Natural Gas Equities Are Leading & They Are Just Getting Started

The broader equity market bottomed on March 23rd, 2020, and since then the SPDR S&P 500 Index ETF (SPY) is higher by 29.1%, and the Invesco QQQ Trust (QQQ) is higher by 34.8%, as shown in the chart below.

Somewhat inconspicuously, precious metals equities, as measured by the VanEck Vector Gold Miners ETF (GDX), have risen 73.0% since the March 23rd broader market low, energy equities, as measured by the Energy Select Sector SPDR Fund (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), have risen 52.1% and 62.0%, respectively, from the March 23rd broader market low, and basic material stocks, as measured by the SPDR S&P Metals & Mining ETF (XME), which have risen 39.5% since the March 23rd broader market low.

Said another way, inflation sensitive and economically sensitive equities are quietly outperforming.

Leading the pack above, all, are natural gas equities, led by Antero Resources (AR), which I have previously called a generational buying opportunity.

At the time of this publication, I was routinely mocked, much as I was in 2008 and 2009, before this happened.

How did I achieve this performance?

Simply put, it was buying undervalued equities, like General Growth Properties, in November of 2008, that almost nobody else wanted.

As I have said previously, these purchases, in aggregate, totaled $53,593.71, which was not a big dollar total in aggregate, however, the 120,000 shares were a nice stake in what would become the best performing S&P 500 equity in the bull market, at least through March 10th, 2017, as this CBS MarketWatch article on the bull market turning 8 years old chronicled.

In March of 2018, in the Brookfield Property Partners deal, these shares could be exchanged for $23.50 in cash.

Not a bad return at all, however, the key was to buy into the panic. That is the same thing we have done this time, and now we will see if the proverbial Main Course plays out in front of our eyes.

Best of luck to everyone. Stay healthy, safe, and happy,

WTK

EQT Corp Up 49.1% Last Week; Inflection Point Is Here

EQT Corp Up 49.1% Last Week; Inflection Point Is Here

Mar. 17, 2020 8:54 AM ET|About: Antero Resources Corporation (AR)EQTSPYUNGXOMSummary

EQT Corp, the largest dry natural gas producer in the U.S., gained 49.1% last week.

Many natural gas equities had stellar performance weeks, while SPY dropped 9.5%, and historic volatility engulfed the markets.

Looking through the volatility, the inflection point is clearly at hand.

Introduction

There has been historic volatility in the financial markets.  That is not hyperbole, as the chart of the $VIX shows below.

In fact, even though the SPDR S&P 500 ETF (SPY) declined 9.5% last week, we have seen daily price moves, on a regular basis, that exceed that move.

In this swirling sea of turmoil, one sector that I have extremely bullish on stands out.

Specifically natural gas, and more specifically, the historically downtrodden natural gas equities, which have both been contrarian trades and investments even for contrarians.

Dry natural gas prices rose 9.4% last week, the United States Natural Gas Fund (UNG) rose 10.7% last week, and the largest dry natural gas producer in the United States, EQT Corp (EQT), rose 49.1% last week.

Macro Is Turning Sharply To Favor Natural Gas

Anybody that has been reading my work knows that I have been extremely bullish on natural gas prices and natural gas equities.

Why?

In a nutshell, both lower 48 dry natural gas production and liquids production are rolling over, as the charts of my colleague Lothar Grall illustrate.

(Source: Lothar Grall, The Contrarian)

Keep in mind, this data is from the EIA’s Drilling Productivity Report, and production was already in decline for dry natural gas and rolling over for liquids before COVID-19 became a full blown pandemic, and Russia and Saudi Arabia got into a full scale oil war.

The latter has cratered crude oil prices, and effectively rendered obsolete the primary bearish natural gas thesis, which was that unending associated dry gas production growth would forever impair dry natural gas prices.

Natural Gas Equities Have A Contrarian Surge

Again, last week, with the SPDR S&P 500 Index down 9.5%, the largest natural gas producer in the United States, EQT Corp (EQT), surged higher by 49.1%.

That is a monumental move, in a week of historical market volatility, and adding to the narrative, many of the leading dry natural gas producers had a strong week of relative, and absolute, price performance.

As this narrative begins to flow through to market participants, there is potential for extraordinary gains, perhaps even a generational wealth opportunity, as I wrote about in an article highlighting Antero Resources (AR) recently, in some of the largest dry natural gas producers in the table above.

On this note, much beleaguered Exxon Mobil (XOM), which is widely ridiculed for their XTO energy purchase in 2009, which gave them greater natural gas exposure, could get a material, unexpected (by many market participants) boost from higher dry natural gas prices.

Closing Thoughts – Take Advantage Of What I Think Is A Historic Opportunity

Many always ask me how I had a year like I did from November of 2008 to November of 2009.

The answer was really simple.

1. Have an accurate bigger picture macroeconomic view.

2.  Identify opportunities that are mispriced by the markets.

3.  Take advantage of the panic selling.

Fortunately, for market participants today, we have all the ingredients necessary for one of the great contrarian inflection points of all-time.

