Friday Nov 22 2019
Energy Starts to Shine, Stocks Rest
Wile most S & P sectors posted losses, shares of energy companies gained 1.6% as US crude rose 2.8%.
Oil Bears Might B3 Wrong
WSJ Today Nov 22 2019
The last few weeks we have predicted an important low in energy prices. Energy has been the most out of favor sector in the S & P this year. When all the fund managers are chasing tech stocks, there are no bids for energy, and so energy shares even more than the price of crude. We have noted similarities with other major lows in energy prices.
- Shares of major players are heavily discounted, Conoco Phillips down from 77 to 57
- Weaker firms with too much debt go into bankruptcy such as Sanchez Energy and Weatherford International
- Firms face delisting while trading under a dollar a share such as Abraxas
- The media reports not only lots of problems but that the trend will likely continue for years
- Major players pull out of what appeared to be good projects just months ago, Carlyle pulls out of a planned export terminal in Corpus Christi
Clues abound this week that the prediction for a major low in this time frame is correct. Wednesday Schlumberger, the largest energy service firm in the world, was the best performing stock on the NYSE, up from $36.23 intra-day. The smart money is buying Ironwood Energy Partners II is looking to acquire two crude oil pipeline systems in the Eagle Ford Shale.
Oil royalty trusts have been hit hard with many now paying 9% dividends. Right here in the backyard is Permian Basin Royalty PBT. PBT is trading at $3.70 and paying a 9% dividend. In April-May 2018 it traded for $9. PBT began operations in 1980.
Marshall Adkins, head of energy investment at Raymond James suggests supplies are much tighter than most observers believe.
We favor accumulating beaten down energy service and energy trusts. Master Limited Partnerships MLP have had a tough time. The best choice here is Alerian MLP AMLP. This is an ETF of multiple MLPs. Caution the 2016 low was $6 but that lasted only two months.
As always, general suggestions may not be appropriate for any individual. Do your due diligence and wade don’t jump into the pool, accumulate slowly.
The overall stock market is digesting recent gains. Expect year end tax selling to move the market sideways to down into mid-December. Then we look for a rally into March, 2020.
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