Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Independent U.S. oil and natural gas producer Exco Resources Inc (NYSE:XCO) saw its stock get hammered down 10.5% in afternoon trading on March 12. It's now down 33% in 2015, after rebounding in mid-February only to decline again. The stock is now down almost 80% since last April:
So what: As much as crude oil prices have fallen, natural gas -- Exco's primary business -- has also crashed:
This puts the company in a tight spot, as we exit the peak winter demand period for natural gas, which is used for both heating and electricity generation. U.S. reserves are at relatively high levels exiting the peak demand season, which could mean prices stay depressed for some time to come. This puts Exco in a very challenging environment for the foreseeable future.
Now what: While the company says that it has plenty of liquidity for the rest of the year, and demand for natural gas has strong tailwinds for the long term, it's hard to predict how long natural gas prices will remain this low. The natural gas rig count has fallen almost 25% since this time last year, which should lead to falling production levels, but it will take some time before this leads to higher gas prices for gas producers like Exco. This could be a good time to buy shares, but you can guarantee there will be a lot of ups and downs for the stock over the next six months or more.