For members of my research services, I have published several recent pieces quantifying the historical volatility and the opportunity as follows:

Chronicling Another Historic Day In The Market & Putting Together A Buy List

Another Historic Market Day This Week – Chronicling Black Thursday & Looking Forward

Chronicling A Historic Day In The Stock Market & A More Historic Day In The Energy Market

(Note: Members can click on these articles to access.  Also, the first article is still being distributed).

Somewhat unbelievably, we have had three historic days in the stock markets in the past six trading sessions, really four historic days counting Friday’s big gains, so the volatility is incredible.

Seeing through all of this volatility, there are clear inflection points at hand, and the relative and absolute opportunity right now is as big as I have seen in my 25 year plus personal and professional investment career.

In summary, buy what is cheap, and buy into the panic, as the cheapest valuation equities with the best future return prospects will often rebound ahead of a bottom in the broader equity market.

Specific to my research services, I am offering a 20% discount to membership (I am extending this through March) to “The Contrarian” (past members can also direct message me for a special rate), the lowest price point since the founding members price, where we have a live documented history dating back to late 2015.

Additionally, I am offering a limited time 50% discount for the first 10 new members (I expect these slots, some of which I view as a stepping stone to “The Contrarian”, to fill up fast as they have done previously) to a host of research options, including a lower price point. If you subscribe to a premium option (I have had one concierge slot open up), I will set-aside time for a personal phone call to get up to speed. To get these offers, go here, and enter coupon code “opportunity” without the quotes.  Either way, once you sign up, I will follow-up with a welcome email within a day.

Reach out with any questions via direct message (I enjoy the dialogue at market inflection points).

Via my research services, or another avenue, please do your due diligence, and take advantage of what I believe is a historic inflection point, which I believe will supersede 2000-2002 in the growth-to-value rotation.

WTK

P.S. Resilience is perhaps the most important ingredient to be successful in life, and in the markets. Keep that in mind right now.

Disclosure: I am/we are long AR, EQT, UNG, XOM, and short SPY in a long/short portfolio.

Additional disclosure: Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Resilience

  • Spanish football giant Barcelona has an famous youth academy, called La Masia de Can Planes.
  • This academy is widely regarded as the best in the world.
  • Through training hundreds of players, they have found that the number one predictor of success is resilience.  I believe the same thing is true for investing and speculating.

Life Aint Fair(Picture above drawn by my daughter after she was put in timeout)

About a month ago, I was listening to a podcast with Bill Simmons and Steve Nash, and something they were discussing caught my attention.

Specifically, around the 28 minute mark (I would encourage everyone to listen because it really is a good conversation), Steve Nash was talking about the predictors of success in player development, and he referenced the youth academy of soccer giant Barcelona, known as La Masia de Can Planes, often shortened to La Masia.

Per Wikipedia,

“La Masia de Can Planes, usually shortened to La Masia (Catalan pronunciation: [lə məˈzi.ə]; English: “The Farmhouse”),[1] is often used to generically describe the Barcelona youth academy. This academy holds more than 300 young players, and has been praised since 2002 as the best in the world, being a significant factor in FC Barcelona’s European success.”

Nash said that La Masia had found, in its training of the most world class soccer players by any youth academy, that the number one predictor of success was resilience.

Think about that for a second, for developing youth soccer players, the number one predictor of success in the youth academy was not height, strength, speed, coordination, or athleticism, but rather it was resilience.

During the conversation, Nash said that resilience is not really taught, which should be addressed differently.

Nash and Simmons went back and forth ib whether was resilience was something you have inherently, or if it could be trained, or taught.

This observation about the importance of resilience got me thinking about investing, and speculating, and from my personal experiences, my biggest successes usually have occurred after periods of prolonged pain & suffering, or said another way, trials and tribulations.  In short, my biggest triumphs investing and speculating almost always required resilience.

Looking at it from another perspective, sometimes investing, or speculating, (or even life) goes against you, maybe even in a big way, and when this happens, it is crucial, in my opinion that you have resilience too.

Not giving up, keeping at something, this persistence & resilience is not common if something not going a persons way.  Often times, it can lead to success.

One caveat with investing and speculating though, and I suppose this is true in life too, is that I have learned persistence and resilience, or not giving up in the wrong situation, can lead to less than ideal outcome or even catastrophic losses.

So, I suppose the lesson is to be resilient at all times, through successes and failures, and be persistent/resilient if you have reason to believe that failures will eventually pay dividends.

In summary, do not discount the importance of resilience in investing and speculating, or in life,

WTK

P.S. The attached picture above is drawn by one of my daughter’s, composed after she was put in “timeout” that she felt was undeserved, and thus she wrote, “Life Ain’t Fair”.  That is certainly true, and I would add the markets are not fair either, however, it is the job of a successful investor or speculator to have resilience, and take advantage of the price dislocations.