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Can the Energy Rally Withstand a Revived Obama?


Last night President Obama made it clear he's not going down without a fight. While it wasn't surprising to see Obama perk up compared to his performance in the first debate, the nature of the discussion did little to clarify either candidate's specific energy plans. Both Obama and Mitt Romney are in favor of "Energy Independence" but agree on little else. For energy traders this morning is yet another mood change in a manic depressive 2012.

Energy's Wild October

A month ago when the general consensus was that President Obama would walk to an easy re-election there was little, if any, reason for optimism amongst investors in coal and energy names. There was the long-term bullish case to be made, of course, but any energy policy reform was assumed to be in the direction of the alternative sources favored by the current administration.

Everything changed when Romney drubbed President Obama in the first debate on October 3rd. Energy traders went into the day expecting more of the same and woke up the next morning singing the praises of Energy Independence. From the start of 2012 through September, the Market Vectors Coal ETF (KOL) and the United States Natural Gas Fund (UNG) were down 27.5% and 17.4%, respectively. For the month of October each is up over 5%.

How to Play the Energy Space Today

Simon Baker of Baker Avenue Asset Management thinks coal in particular has more room to run. In the attached video Baker says that the fundamentals at these levels are shaping up for coal and natural gas, even if the election remains a 50/50 proposition.

Ticking through his favorites Baker names Hess (HES), Schlumberger (SLB) and one of the more controversial names in the stock market as a whole, Chesapeake Energy (CHK). A natural gas exploration and production (E&P) company, Chesapeake has been subject to litigation, board turnover and a general restructuring of operations over the last 12 months, making it a name many investors would rather ignore. It's Baker's favorite.

"It's been killed; it's been beaten up a lot, but the fundamentals are still really strong there," Baker says. Chesapeake has a access to "a massive amount of natural resources" that will keep the company alive and potentially thriving in his estimation, even if Romney's lead proves fleeting.

Baker's favorites are Chesapeake in natural gas and Arch Coal (ACI) in coal.

Is he on the money or missing a chance to sell prior to another burst of enthusiasm for less practically, more "green" alternatives? Let us know what you think in the space below.