Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance
Listen, I’m not one for sugar-coating things, so let’s get straight to it.
We’ve got a potential play on Permian Resources (PR) that I want to break down for you.
But first, let’s talk about why the oil market is as unpredictable as it is right now.
The Oil Glut: It’s Not Just a Buzzword
First off, we’re swimming in oil. The U.S. is pumping more crude than ever before. It’s like we’ve hit the jackpot, but instead of cash, it’s black gold gushing out.
This overproduction is keeping a lid on prices, and it’s why you’re not seeing $100 per barrel oil anytime soon.
OPEC’s Game of Thrones
Now, let’s talk about OPEC. These guys are like the Game of Thrones of the oil world, with Saudi Arabia playing the role of Daenerys with her dragons.
They can produce oil for less than $10 a barrel. That’s not a typo – ten bucks. They could flood the market and crash prices if they wanted to.
But here’s where it gets interesting.
Some OPEC members, like Nigeria and the UAE, have been cheating on their production quotas.
It’s like they’re trying to sneak an extra cookie from the jar when no one’s looking. Saudi Arabia’s not happy about this, and they might just decide to teach everyone a lesson.
Oil prices are driven by supply and demand, sure, but there’s more to it:
Geopolitical tensions: Middle East conflicts can spike prices faster than you can say “crude”.
Global economic health: When economies are booming, oil demand rises.
Currency fluctuations: Oil is priced in US dollars, so a weak dollar can push oil prices up.
Seasonal factors: Summer driving season in the US typically increases demand.
Why Permian Resources?
So, why am I eyeing Permian Resources (PR) right now?
Let me break it down for you.
Strategic Position in the Permian Basin
Permian Resources is right in the heart of the action, operating in the Delaware Permian Basin-think of it as the Fort Knox of U.S. oil production.
This spot is one of the hottest oil and gas producing areas in the country, giving PR unbeatable access to tons of hydrocarbon resources.
Being in such a prime location means they have a steady stream of raw materials and can produce efficiently, putting PR in a great spot within the energy sector.
Low-Cost Production
One of the things I really like about PR is that they’re a low-cost producer. What does that mean for us?
Well, even when oil prices are all over the place, PR can stay profitable because they keep their production costs down.
This efficiency is key to keeping things running smoothly and making consistent profits, which is exactly what you want when the markets are as volatile as they are right now.
Attractive Dividend Yield
Permian Resources isn’t just about growth; they’re also about sharing the wealth. PR boasts a forward dividend yield of 5.01%, which is a pretty sweet deal for our investment strategy.
This solid yield gives shareholders a nice income stream and shows that the company has strong cash flow and is committed to rewarding its investors.
In a market where income-generating assets are in high demand, PR’s dividends make them even more appealing.
Insider Buying
Here’s some insider scoop: On September 12, 2024, one of PR’s directors bought 312,000 shares at prices between $12.73 and $12.80 each.
When insiders like this start buying up shares, it’s a good sign – they’re showing confidence in the company’s future.
These moves often happen before the stock price takes off because insiders usually know things that the public doesn’t yet. So, it’s a bullish signal that PR is on the right track.
The Art of Patience in Trading
We’re going to ease into this trade. The stock is liquid and our catalyst isn’t vanishing overnight.
We also want to be smart about our position sizing as well. Instead of going “all in” we want to scale in and potentially get it in at lower prices.
And if the trade goes south on us, we want it to be a paper cut, not a knife wound.
Keep a close eye on oil prices. Currently hovering around $71 a barrel, they’re bouncing between $65 and $75. Geopolitical tensions are pushing prices up, while overproduction is dragging them down. This volatility creates opportunities for savvy traders.
Focus on Permian Resources (PR). We’re bullish on PR for its attractive dividend yield and potential price appreciation.
Pay attention to insider activity. It’s often a good indicator of future performance, and PR has seen some interesting moves lately.
Exercise patience with your entry. We’ve already put on the first piece of our position in PR two days ago, and we have plans to add two more times to complete our entire position at specific price levels. This tranche approach allows us to average in at potentially favorable prices.
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