Peyto Exploration & Development Corp. a sell

Apr 13th, 2012 – Comment

The sector story for natural gas is not providing support and the technical picture is no oil painting.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Hello Lou,

I invested in Peyto Exploration when it was a strong buy. Ever since it has been going down. May I have your comments? Thanks.

Regards,
Shiraz

 

Hey Shiraz,

Thanks for the assignment. Peyto Exploration & Development Corp. (PEY TSX) is a gas focused enterprise and that has to be some of the problem. The entire natural gas sector is dealing with the consequences of a mild winter and new supplies coming to market from shale gas drilling. The company prides itself on their ability to bring volume to market at lower cost than the average producer but in the current excess supply environment even the best have to be feeling the squeeze. You mentioned that you bought the shares when they were classified as a strong buy. According to the information available on the globeinvestor.com website a year ago seven out of nine analyst surveyed had it as a strong buy. In the latest survey six out of ten had PEY as a strong buy. There were no sell recommendations. I think that the best way to use analyst research is to read it and see if you agree with their evaluation. The other thing that you must do every day is watch the charts to see if the technicals support the fundamentals. A great story with a declining stock is not a marriage made in heaven.

A review of the charts will provide better insight into the case for PEY.

 

 

 

 

The three-year chart for natural gas is good place to begin the analysis. The break below support at $4.00 in August of 2011 should have put investors holding gassy stocks on alert. It is nearly impossible for a stock to sustain an uptrend when the  price of the product or service that they produce falls by half.

 

 

 

 

 

 

The three-year chart for PEY has a number of interesting indicators that suggested that the advance that started in 2009 was coming to an end. The topping pattern in December of 2011 followed by the breach of support along the 50 and 200-day moving averages in January of 2012. There is now an established downtrend in place and it is providing substantial resistance.

 

 

 

 

 

 

 

 

The six-month chart depicts the sell signals generated by the MACD and RSI in December of 2011 indicating that momentum was shifting from buying towards selling.  In addition there is a death cross that surfaced in February. All of the evidence points to a stock that is under pressure with little relief in sight. The sector story for natural gas is not providing support and the technical picture is no oil painting. Those factors make it a sell for from where I stand.

 

Make it a profitable day and happy capitalism!

Categories: Energy
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