Finding the Last Squeeze-able Stocks in the Commodity Space (BTU, CEI, CHK, FCX, PAAS, TECK, WY)

The commodity space is the clear winner in 2021. This is especially true if you count Bitcoin as a commodity. But even if you don’t, the theme driving the headlines this year is all about inflation, supply chain constraints, and shortages of raw goods like oil, gas, copper, lumber, iron ore, and agricultural goods. 

As the Federal Reserve has told us repeatedly, this is just a temporary problem – “transitory”, as Jay Powell and the Gang like to put it. Or is it? 

There’s a growing chorus of top market minds starting to question that premise. The legendary investor and fund manager, Paul Tudor Jones, is the latest just Wizard of Wall Street to come out in the non-transitory camp.

One of the key problems is a persistent lack of investment in new production of most major commodities throughout the uncertainty of the darkest period of the pandemic over the past 18 months. Now that demand is roaring again, supply is simply being overwhelmed, and the logistics to get what stuff we have to where it needs to be on time and in a useful state are simply not in place due to the complexity of these global systems and the abrupt ‘stop and start’ process we have endured since March 2020.

That all adds up to a massive bullish argument for commodity stocks. 

Naturally, these are the stocks that have led the market higher over recent months. But market participants may still be able to dig up some interesting spots where commodity bears are still hanging out ripe for the squeezing. We take a look at a few names below that could fit this bill.

Peabody Energy Corporation (NYSE:BTU) is a key player in the loathed coal industry. But, lo and behold, the dirty black crumbly stuff is suddenly back in style in a very big way just a year after everyone thought all these companies were doomed to go bankrupt in short order.

That should explain why bears have been so persistent here. This week, puts have been all the rage, with Nov 14 puts seeing 7,050 contracts changing hands against an open interest of 550 on Wednesday following the company’s release of preliminary results for Q3, which were nominally lagging expectations. However, markets like to look around the corner, which could mean a squeeze possibility is brewing here, especially following news that China is stockpiling coal. The stock has been corralled lower from $20 to $14 over the past couple days with big bear interest suggesting that a rally could feed on itself and offer a squeeze opportunity for nimble market participants.

Peabody Energy Corporation (NYSE:BTU) bills itself as a coal mining outfit. The company operates through its Powder River Basin Mining, Midwestern U.S. Mining, Western U.S. Mining, Seaborne Metallurgical Mining, Seaborne Thermal Mining, and ‘Corporate and Other’ segments. 

The Powder River Basin Mining segment consists of its mines in Wyoming. The Midwestern U.S. Mining segment includes Illinois and Indiana mining operations. The Western U.S. Mining segment reflects the aggregation of its New Mexico, Arizona, and Colorado mining operations. The Seaborne Metallurgical Mining segment covers mines in Queensland, Australia. The Seaborne Thermal Mining segment handles operations in New South Wales, Australia. The ‘Corporate and Other’ segment includes selling and administrative expenses, results from equity affiliates, corporate hedging activities and trading and brokerage activities.

BTU has had a rough past week of trading action, with shares sinking something like -12% in that time. That said, chart support is nearby, and we may be in the process of constructing a nice setup for some movement back the other way. Shares of the stock have powered higher over the past month, rallying roughly 3% in that time on strong overall action. 

Peabody Energy Corporation (NYSE:BTU) managed to rope in revenues totaling $729.6M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 18.8%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($561.9M against $805M, respectively).

Camber Energy Inc (NYSEAMERICAN:CEI) is another stock that has picked up a load of short interest over the past couple weeks. Shares of CEI got banged up earlier this month on a bear attack from a fund that put out a research report arguing against the stock to drive it back down after the stock rose to nearly $5/share.

The company has exposure to oil and gas assets through its majority-owned subsidiary, Viking Energy Group Inc (OTC US:VKIN), which has energy assets located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. With its firm financial backing, one can easily imagine a lot of expansion opportunity here as well.

Camber Energy Inc (NYSEAMERICAN:CEI) has also been making strides to become a leader in the emerging carbon capture marketplace after recent announcing that VKIN entered into an Exclusive Intellectual Property License Agreement with ESG Clean Energy, LLC regarding ESG’s patent rights and know-how related to stationary electric power generation, including methods to utilize heat and capture carbon dioxide. 

The license is exclusive for all of Canada, and is non-exclusive for up to twenty-five locations in the United States. According to its release, the ESG Clean Energy System is designed to generate clean electricity from internal combustion engines and utilize waste heat to capture approximately 100% of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner designed to facilitate the production, for sale, of precious commodities, such as distilled/de-ionized water, UREA (NH4), ammonia (NH3), ethanol, and methanol.

“In my view this transaction positions us as an industry leader in terms of being able to assist with the power generation needs of commercial and industrial organizations while at the same time helping them reduce their carbon footprint to satisfy regulatory requirements or to simply follow best ESG-practices,” commented James Doris, President and Chief Executive Officer of Camber. “We are excited to be able to use the platform of Simson-Maxwell Ltd., our recently acquired majority-owned subsidiary, to promote the ESG Clean Energy System.”

Camber Energy Inc (NYSEAMERICAN:CEI) has been holding above its key support in the area of its 50-day moving average since the short report hit. That’s a good sign because it suggests the stock has likely been loading up with shorts but not folding or breaking key support. That could indicate blood is in the water for the squeeze. The stock has been a pick among the Reddit flash mob, so blood in the water could mean some GameStop Corp (NYSE:GME) style action on any further push.

Chesapeake Energy (NASDAQ:CHK) is the red-headed stepchild of the booming natural gas space. The company declared voluntary Chapter 11 bankruptcy last year and then got delisted from the NYSE. Then the commodity boom got going and it came right back to life with a bang, but shorts still seem to love to bet against it, with nearly 9 million shares held short right now, even as natural gas trends higher.

At this point, CHK is something of a “Phoenix from the ashes” story, complete with restructured obligations and a much, much, much better context for profitable operations given its model. But it still tends to be the focus of energy bears, possibly setting it up as ripe for some squeeze potential ahead if the stock is able to break above its recent pivot highs in the $67 area. At this point, CHK shares have only risen about 50% since February, while other major players in the Natural Gas space have powered 100-200% higher in the same span.

Chesapeake Energy (NASDAQ:CHK) engages in the acquisition, exploration and development of properties for the production of oil, natural gas and natural gas liquids from underground reservoirs. 

The company focuses its acquisition, exploration, development and production efforts in the following geographic operating areas: Marcellus, Haynesville, Eagle Ford, Brazos Valley, and Powder River Basin. 

Despite the interest squeeze potential in play here, the action in CHK hasn’t really heated up over recent days, with shares moving net sideways over the past week. That said, shares of the stock have powered higher over the past month, rallying roughly 6% in that time on strong overall action. 

Chesapeake Energy (NASDAQ:CHK) managed to rope in revenues totaling $1.4B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 106.2%, as compared to year-ago data in comparable terms. The company is also battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($622M against $1.9B, respectively), which helps to keep shorts involved and taking their shots.

Other key names in the commodity space include Freeport-McMoRan Inc (NYSE:FCX), Pan American Silver Corp. (NASDAQ:PAAS), Teck Resources Ltd (NYSE:TECK), and Weyerhaeuser Co (NYSE:WY).

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Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email (alanmasterson@wallstreetpr.com) or his Google+ page (https://plus.google.com/103338576216002376250).

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