and petroleum products was 600,000 cars. (Source: “Moving Crude Petroleum by Rail,” Association of American Railroads web site, December 2012.)

Roughly 70% of North Dakota’s oil and 70% of America’s ethanol is transported by rail. Why does so much Bakken oil rely on railroads? Whereas oil sand development can be in production for several decades, wells in the Bakken are in production for a much shorter time span—around 10 to 12 years—meaning that it’s not always economical to connect Bakken oil fields to existing … Read More

Washington’s Dysfunctions Making U.S. Housing Stocks More Attractive?

By for Daily Gains Letter | Oct 14, 2013

US Housing StocksThe best time to look at certain sectors and stocks is when investors are running for the exits. Unfortunately, the U.S. government shutdown and looming debt ceiling deadline have sent investors scurrying in every direction. Still, one area that will be negatively impacted should the U.S. government shutdown continue and the debt ceiling limit not be raised is the slowly rebounding U.S. housing market.

That doesn’t mean investors should shun the U.S. housing market and homebuilder stocks altogether; if anything, the current lull is the perfect time to take a closer look at this sector. Both the shutdown and debt ceiling will eventually be in the rearview mirror and the wheels of economic progress will sputter back to life.

According to the latest S&P/Case-Shiller Home Price Index, U.S. house prices rose 12.4% for the 12 months ended July 31, the biggest annual increase since February 2006. Home prices, which have climbed 16% since the beginning of 2012, are still roughly 22% below their 2006 pre-recession highs, meaning, there is still plenty of room to run before the U.S. housing market can say it has fully recovered.

Unfortunately, the U.S. government shutdown and fears about the debt ceiling are coming just as construction and new housing sales are beginning to show signs of life. Residential starts in August were up slightly (0.9%), with an annual pace of 891,000—a marked improvement over the April 2009 low of 478,000 starts.

There are a number of ways a long-term government shutdown would exacerbate growth in the U.S. housing market. Because federal employees are furloughed, there is no one to approve mortgages; those in the … Read More

Natural Gas the Next Big Commodity Trade?

By for Daily Gains Letter | Sep 19, 2013

Natural GasTo put it mildly, natural gas simply doesn’t get as much attention as crude oil, or even gold. Mr. Speculator, my good old friend, once said, “Why would you want to even bother looking at it? The prices have collapsed and have been ranging for years.” It’s certainly true that natural gas prices have come down from where they used to be. Just take a look at the chart below to see what has happened to the price of natural gas in the past few years.

Not very long ago, natural gas prices were trading above $13.00 in 2008. Now, they are below $4.00; that’s a decline of almost 70%. With this, one should really wonder if natural gas has any future. Is this commodity even worth paying any attention to?

As I dig further into the details, I see natural gas prices going higher in the future. When this will happen is very hard to predict, but all the cases are pointing towards that conclusion.

When it comes to evaluating the prices and their direction, the most important factor I look at is the supply and demand, be it for gold, silver, oil, or any other commodity, for that matter. The basic rule of economics suggests when the demand goes up and the supply stays the same or declines, the price increases.

Natural Gas Chart

Chart Courtesy of www.StockCharts.com

 This is exactly what is happening when it comes to natural gas.

Let’s backtrack a little. In the first half of 2013, 39% of electricity in the U.S. economy was created using coal-fired plants. This is troublesome, because the U.S. government is actively … Read More

Have Conflicts in Syria Made Oil a Great Short-Term Play?

By for Daily Gains Letter | Aug 30, 2013

Have Conflicts in Syria Made Oil a Great Short-Term Play?If investing is about taking advantage of opportunities, oil might be one of the best plays right now.

According to the International Energy Agency, the three most common reasons for disruptions in the global oil supply are technical problems (check), civil unrest (check), and seasonal storms (check—the 2013 Atlantic hurricane season is in full swing until the end of November). (Source: “How does the IEA respond to major disruptions in the supply of oil?,” International Energy Agency web site, last accessed August 29, 2013.)

