After a session like Thursday, it’s tough to figure out how to readjust, or if readjusting is the right thing to do at all. While each individual’s situation is different due to portfolio complexity and risk tolerance, one thing remains true no matter what is happening in the broader markets; there is always an opportunity. That is what we think we found after sifting through our numerous watchlists. Our pick of the day is in a unique and relatively new business segment within the energy sector; LNG.
Dynagas LNG Partners LP (NYSE:DLNG) has been turning heads recently as the technicals are lining up with the short term fundamental shifts within the company. Even during a global economic shutdown during the COVID-19 pandemic, Dynagas was able to improve the bottom line from having a negative net income this time last year of -$4.74M to a healthy, +$10.02M just four quarters later. While revenues remained relatively constant over the last 5 quarters, the company managed to massively decrease the interest expense from non-operating activities, which eventually lead to a basic EPS of $.20/share.
The stock managed to close up at $2.97/share (+2.77%) on Thursday, overcoming the 10-day SMA in the process and setting up this play. However this move is just a small piece within the larger technical picture. Since making a multi-month low at $1.99/share in late October of last year, the stock has been in a strong upward channel that seems to be continuing into this month as higher highs and higher lows are being made time and time again. With the stock now trading above all major SMAs, the setup is panning out nearly to the most ideal extent for a trend-following long play. Before diving into our exact trading strategy, first we’d like to give a bit of background on the company itself.
Background:
Dynagas LNG Partners LP is active in owning, operating, and acquiring LNG carriers. Its vessels are employed on a multi-time charter with energy companies. It owns and operates three LNG carriers in the company's initial fleet, the Clean Energy, the Ob River and the Amur River, and three 2013-built Ice Class LNG carriers that the company acquired from its Sponsor the Arctic Aurora, the Yenisei River, and the Lena River. The company has contracted under multi-year charters with BG Group, Gazprom, Statoil, and Yamal.
DLNG Trading Strategy:
Outside of the fundamentals, with the stock’s technical setup in addition to the recent momentum we’ve seen, we like the entry at Friday’s open. Since making a 52-week high last June, on its way to the low of $1.99 mentioned earlier, a few resistance levels were created that might cause a bit of consolidation on our way to the price target. The first level of note is the February high at $3.25. Almost immediately following this is the key August 2020 peak at $3.40. While there are a few less significant levels, we believe that with the current trend strength and momentum, this stock could potentially blast through these weaker levels of resistance and get to our price target of $3.97, which is the 52-week high.
As far as risk control, there are a few noteworthy levels of support that could potentially serve as a breath of fresh air if there is a systemic selloff. The first and closest level is at $2.75, which is the rough average of the last few lows made recently. Immediately following this is the SMA support zone around $2.72, which is a combination of the 50-day and 200-day SMA. We decided to give this play even more breathing room so that we don’t stop out too early, so the last level of support is the 100-day SMA, which is currently at $2.56. In order for this trend following play to work, anything lower than the support discussed above would indicate a trend reversal, so we have set our stop loss at $2.55.
With these risk parameters in place and using Thursday’s close of $2.97 as the proxy entry price, this play is shaping up to have +33.67% upside while risking -14.14%. We anticipate this move occurring within the next four to six months.
