Wanna Bet on the Weather? |
| Written by Steve Hercenberg |
| Thursday, 06 November 2014 23:00 |
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Al Roker, Today Show's weatherman, says that he's doing pretty well if he's right one in three times. What a coincidence that Major League Baseball regards hitters with a .333 batting average among the best in that sport, too. So what do you predict the weather will be like this winter?  The website for The Old Farmer's Almanac says, "With its traditionally 80 percent–accurate weather forecasts, The Old Farmer's Almanac predicts that this winter will be another arctic blast with above-normal snowfall throughout much of the nation….. Winter is expected to be another cold one in the eastern half to two-thirds of the nation with above-normal temperatures, on average, in the West." Not to be outdone, The Weather Channel forecasts temperatures from Dec. 1, 2014 through Feb. 28, 2015, will look a bit different from last winter. They warn that "this winter the chill looks to be more focused on the East Coast and Gulf Coast." WSI forecasters point to an above-average chance of patterns that can force bitterly cold air from the polar and Arctic regions southward into the U.S. Recently, T. Boone Pickens pointed out that the weather is the primary force effecting natural gas prices. In fact, about 50% of our homes are heated by natural gas. In other words, even though we are realizing a gas glut from fracking the oil shale boom, the price of natural gas could skyrocket over the next few months. VelocityShares 3x Long Natural Gas ETNs (NYSE-UGAZ-$17.93) is a great trading vehicle to take advantage of this volatile situation. As the graph below shows, UGAZ has been peaking between the high 30s and low 40s and bottoming in the high teens and low 20s over the past year or so. So clearly, it's best to buy at the lower end of this range and sell at the upper end.  These trades aren't for the faint of heart, or for the long-term investor. At the end of October, UGAZ was down almost 43% in 2014 year-to-date. Subsequently, UGAZ price has already vaulted up over 45% in anticipation of chilly gusts stirring up demand for home heating. The VelocityShares 3X Long Natural Gas ETN provides 3x the daily return of a production-weighted index of world natural gas producers listed in OECD (Organization for Economic Co-operation and Development) countries. Its reference index is an "excess return" index for natural gas, which reflects both the returns due to price changes on its futures contracts as well as any gain or loss from "rolling" those futures contracts. UGAZ has a high net expense ratio of 1.65%, but makes up for it with good liquidity from its strong daily volume and tight spreads. Given its narrow focus, this ETN would work best as a satellite holding in a diversified portfolio. We recommend buying UGAZ with a target price ranging from $35 to $40 by February 2015 or sooner.
Disclosure: The author, a Goldman Small Cap Research analyst, is long these shares and may elect to purchase more or sell the ETN within the next 48 hours. Disclaimer: This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm's internally generated stock ideas while the Opportunity product reflects sponsored research reports. Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co. It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company's individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed. This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor's decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority. ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED "AS IS" WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION. For more information, visit our Disclaimer: www.goldmanresearch.com Comments
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