Between Thursday, August 22 and Wednesday, August 28, the price of crude oil climbed five percent to a two-year high. Over the last two months, the price of crude oil has surged more than 17% on the heels of tighter supply due to disruptions in the North Sea and Libya, positive economic data out of China and the eurozone, and rising tension in Syria.

Light Crude Oil Chart

Chart courtesy of www.StockCharts.com

Now granted, Syria isn’t an oil powerhouse: its current daily output is less than 50,000 barrels a day (a significant decrease from 350,000 barrels in March), but that’s just a drop in the bucket compared to the global output of 90 million barrels a day.

The real threat to the price of oil is a result of political jockeying. While the U.S. and its allies are considering a launch against Syria in response to its use of banned deadly chemical weapons on its civilians, China and Russia have weighed in, saying that would lead to “catastrophic consequences.”

Iran, of course, said any strike against Syria would lead to retaliation on Israel. Israel, for its part, said it was … Read More

Forget Gold & Silver for Now: This Is the Mineral Investors Should Be Playing

By for Daily Gains Letter | Jul 26, 2013

Forget Gold & Silver for Now: This Is the Mineral Investors Should Be PlayingThere’s a rush happening in the U.S. economy, but no one seems to have heard much about it. No, it’s not for gold, silver, or oil. This time around, it has to do with rare earth elements, or what are sometimes referred to as rare earth metals.

Before going into further details about how investors may be able to profit from this situation in the making, it is necessary to know what these rare earth elements are and what they are used for.

Rare earth elements, at the very core, have many different uses. They are used in technology like cell phones, televisions, and lighting systems. They are also used in aerospace, automotive, and energy industries. Note that these are just a few of the uses of rare earth elements; there are many other uses for them, as well.

How critical are rare earth elements? According to Ian Ridley, director of the U.S. Geological Survey Central Mineral and Environmental Resources Science Center in Colorado, “without rare earths we’d be back to having black-and-white cellphones again.” (Source: “Gold rush trash is Information Age treasure,” USA Today, July 21, 2013.)

One must ask the question: why call it a rush?

As their name suggests, these elements are rare, found only in certain locations. This leaves them vulnerable to demand and supply shocks.

As a matter of fact, we saw something similar back in 2011. A rare earth element called neodymium, used in the automotive industry, could be purchased for $15.00 a kilogram in 2009. Fast-forward to 2011, and the price of this rare earth element reached $500.00 a kilogram; that’s an increase … Read More

Profit from Oil & Gas No Matter the Commodity Price?

By for Daily Gains Letter | Jul 25, 2013

Profit from Oil & Gas No Matter the Commodity PriceWhether the price of oil and gas is moving up, down, or sideways, the commodity still needs to get transported somewhere. And with a slowly improving economy, the U.S. oil and gas pipeline infrastructure will be called upon to move more and more liquid gold.

Today, America’s natural gas pipeline network is made up of 210 different systems covering 305,000 miles of interstate. In the United States, 55,000 miles of trunklines move 5.6 million barrels of oil each day. (Sources: “Natural Gas,” U.S. Energy Information Administration web site, last accessed July 23, 2013; Alerian MLP ETF web site, last accessed July 23, 2013.)

But thanks to America’s soaring oil boom, the demand for pipelines and other oil and gas infrastructure is expected to climb significantly over the next few years. Pipeline demand in the Bakken Shale in North Dakota is where the majority of demand will come from. The Keystone XL pipeline winning federal approval will also drive North American demand.

There is also a huge demand for liquid natural gas south of the border. Mexican imports of U.S. natural gas have jumped 92% since 2008, and with increased demand, Mexico could be the destination of 10% of U.S. production. To help meet that demand, the U.S. has at least six new pipeline projects aimed at sending gas southward under consideration. (Source: Forest, D., “A surprising source of demand for US natural gas,” The Christian Science Monitor, July 4, 2013.)

