There's Natural Gas Opportunity

 | May 06, 2013 | 10:45 AM EDT
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A few quick notes to start the week, I am off to a conference tomorrow and will be out of the screen loop, so perhaps Thursday will see a macro column instead of the few micro ideas today.

First, a shout-out to Real Money superpro Doug Kass, who valiantly went to get sandbagged by Buffett and Co. in Omaha this weekend. Being a bear to the most famous investor in the world is tough enough, but Doug did his homework and asked the most important questions about the company, all while Warren and Charlie knew damn well that they had hit revenue out of the park.

This was followed by Doug getting skewered by Joe Kernen this a.m. on "Squawk Box," even after being a favored guest on CNBC for many years.  Just unnecessary and unfair. 

You are my hero still, Doug.

Now, back to energy. The takeaway from the reports from most natural gas E+Ps this quarter was a consistent lack of interest in ratcheting up the production numbers, despite natural gas prices going significantly above $4/mcf. We heard from Devon (DVN), Southwestern (SWN) and others that they are looking for at least $5 and, for a long time, to begin to drop further capex into more nat gas drilling. 

That trend will only help assure that it gets there. With weather dropping nat gas prices under $4 again today, this is a dip that must be bought.

Too many players have gotten long gas too soon in the cycle, but the numbers don't lie. Reserves are finally down under five-year averages and with continuing shut-ins, LNG export increases and retraction of nat gas capex, a solid nat gas market is coming and this is an opportunity. I've liked EQT (EQT), Encana (ECA) and Devon to play this and also as a rare recommendation will go with nat gas e-minis directly in the July contract. Catch an early season heat wave and you'll see $4.50. 

Finally, I must comment on Barron's hit piece on Linn Energy (LINE). Now, I do own some shares (although I'm hardly wedded to Linn), but Barron's (as usual) did none of their own due diligence on this, relying deeply upon research at Hedgeye, with a very recent history in analysis (although deep history on Twitter) and led by a colorful media character perhaps known to watchers of "Fast Money" on CNBC. Hedgeye seem intent on making a unique and spectacular call, as they are, since January, looking to raise capital for a fund offering of their own for the first time, branching out from media and research.

I'm not saying the research is wrong. Hedgeye claims the shares are overpriced by 50%. I'm just saying, "consider the source." Most of the mainstream analysts aren't anywhere as concerned about Linn, despite a fairly obvious miss in production this quarter. But the positive Berry Petroleum (BRY) deal is yet to close and I also think taking put option costs as assets are not an accounting trick. The stock has been a darling as the yield chase in the market has continued, admittedly, but 50%?  Nah. And Barron's hasn't called anything in energy right (save for Helmerich & Payne (HP) in the $40s) in three years.

Tread with care.

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