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Trader Talk on Cheniere
02/24/2006 12:00 am EST
Bryan Perry, who published his latest trading idea from The New York Traders Expo, notes, "By exchanging ideas and stock picks, I come away from every trader’s show with something of real value." Here, he offers his latest trading play—Cheniere Energy.
"Fed Chairman Bernanke's recent optimism
regarding the US economy means energy consumption is going to remain at a high
level. It is hard to predict the short-term direction of energy prices with the
various influences affecting those markets, but as long the biggest economy in
the world is growing at a 2%-4% rate, we can count on a steady rise in the
volumes of oil and gas being used.
"From this point of reason, I have chosen a company that is right in the sweet spot of the energy sector, a company that is very well positioned in its industry and one that should boast strong earnings when they report their results in early March. I recommend buying shares of Cheniere Energy (LNG ASE). The company primarily engages in the development, construction, ownership, and operation of liquefied natural gas receiving terminals along the Gulf Coast of the US.
"The company develops LNG receiving
terminal projects primarily on Quintana Island near Freeport, Texas; in Cameron
Parish, La., near Sabine Pass; and near Corpus Christi, Texas. It is also
engaged in oil and natural gas exploration and development activities in the
Gulf of Mexico using a regional database of 7,000 square miles of pre-stack time
migration 3-D seismic data.
"This is not an earnings story yet. The company has been building terminals and taking on a lot of costs and incurring losses along the way. However, there is a shift taking place where those invested capital dollars are going to start paying off, and I think the first signs of that will show up in their upcoming quarterly results due out on or before March 10, according the company's investor relations people I spoke with.
"From a technical standpoint, the stock has put in a beautiful ‘ascending pennant formation’ indicating that the stock is about to embark on a brand new uptrend. Currently the stock is trading at just under $41. My price target for LNG is $48, for a projected gain of 17%. Option traders should buy the LNG June 35 Calls, currently offered at $7.60 per contract.
"Overall, I'm not too optimistic about the developments in
the Middle East. Insurgency in Iraq, Iran's refusal to cooperate, the
destruction of a Nigerian pipeline, the empowerment of Hamas, and the rise of
cleric-run governments in oil-rich nations fueled by anti-Western rhetoric makes
a very fragile energy market. Any
interruptions in the flow of oil will cause sharp upward spikes in energy
prices, and I think that this threat is becoming more a matter of when and not
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