As it stands, between now and 2016, the demand for oil and gas infrastructure is expected to climb more than six percent each year, hitting $12.0 billion. In 2011, the … Read More

How to Profit from America’s Gain on This Lucrative Middle East Sector

By for Daily Gains Letter | Jul 23, 2013

America’s Gain on This Lucrative Middle East SectorThe world isn’t necessarily looking to the Middle East to supply the oil demand. While Saudi Arabia has historically taken a dim view of light-quality oil developments in the Eagle Ford Shale formation in Texas and the Bakken formation in North Dakota, the output is putting a dent in its production.

During the first quarter of 2013, Saudi Arabia’s economy contracted 6.3%—its sharpest decline since quarterly data was made available in 2010. During the first quarter, Brent crude prices fell seven percent, while production slipped eight percent. On top of that, Saudi oil exports to the U.S. fell to 1.09 million barrels per day (bpd) in the first quarter versus 1.4 million bpd during the same period last year. (Source: Hussain, H., “Saudi Arabia’s oil sector threatened by North American supply,” Financial Post, July 18, 2013.)

In fact, it’s quite possible that in a couple years, U.S. production could outstrip the domestic industry’s capacity to refine it. This opens up the door to the possibility of the U.S. starting to export oil for the first time since the 1970s. This could increase the influence the U.S. has on world markets and help stabilize domestic gas prices. It could also encourage further exploration and drilling.

Not that U.S. exploration and drilling has been idle. In 2012, an estimated $145 billion was spent on drilling and completing onshore wells; in 2009, that number stood at $73.0 billion. Analysts expect that spending to continue for the next few years as more and more investors take advantage of America’s oil boom.

Today, Texas has more than 20% of the world’s drilling rigs in operation. … Read More

What You Need to Know to Make the Most of the U.S. Oil Boom

By for Daily Gains Letter | Jul 18, 2013

US Oil BoomNot every oil-producing region of the United States will benefit equally from the boom.

While the International Energy Agency (IEA) expects the United States to surpass Saudi Arabia as the world’s top oil producer by 2017, some regions will outproduce others. For investors looking to take advantage of America’s oil boom, North Dakota looks like it is positioning itself as the place to be.

The U.S. Geological Survey (USGS) says the Bakken formation that underlies parts of Montana and North Dakota is the largest continuous oil resource in the lower 48 states. While estimates vary wildly, the USGS estimates the Bakken reserve area contains as much as 7.4 billion barrels of oil and 6.7 trillion cubic feet of recoverable natural gas.

After nine straight months of producing more than 700,000 barrels per day (bpd), the North Dakota Department of Mineral Resources said recently that Bakken oil production reached an all-time high in May of 810,000 bpd. For those who have been paying close attention to the Bakken play, this represents a more than fivefold increase in production in just five years.

The U.S. Energy Information Administration (EIA) also announced late last week that thanks to the Bakken play, North Dakota’s real gross domestic product (GDP) experienced significant gains that are well above the national average. In 2001, North Dakota’s GDP ranked 38th out of the 50 states; in 2004, the state’s GDP per capita rose consistently each year, surpassing the U.S. average in 2008.

By 2012, North Dakota’s GDP per capita was at $55,250, 29% greater than the national average. The EIA also said the increase coincided with the ongoing … Read More

The Next Big Risk to Investors

By for Daily Gains Letter | Mar 8, 2013

DL_Mar_8_2013_MitchellThe commodity price cycle still exists but many raw materials remain in correction. Gold, silver, and oil prices are all taking a break for their own reasons. Although I wouldn’t be buying them now, I still believe that gold should be a part of a well-balanced portfolio, especially as we enter a period of rising inflation.

In terms of gold-related investments, there are only a handful of gold miners even worth considering in this market. Costs for gold mining companies have being going up significantly, accelerating the decline of many gold stocks.

