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CFAs and self-proclaimed analysts: Energy Companies
Posted on 4/22/13 at 11:39 am
Posted on 4/22/13 at 11:39 am
On the topic of oil/natural gas... how do these companies fair as far as correlation with the underlying asset prices.
Example: Two stocks I hold, HES and APA have large plays in both. HES, primarily in oil production and APA in both, but largely focused on natural gas.
As prices rise and fall, do the stocks typically correlate well?
Looking at increasing exposure to APA on the basis of strong fundamentals, management decisions, and the notion that natural gas has the potential to rise. Though very simplified, it makes sense to me that as the prices of natural gas rise, revenues should rise along with? (!revenues! not net income)
Thoughts?
Example: Two stocks I hold, HES and APA have large plays in both. HES, primarily in oil production and APA in both, but largely focused on natural gas.
As prices rise and fall, do the stocks typically correlate well?
Looking at increasing exposure to APA on the basis of strong fundamentals, management decisions, and the notion that natural gas has the potential to rise. Though very simplified, it makes sense to me that as the prices of natural gas rise, revenues should rise along with? (!revenues! not net income)
Thoughts?
1
Posted on 4/22/13 at 12:03 pm to Cmlsu5618
My opinion:
There is a correlation, but it's hard to say just how strong. It's hard to play that game.
Speculating on commodity prices when investing in O&G equities is very risky (see Aubrey McClendon). Strong fundamentals and good management is a good reason though, especially if the price is a little suppressed, like APA's is. (I don't know much about the company other than that)
Edit: Also have to take into account that in the short-term many upstream companies have a big chunk of their production hedged, limiting upside from increases in price.
There is a correlation, but it's hard to say just how strong. It's hard to play that game.
Speculating on commodity prices when investing in O&G equities is very risky (see Aubrey McClendon). Strong fundamentals and good management is a good reason though, especially if the price is a little suppressed, like APA's is. (I don't know much about the company other than that)
Edit: Also have to take into account that in the short-term many upstream companies have a big chunk of their production hedged, limiting upside from increases in price.
This post was edited on 4/22/13 at 12:06 pm
Posted on 4/22/13 at 12:21 pm to raw dog
quote:
There is a correlation, but it's hard to say just how strong. It's hard to play that game.
Came here to post this. It's extremely hard to play that game, and win.
Posted on 4/22/13 at 2:12 pm to raw dog
quote:
companies have a big chunk of their production hedged
This. Great point Raw, and very true. I just don't feel comfortable speaking to energy companies. There is a lot more going on with the company and market valuation of said company than the widget factories.
I still feel compelled to increase APA exposure on the basis of fundamentals alone. Any natural gas opinions or investors familiar with APA?
ETA: I keep a resolve to invest only in companies that I plan to hold for at least 3 years, barring any major hiccups.
This post was edited on 4/22/13 at 2:14 pm
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