It remains a mostly directionless market that moves on a day-to-day basis based largely on the latest reading of the tea leaves by whatever oracle at the Federal Reserve is providing commentary on the economy that particular day.
Indeed, last week was dominated by Fed Speak. We also saw some resilient economic readings within mixed reports. Stocks had a nice rally on Friday to close out another trading week as the yield on the 10-Year Treasury fell 10 basis points after briefly breaching the 4% mark for the first time since November, earlier in the week. Friday's gains helped the S&P 500 break a three-week losing streak and rise 2% for the week.
Regardless, I expect the market to continue its uncertain path until more solid signs emerge that the central bank is achieving a hoped-for soft landing or they raise rates enough until something breaks, which triggers the next significant bout of volatility in the markets.
Not only do investors seem to have little conviction around the current market, based on my perusing of weekly insider purchases and sales, neither do company directors or management right now. As they usually do, insider sales are easily swamping insider purchases. However, there is always an insider purchase or two that puts a new name or two on my radar for potential new investment.
Let's talk about one name that sparked my interest.
Epsilon Energy Ltd. (EPSN) is a small-cap Houston based onshore natural gas and oil company focused on dry gas production of the Marcellus Shale in Pennsylvania, as well as the exploitation of oil, natural gas liquids (NGLs), and natural gas resources in the Anadarko Basin of Oklahoma. Epsilon is not an operator but has ownership interests in natural gas-producing assets. The company also owns a 35% interest in the Auburn Gas Gathering System - operated by Williams Partners.
The stock has fallen some 25% from recent highs as natural gas prices have plunged due to a warmer-than-expected winter, among other factors. A beneficial owner purchased nearly $1.7 million worth of shares in late February -- the first insider buy in nearly two years.
The company can be mildly profitable at $2.50 natural gas and still be EBITDA positive at $2.00 natural gas, which is a lower break even point than many companies in this space.
Epsilon has a pristine balance sheet with some 40% of the company's market cap represented by the net cash the company currently holds. Epsilon has no long-term debt.
The stock's dividend yield is 4.3% based on recent price levels.
Natural gas prices should rebound as the market is in substantial contango with futures one year out far above the current spot price. Therefore, Epsilon appears a good proxy for playing that anticipated bounce in natural gas.
One insider certainly seems to believe so, and I have taken a small "watch item" holding in EPSN based on that faith and the company's fundamentals.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider EPSN to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