Oil prices aren’t going anywhere, with very slow growth in the U.S. economy and stable economic growth in China. In addition, the production boom in domestic oil and natural gas is holding these commodities down and should continue to do so for quite some time.

There is not a lot of new action for investors to be taking on right now. Those with large-cap equities should be benefitting from the rising stock market, which by the numbers, is not expensively priced. It is difficult to be a new buyer in an environment like this. Nobody likes buying stocks at their highs.

We should get a meaningful correction in the stock market soon and, if we do, I hope it’s a big one in that it will be an opportunity to buy dividend-paying blue-chip stocks.

Gold is likely to remain in a consolidation mode for quite some time. The better bet on its upside is the commodity itself, not gold stocks. Oil prices recently dipped below $90.00 a barrel, and while that’s good for consumers, it still represents the … Read More

How to Profit from America’s Rise to Top Oil Producing Powerhouse

By for Daily Gains Letter | Feb 26, 2013

260213_DL_zulfiqarThe U.S. is expected to overtake Saudi Arabia as the world’s top oil-producing nation by 2017; and by 2030, it’s also expected to become a net exporter of oil to the global economy—meaning it will be self-sufficient when it comes to energy consumption, according to a report published by the International Energy Agency (IEA). (Source: Rosenthal, E., “U.S. to Be World’s Top Oil Producer in 5 Years, Report Says,” The New York Times, November 12, 2012.)

In addition to the U.S. becoming a major oil producer, the IEA also indicated that the U.S. will overtake Russia as the world’s top natural gas producer by 2015. (Source: Ibid.)

Having said that, how can investors take advantage of this growth in energy production in the U.S. economy but not invest in oil and gas plays?

Hercules Offshore, Inc. (NASDAQ/HERO) provides shallow-water drilling and marine services to companies involved in oil and natural gas exploration and production worldwide. The company is based in Houston, Texas; Hercules’ fleet of jackup rigs is the largest in the U.S. Gulf of Mexico, and it’s the fourth-largest in the world. In addition, the firm is also the operator of the largest inland barge drilling fleet across the U.S Gulf Coast, and the largest lifeboat fleet worldwide. (Source: Hercules Offshore, Inc. web site, last accessed February 25, 2013.)


dl_0226_003 Chart courtesy of www.StockCharts.com

Currently trading near $6.70 with an average three-month volume of about 3.2 million per day, almost 74% of Hercules is held by institutions and 18.5% is held by insiders. The company’s book value stands at $5.57. (Source: Yahoo! Finance, last accessed February 25, 2013.)

On … Read More

U.S. Oil Boom for Real—Production’s Gushing in Many New Regions

By for Daily Gains Letter | Feb 20, 2013

DL_Feb_20_2013_MitchellIt’s boom time in the domestic oil business, and production is on a big-time upswing after years of decline. New technology is helping, but so is a willingness to look for oil in non-traditional places, like North Dakota and Montana. And it’s all happening in the face of oil prices that seemingly refuse to cross the $100.00-per-barrel threshold.

But it isn’t just oil. Today there’s a glut of natural gas, and prices have taken a hit. There is solid potential for oil prices to advance this year, but in order for this to happen, both the China and the U.S. economy have to show more growth.

Global demand for oil continues to be solid, and 2013 consumption growth is expected around its normal average. With the big increase in domestic oil production, it’s fair to say that oil prices are actually holding up well. One thing that isn’t happening is the stock market is no longer trading off oil prices—that metric has gone by the wayside for now.

Typically, you can’t go wrong owning one of the integrated oil companies. The fact of the matter is that the only way to beat higher gasoline prices is to own a piece of the company. Large-cap oil producers like Exxon Mobil Corporation (NYSE/XOM) and Chevron Corporation (NYSE/CVX) have done exceptionally well on the stock market over the long term; and this doesn’t include dividends paid, which are substantial.

To be a buyer of large-cap oil now, the near-term return would be dividends only, as these stocks are fully priced and oil prices seem stuck in their range. There are a considerable number … Read More