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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
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