All-Time High Stocks: CLT.TO Celtic Exploration

Celtic Exploration Ltd (TSX: CLT-T) released an Q3 results and an update on their oil and gas exploration in Alberta. Trade was stopped during the announcement. Obviously the news was good as buyers rushed in as soon as trading resumed - pushing the stock to an all-time high on huge volume.

I'll show the charts first, and then explore the news release. First the daily timeframe where you can see the breakout on huge volume. There was also a ~~breakout~~ fakeout on Monday and Tuesday - maybe somebody knew good news was coming?

A closer look at the intraday action for CLT.TO - Trade was halted for most of the day and when trading resumed the stock burst to the upside and closed at an all-time high. Notice that the huge volume (shown on the daily chart above) occurred in just over one hour of trading!

A brief scan of the news release tells me that the company has effectively managed risk through hedging, which enabled them to seize opportunities to buy land at a discount. (via Marketwire Canada):

During 2009, many oil and gas producers were affected by tight credit markets, declining commodity prices and a downturn in the economy leading to recessionary conditions. Given the Company's strong financial position and a significant hedge on oil prices in 2009, Celtic was able to take advantage of a less competitive environment at the Alberta Crown land sales and acquired approximately 37,000 acres (58 sections) of land in the Resthaven area. The Company has continued to take advantage of these favourable conditions and has significantly added to its land position in 2010. As at November 16, 2010, the Company holds a 100% interest in 280,820 acres (438 sections) with Triassic Montney rights in the Resthaven area.

Celtic's opportunistic land-buying reminded me of a recent interview with Jeremy Grantham. In his view, companies that lock up commodity assets as a sound investment. Here is an excerpt from the interview with Maria Bartiromo:

GRANTHAM: I have an eccentric view on commodities not necessarily shared by my colleagues or by— almost anybody. And that is we're running out of everything. I think it will become devastatingly clear to everybody. I— I think we went through a great paradigm shift about five years ago and— we'd spent a 100 years with almost all commodities declining.

[...] the world has changed. We're entering a period where we're running out of everything. The growth rate of China and India is simply— can't be borne by declining quality of— of resources. And— and I think we're in a period that I call a chain-linked— crisis in commodities.

[...] oil will be in crisis mode. From now on, we just better get used to it. So, if you're afraid of inflation, I think— and if you can bring yourself to have a long horizon— and when I say long, I mean ten to 20 years, not the usual ten to 20 weeks— that locking up resources in the ground is a terrific idea.

Or locking up— timber, agricultural land will do just fine. A great inflation hedge. You will win, in my opinion. Very high probability over a long horizon. Now, have these things gotten ahead of themselves in the short term? Quite possibly yes. And that— that's what makes investing so tricky. If they were to break for whatever reason at all in the next year, I— I would suggest that is a great buying opportunity.

BARTIROMO: So, is there value in some of the commodities producers? The equities

GRANTHAM: If they have stuff in the ground. [...] The oil industry since 2000 has doubled against the stock market. They didn't double because they got brilliant. They doubled because oil in the ground became worth four times what it was. And that is a wonderful thing for an oil company with good reserves. But, the same if you had mineral reserve. That— that's the play, I think, on commodities.

At times like this it is worthwhile reminding myself of the cognitive bias explaining why all-time highs outperform - When good news has pushed a stock’s price near or to a new 52-week high, traders are reluctant to bid the price of the stock higher even if the information warrants it. The information eventually prevails and the price moves up, resulting in a continuation.

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