Less Wild About McMoRan

Here we go again. The market once more teeters precariously at important technical supports. The financial news channels, needing to entertain their viewers, pit guests expounding one extreme or the other against each other, hour after hour.

A rational argument can be made on either of the constant bull-bear duel, and the only solid conclusion to reach is that the risk to this amazing rally since March has increased.

And that's all I need to justify taking some profits.

One of my cash generators is McMoRan Exploration (MMR - commentary - Trade Now), a stock I wrote about in my July 15 column. McMoRan is an oil and (mainly) gas exploration and production firm. Its exploration strategy is focused on the deep gas play, drilling to depths of 15,000 to 25,000 feet in the shallow waters of the Gulf of Mexico and Gulf Coast area.

Although 3D seismic technology has made drilling for gas in shallow shale formations on land like shooting fish in a barrel, deep-water E&P efforts remain hit and miss. As such, McMoRan is akin to a publicly traded wildcatting firm. And a dang good one at that. In addition to being just about as good as it gets in deep-water drilling, McMoRan execs, with their big purchases this past June, are also excellent indicators of value in the stock. The stock is up over 50% since July.

That's better than I hoped for when I got into this high-risk/high-reward play. But with such a gain, it makes sense to consider some profit-taking in the face of increased market risk.

That's particularly true with this winner, which trades more on news flow and sentiment than fundamentals. McMoRan's third-quarter financial results were as gruesome as expected and then some. Revenue at McMoRan declined 62% year over year in the period. Lower production volumes and much lower selling prices continue to plague McMoRan -- and most other oil and gas producers for that matter.

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At the time of publication, Moreland was long MMR, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.