A New (Indirect) Bet on the Shale Oil Revolution

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was the third consecutive strong week in stock markets, with the Dow Jones up 2.03%, the S&P 500 rising 1.71% and the NASDAQ jumping 1.65%. Global markets were more restrained in their gains, with the MCSI Emerging Markets Index up only 0.54%.

Big gainers in your Bull Market Alert portfolio included the ProShares UltraPro Dow30 (UDOW), up 6.35%; United Rentals, Inc. (URI), jumping 4.94%; and Visa Inc. (V), adding 2.81%.

Several positions hit new 52-week highs. These include the ProShares Ultra Real Estate ETF (URE)iShares MSCI BRIC ETF (BKF) and United Rentals, Inc. (URI).

Two positions — Visa Inc. (V) and Mobile Telesystems OJSC (MBT) — moved back above their 50-day moving averages and are back to a BUY.

On Thursday, you booked 59.87% gains in half of your DIA October 2014 $166 call options (DIA141018C00166000) and 113.58% gains in the remainder of your VNQ September 2014 $75 call options (VNQ140920C00075000).

This week’s Bull Market Alert recommendation — Trinity Industries (TRN) — is the leading manufacturer of railcars in North America. Trinity stands to gain from one of the most prominent megatrends in North America — the U.S. shale oil boom.

You’ve already heard that the U.S. energy boom has transformed the United States into a larger oil producer than Russia — and soon Saudi Arabia.

What you probably haven’t heard is that the shale oil boom has caused U.S. rail traffic to explode. The number of crude oil shipments in tank cars has risen from 4,000 carloads in 2006 to 400,000 in 2013. That’s a 100x increase in just seven years.

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Not surprisingly, the number of rail accidents has also soared — along with the calls for new safety regulations. Anxious to avoid onerous government intervention, the oil industry is already taking action to upgrade tank cars to meet new, stringent safety requirements.

This massive upgrade cycle has caused demand for railcars to explode. Last quarter alone, Trinity received orders for 9,880 new railcars. Trinity now has a record backlog of orders totaling a whopping $6.5 billion.

No wonder Trinity’s sales and earnings estimates keep being revised upwards. Last quarter, Trinity reported revenue growth of 39% to $1.5 billion and net income growth of 94% to $164.2 million, compared to the same quarter last year. Trinity also increased 2014 full year earnings per share (EPS) guidance to between $3.90 and $4.10, up from $3.50 to $3.75. This compares to 2013 EPS of $2.38, a 64-72% increase.

Trinity is a hot stock in a hot sector. So buy Trinity Industries Inc. (TRN) at market today, and place your initial stop at $41.00.

With Trinity overbought over the short term, I’m going to wait until the stock consolidates its recent gains before I recommend options on this one.

Portfolio Update

The Bank of Ireland (IRE) rose 2.44%. Fitch issued further upgrades for Bank of Ireland last week, upgrading IRE’s state-guaranteed long-term senior notes from “BBB+” to “A-.” The “green shoots” continue to appear for this bank’s recovery. IRE is a BUY.

Visa Inc. (V) added 2.81% last week. Recent meetings with Visa’s management have impressed analysts. They are bullish on Visa’s strategic partnership with Apple and see a future where Visa will further push towards marginalization of cash and checks, and where digital payments become the norm. Visa moved above the 50-day moving average (MA) to become a BUY.

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ProShares Ultra Real Estate ETF (URE) added 1.43%. URE followed the broader markets higher last week, closing its third consecutive week of gains and hitting a new 52-week high. URE is a BUY.

Mobile Telesystems OJSC (MBT) rose 1.33%. MBT reported earnings last Wednesday, slightly missing analysts’ expectations, and traded sideways for the remainder of the week. MBT’s second-quarter net income was $0.58 billion compared to last year’s second-quarter figure of $0.8 billion. Revenue was $2.73 billion, up 1.4% year over year from $2.69 billion. Analysts’ expectations called for $2.775 billion. MBT pushed above the 50-day MA to become a BUY.

United Rentals, Inc. (URI) jumped 4.94% and hit a new 52-week high. URI is also closing its third consecutive week of gains since moving briskly upwards from its 50-day MA early this month. This marks a better-than-10% gain in just this short time. URI is a BUY.

ProShares UltraPro Dow30 (UDOW) powered another 6.35% higher last week. This super-charged 3x fund has done a terrific job of capturing gains since the Dow Jones touched down at the mighty 200-day moving average just three weeks ago. UDOW also moved above the 50-day MA last week and is approaching its recent 52-week high price level. You took profits on half of your related call options in DIA last Thursday. I’ll be watching this position closely to see if markets continue gains as this position moves towards the $125 resistance level. UDOW is a BUY.

Nicholas Vardy

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