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Micro-Cap Monday - Here’s 2 More Hot Summer Energy Plays

By Bill Spencer June 13, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

Hi there…

The mercury is rising here in New York, which always makes me nervous.

You see, I hate the heat. My ancestors hail from northern Europe. We’re the color of Q-tips and we wither in temperatures higher than 68 degrees.

Had I lived 100,000 years ago I’d have invented the air conditioner before bothering with fire, agriculture or the wheel.

Plus, my neck of New York City (Queens) is a heat island. In July and August the hot concrete can melt the rubber right off your brand new Nike’s. I live in fear of power outages. So whenever I read about potential shortages of energy I start to sweat.

A Hot Pair of High-Probability Micros

This summer, however, I’m somewhat consoled by thoughts of the potential gains to be had in the red-hot Energy sector.

Today you’re going to hear about not on, but two mighty micros that are riding the long-term strength in Commodities and especially Energy. 

Both are in the from the the #1-ranked Oil & Coal sector. Both look strong in our proprietary indicators. Both trade in the single digits and are up by triple digits year-to-date.

And both could hand you returns in the mid- to high-double digits.

Before we dive into this brace of opportunities, let’s see what the market’s been up to. (And yes… ‘brace’ does mean ‘pair.’)

If you’ve been reading True Market Insider these past months, you’ve heard us warn you away from euphoria whenever the market goes on a bullish tear for a few days or weeks.

Right now the long-term trend is down and downer. Relief rallies will happen. But following each short-term jog higher, the market will resume its downward path.

This will go on until the market washes out and completes the long-term bottoming process. But for now expect the Declining stage of the market to persist, punctuated by the kind of rallies we saw in late May and early June.

From an intraday low of 3,810.32 (on May 20) the S&P 500 advanced +9.6%, closing on June 2 at 4,176.82. Over that same period, the Dow Jones Industrial Average gained +8.52%.

The Nasdaq Composite gained +11.60%.

After that rally? The S&P lost -6.60% while the Dow gave back -5.58%.

The Nasdaq Composite lost -7.93%.

Of course the small-cap Russell 2000 wasn’t immune to the market's ups and downs. It gained + 9.63% between May 20 and June 2, and then fell -5.13%.

OK… Onto today’s micro-cap stocks.

The caveats you read about in last week’s column still apply.

The long-term trend is down. We’re in the Declining stage of the market cycle, so be very clear about the fact that if you get bullish, it’s to play the counter trend for a short-term move higher. If you’re aggressive getting in, be aggressive getting out.

Now, Commodities is by far the strongest asset class, and probably will be for a long time. And of course Energy is dominant as well. But, again, we’re in a beast market. So even though we’re playing a strong sector, we have to respect the larger trend.

Two High-Energy Opportunities

Energy Opportunity #1 - PHX Minerals Inc. (PHX)

Formerly Panhandle Oil and Gas, this company changed its name to PHX Minerals Inc. in October 2020. PHX Minerals produces and sells natural gas, crude oil, and natural gas liquids. from properties located in Oklahoma, Texas, Louisiana, North Dakota, and Arkansas.

 

The company owns 251,600 net mineral acres, leases 18,298 net acres, and interests in 6,457 producing oil and natural gas wells. Another 277 wells are in the process of being drilled or completed.

As mentioned (and as you can see below on the Sector Relative strength Matrix, one of the institutional-quality tools available with Sector Prophets Pro, our sector research and data platform) PHX is a member of the #1-ranked Oil & Coal sector.

(Click any image to enlarge)

This is a particularly attractive sector right now and not just because it’s ranked at the very top of the Matrix.

The Oil & Coal sector also tends to remain at the top of the rankings. You can see by the yellow highlighted area on the image below how much time this sector spends ranked among the top ten sectors out of the 45 we track on Sector Prophets Pro

When we plug PHX into the Position Key, we see a lot of strong technical attributes.

The stock is strong versus the market (the blue arrow at the right hand side of the chart) and the sector itself is strong versus the market. Where PHX falls short (for now) is in Peer RS (relative strength). It has been underperforming its peers lately.

That said, since the second quarter of 2021, the big institutions have been accumulating positions in  PHX.

Over the present quarter the funds have been distributing shares, but in total, the funds have bought almost 3x as much PHX as they’ve sold – $15.85 million versus $5.55 million.

In the one-year price chart, below, I’ve added Fibonacci rations extending from a recent high down to a key level of support near $3.66. Should the stock pull back following its recent torrid run, it could find a short- to intermediate-term low at that support line.

It could also find support at the 50% level ($4.32).

If PHX advances from its Friday closing price of $4.60 to its recent high of $4.98 (highlighted in yellow), we’ll see a gain of 8.26%. Nothing to sneeze at, but hardly the blast of a trumpet. But if it gets to the 161.8% Fibo level at $5.80 (highlighted in blue), we’ll see a return of 26%. That’s more like it.

A move to the 2.61% level at $7.12 (highlighted in purple) returns 54.78%. Again, those returns are based on Friday’s closing price.

Say PHX first pulls back to the 50% level at $4.32, and you wait to get in. Then, it retraces to the recent high, you’ll have a gain of 15.27%. If it gets to the other two Fibo levels you’d have returns of 34.25% and 64.81% respectively.

If you take a position at the green support line (again $3.96) your gains following a move to the recent high and to the regent high, the 161.8% level and the 261.8% level would be: 36%... 58.47%... and 94.53%.

Energy Opportunity #2 - Hallador Energy Company (HNRG)

Hallador Energy Company (HNRG) out of Terre Haute, Indiana, produces steam coal in the State of Indiana for the electric power generation industry.

The company owns the Oaktown Mine 1 and Oaktown Mine 2 underground mines in Oaktown, Indiana, as well as the Ace in the Hole mine located near Clay City, Indiana.

Here’s a look at HNRG on the Sector Prophets Pro Position Key.

As you can see it has the same positive attributes as PHX, and also that one negative – relative weakness versus its sector peers.

The big hedge funds have been accumulating positions in HNRG.

Over the past five quarters the giant institutions have purchased $9.74 million worth of HNRG while selling $3.96 million. This is a positive buy/sell multiple of 2.45x.

Here’s a one-year price chart for HNRG.

Like with PHX, we’ve added in Fibonacci retracements extending from the recent high ($6.75) to a historical area of support near $4.32.

If HNRG moves from where it’s trading now ($6.75) to the 161.8% Fibo level at $8.25 (highlighted in blue) we’ll see a return of 25.95%. A move to the purple 261.8% line at $10.69 will hand us 63.20%.

Of course, the stock could pull back to the green support level near $4.32. From there, it could get to the recent high, and to the 161.8% and 261.8% Fibo levels

If HNRG can achieve that, starting from a low following a pullback, we’ll bank respective returns of: 56.25%... 90.97% and 147.45%.

Stay cool and have a great week!

Bill Spencer

Editor-in-Chief, True Market Insiders

 

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