Happy Cinco de Mayo folks, hopefully, this day won’t be celebrating the death of your portfolio. Our stellar week has extended with our trade idea for Northern Oil & Gas returning over 10% through to after-hours trading. Keep on reading for a recap of the FOMC meeting and a couple of trade opportunities within these volatile markets!
“He will win who knows when to fight and when not to fight.”
- Sun Tzu
Major indices rallied after the Fed raised rates by 50bps - in line with expectations. The S&P 500 rose by 2.99%, the Nasdaq climbed by 3.2% and the Dow shot up by 2.8%; many are calling this weird behaviour as higher interest rates have a negative effect on economic expansion, but they are failing to remember that above all else, the market favours certainty and the pre-pricing in of a possible 75bp rate hike was simply being left behind with this risk-on move. The framing of this issue has been interesting as many are dubbing Jerome Powell’s actions as dovish, even though this is the most aggressive rate hike since May of 2000. No matter how you feel about the size of the rate hike, the market rally followed the same path as the aftermath of the 2000 May hike. History doesn’t repeat, but it often rhymes.
Panning to the war - Ukrainian forces are still holding onto the steel plant in Mariupol and there have been successful evacuations of civilians facilitated by the UN in temporary ceasefires. However, this small victory has been overshadowed by the claims that Russia is NOT going to mobilize fully on May 9. It’s worth noting that as we’ve seen throughout this conflict - the Russians have a habit of stating the opposite of what is about to occur.
Short: Brookfield Renewable Partners L.P. (BEP:NYSE) | Timeline: 2-3 Days
Brookfield Renewable Partners (BEP) is a clean-energy focussed lp, majority-owned by the Toronto-headquartered, alternative investment manager, Brookfield Asset Management Inc.
With a $24B market cap and around 20% of the fund’s assets being liquid, they are in a good position to make use of any deals coming through the pipeline which fit their 12-15% total return target as well as their 5-9% annual distribution growth goals. All very promising, but we’re in a market with a rising cost of capital and they are in the business of leveraged projects; BEP is committed to capital and resource-heavy infrastructure plays during a time when commodities are running wild, this is all compounded by the expensive ‘ESG’ lens they insist on having as part of their investment strategy.
Altogether, BEP posts earnings tomorrow and given Russia’s barring of exports until year-end, securing the necessary rare-Earth materials needed for much of their portfolio projects has only been made harder and more costly this quarter. Additionally, BEP popped 5% yesterday (seemingly on nothing) and their reported earnings have fallen below consensus estimates for the last two years at this point - given that rise yesterday, anything lower than the street’s expectations once again will present an even greater profit-taking opportunity for shorts in this market.
Long: Pembina Pipeline Corporation (PBA:NYSE) | Timeline: 1-2 Weeks
Although oil and gas prices have increased drastically this year, by its very nature, the pricing scenario of commodities remains quite volatile. Despite that, some energy companies are not exposed to commodity pricing, making them better positioned to sail through this volatility. Hence, our oil pick for today. Pembina Pipeline Corporation (PBA:NYSE) provides transportation and midstream services for the energy industry and operates through three segments: Pipelines, Facilities, and Marketing & New Ventures.
The company is set to announce earnings today after market close, and as oil prices continue to trade over $100 a barrel and continue to face a supply crunch, the oil services sector is looking towards a new boom as demand surges for the equipment needed to drill and frack new wells. Now taking a look at the chart, PBA has only had a minor pullback leading into a double bottom, and the RSI and MACD have also done the same, giving bulls the momentum leading into earnings.
Chart of the Day: CPI - P/E Relationship