Two Stocks and a Fiscal Cliff

 | Nov 12, 2012 | 10:30 AM EST
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Here's a quick, blog-like column today so that I can give you big thoughts in small packages. There is a lot going on, so let's quickly hit the fiscal cliff and what I think it means to your portfolio and two fast energy stock ideas.

The election that was said would finally "settle things" looks, at least from the rhetoric I'm seeing, to have settled nothing. So, for anyone looking for a big bipartisan deal on the fiscal cliff after three years of steady failure, stop kidding yourself. Now, I would argue that much of the cliff and sequester does automatically what politicians of both stripes refuse to do -- rolling back all of the Bush tax cuts, cutting defense and Medicare -- and could be worth embracing. But for your portfolio, it's bleaker. A negative move of perhaps 3% in GDP (along with aftereffects of superstorm Sandy) is going to really hurt corporate reports. Furthermore, one of the few "tax entitlements" that will be palatable to everyone in Washington is capital gains. That means FOR SURE that you'll never see this year's 15% capital gains rate any lower and likely drifting higher. Will that lead to an avalanche of both profit and loss harvesting coming? I think that's precisely what's driven much of the recent downdraft.

But it's not just about policy, it's about price. While I've been bearish on markets including oil for weeks, as they begin to reach targets on the downside there will come opportunities.

Apache (APA) had a bad quarterly report along with dropping crude prices and the continued political nastiness in Egypt has dropped this fantastic E+P company into the buy zone for me. I've begun accumulating shares here at $78. When, not if, they get their act together and the Street stops wringing hands so much about politics in the Middle East and energy production from non-nationals, Apache shares will be worth an easy $120. If shares get down to $70, something else is terribly wrong. To me, that's fantastic risk/reward.

With SandRidge (SD) there's a reason CEO Tom Ward was an early partner of Aubrey McClendon of Chesapeake (CHK). Both have unbelievable hubris as oil men, doing whatever they want and following whatever instinctual whims they have, making deals, overleveraging, buying, selling (this time Ward is shopping Permian basin assets that he once touted as the future for the company). Ward refuses to just sit still and I agree with hedge funder Dinakar Singh of TPC-Axon. If he would just let the assets WORK, he's staring at a $12 stock in 18-24 months.

I've owned Sandridge for a while and made lots of money selling calls when they've rallied in over exuberance and buying back shares or selling puts when Ward's latest moves have been seen as disastrous by the Street (as with his Gulf of Mexico buys last year). This strikes me as opportunity number two. Mississippi is still gold and while the nature of the Permian deals is unknown, if the shares drop under $5 again, something else is terribly wrong. And again, that's fantastic risk/reward. 

I like this blog format. Let me know what you think about it, too. Good investing.

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