Just three words: copper, silver, and oil.
The simple truth is that global growth is coming back--Greece or no
Greece--and investors are positioning for the steady and reliable
momentum that occurs in the second half of an expansion. The places
that look most interesting to me, given their levels and the
economic backdrop, are commodities such as the three mentioned
Oil has been getting the most attention and will probably remain
the most talked-about commodity in coming months. That's why on
I recommended the sector via the XLE Energy Select Sector SPDR fund
Despite the recent gains, many oil stocks remain at depressed
levels. Recent option activity suggests that buyers are now fishing
around for bargains. Big names like
led the charge in January and have been followed by more
lesser-known names such as
Harvest Natural Resources
Patterson UTI Energy
Some of these, especially AXAS, are "wildcatters"--high-risk,
high-reward exploration stocks that will have the most leverage to
higher crude prices. Others, including PTEN and HNR, were sitting
at long-term support, but there simply weren't enough sellers to
send them lower.
HNR is also interesting because it operates mainly in Venezuela,
where long-term president/wannabe-dictator Hugo Chavez could
potentially be forced from office this year. He has been dealing
with cancer and now faces a serious political challenge from
Henrique Capriles in the Oct. 7 national elections.
There aren't many ways in the stock market to bet against Chavez,
but HNR provides that exposure. Many investors hate Chavez, so this
stock could catch fire if he moves down in the polls.
The chart of oil is also quite bullish: It has been making higher
lows and consolidating above its 200-day moving average. Light
sweet crude has also found support above the key $103 level that
was resistance in late 2007 and early 2008 before it made that
crazy run toward $147. We could now be setting up for a move back
to that level.
The next consideration is the economy. Europe was supposed to be in
recession by now, according to the bears, but Germany and France
have issued a series of better-than-expected GDP reports. We also
got a strong ZEW survey (German investor confidence) and good data
recently from the Federal Reserve Banks of New York, Philadelphia,
and Chicago. So much for the bears.
(Another quick point is that higher oil prices won't be nearly as
bad for the U.S. economy as it would have been in the past because
we've been increasing energy production for several years. I
believe that it will actually be much more positive than most of
the "experts" on television declare.)
Next, what's good for oil is also good for copper and silver. Both
are industrial metals, and both have shown some very interesting
price action in recent weeks. I would also mention platinum and
palladium because they tend to follow silver in particular.
Recently we saw big call buying in
, which focuses on those two metals.
In copper, you can look to Southern Copper (SCCO) and
Freeport-McMoRan Copper & Gold (FCX), which have both had nice
pullbacks and are now finding support at their late-2011 highs.
Silver has the iShares Silver ETF (SLV) or producers like Silver
Wheaton (SLW) and Coeur d'Alene Mines (CDE). I personally own the
highly leveraged ProShares Ultra ETF (AGQ).
If oil spikes, solar stocks could get driven back up. Those of you
who've read my columns know I've been hating this sector more than
a trip to the dentist. But they now trade at huge discounts to book
value and have lots of short interest.
(CSIQ) was also on Heat Seeker last week.
Finally, a stock that has been grabbing my attention is DirecTV
(DTV). It had big call
recently, and its earnings have been pretty good. Investors have
been worrying about increased U.S. competition, but the real story
is growth in Latin America.
If I am right about commodities, emerging markets will rally at
some point and investors will pay more attention to that aspect of
the company. The shares appear to have some nice support down here
at the early January peak around $44 to $45 and have been working
their way higher since last summer.
Considering its long-term growth potential, this stock looks pretty
cheap at 8 times forward earnings--especially given its size.
I own AGQ and SCCO.
(A version of this article appeared in optionMONSTER's
What's the Trade?
newsletter of Feb. 22.)
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