If we see higher risk assets further over-valued, do not chase the move, but rather sell into price ...
Taking Energy Profits as Markets Fall
03/07/2007 12:00 am EST
Elliot Gue, editor of the Energy Strategist, says biofuels and uranium stocks have made big gains, even after the recent sell-off, and he recommends taking some money off the table.
Last week's sell-off in global markets was swift and severe. While energy-related names held up better than the market at large, the sector certainly wasn’t immune to the bloodbath.
Of course, it's worth noting that some of our biggest winners are stocks in the biofuels field.
If you aren't comfortable trading options but have big gains in these recommendations, I suggest taking partial profits in the following stocks: Mosaic (NYSE: MOS), Potash (NYSE: POT), Syngenta (NYSE: SYT) and Bunge (NYSE: BG).
I recommend selling out of roughly a third of your holding in each of these stocks. That means if you currently have $12,000 in each stock, sell about $4,000 worth of stock.
My outlook for biofuels hasn’t changed, and there’s nothing new fundamentally on any of these stocks. But with the big gains [these stocks have] witnessed since September, these names have gone from relatively small holdings to major portfolio positions [for some investors]. Selling a one-third position will allow you to book some gains and reduce your weighting in the group to a less-exposed level.
If you're not yet in these names, I recommend taking a small position now and looking to add to that position on a further decline of 10% to 15% [in these stocks]. I can't stress how important it is to keep your plays small.
The same conditions apply to my recommended uranium [plays], despite the recent sharp pullback in the group.
Once again, I see absolutely nothing to change my outlook for nuclear power. The fact is that, even if the global economy slows, building plans for new nuclear plants are likely to proceed.
Moreover, uranium is a unique commodity; there’s no other commodity on earth with a tighter supply/demand balance. In fact, spot prices soared to $85 per pound late last month, up from the low $70s at the beginning of the year.
But although the declines in these uranium [plays] have been sharp lately, most of the stocks are still trading roughly even with where they were a month ago.
Paladin Resources (TSX: PDN), for example, has seen two declines of roughly 35% since mid-2005. During that same period, the stock is up sevenfold. This is, in short, a vicious correction within a longer-term up trend, not the beginning of a collapse.
If you’re sitting on some big gains [in these stocks], consider selling a third of your position in each of the following names: Uranium Participation (TSX: U), UEX (TSX: UEX), SXR Uranium One (TSX: SXR) and Pitchstone Exploration (TSX V: PXP). This is an effort to reduce your overweighting in these stocks, not a comment on any change in their fundamental attractiveness.
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