When should I buy oil stocks
- Thread starter ImBadRU
- Start date
No.
Even if you think oil prices will stabilize or even rise a little, many oil and oil-related companies have some heavy debt loads that may have to be worked through unless oil prices rise a lot. And now they are starting to cut production. Adding to that China's economy is slowing down - but because of a lack of transparency no one knows by how much, and it may be a long time before people do know. And ... Iran's oil will officially start to flow in the real market, not just the shadow markets. Plus, the Saudis want to drive other producers into the ground, which has not quite happened, so they will keep their oil pumps flowing.
Now, if you see companies - even oil companies - that are NATURAL GAS producers, whose stock prices have been hammered down, that may be different. Natural gas pricing, especially in the US, though it has been hammered down due to the large supply unleashed by fracking, may rise if we get a sustained cold spell now that Winter has truly (if a little late) begun to bite. Then you could get a nice increase in cash flows from sales of natural gas with very little incremental costs taken on by natural gas producers.
Just my 2 cents.
Even if you think oil prices will stabilize or even rise a little, many oil and oil-related companies have some heavy debt loads that may have to be worked through unless oil prices rise a lot. And now they are starting to cut production. Adding to that China's economy is slowing down - but because of a lack of transparency no one knows by how much, and it may be a long time before people do know. And ... Iran's oil will officially start to flow in the real market, not just the shadow markets. Plus, the Saudis want to drive other producers into the ground, which has not quite happened, so they will keep their oil pumps flowing.
Now, if you see companies - even oil companies - that are NATURAL GAS producers, whose stock prices have been hammered down, that may be different. Natural gas pricing, especially in the US, though it has been hammered down due to the large supply unleashed by fracking, may rise if we get a sustained cold spell now that Winter has truly (if a little late) begun to bite. Then you could get a nice increase in cash flows from sales of natural gas with very little incremental costs taken on by natural gas producers.
Just my 2 cents.
See this link about the Banks, and their loans to oil producers ... it is not too detailed, but highlights the issue at a high level: http://www.nytimes.com/2016/01/20/b...s-ability-to-weather-losses.html?ref=business.
One of the key points is that many hedges of oil made when prices for oil was much higher will expire soon. Of course, the oil stocks at least partly (maybe even mostly) reflect this risk to cash flows and earnings. But do the stocks fully reflect these issues, and the timing? And have the stock prices fully reflected the possibility that oil prices may stay where they are for a long time (or not - who really knows?).
I am sure there are many other articles about this available (I just happened to see it moments ago), some with even more details, surely.
One of the key points is that many hedges of oil made when prices for oil was much higher will expire soon. Of course, the oil stocks at least partly (maybe even mostly) reflect this risk to cash flows and earnings. But do the stocks fully reflect these issues, and the timing? And have the stock prices fully reflected the possibility that oil prices may stay where they are for a long time (or not - who really knows?).
I am sure there are many other articles about this available (I just happened to see it moments ago), some with even more details, surely.
I don't when but you have to at least wait till CVX and XOM hit their 52 week low.CVX is at 77 and the low is 69. XOM is at 72 and low at 67. Buy in increments.
If you don't trade often, I would avoid volatility and keep as cash...wait for clear signs of a "bottom"...also focus on downstream or midstream companies versus upstream companies...
Dont get fooled by oversold bounced...FWIW Oil has a lot of factors that affect it and IMO calling a bottom is not really possible until its already happened...
Dont get fooled by oversold bounced...FWIW Oil has a lot of factors that affect it and IMO calling a bottom is not really possible until its already happened...
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Impossible to say for sure and depends on your time horizon.
For the past year, despite falling oil prices, supply and demand remained out of balance. Everyone wanted everyone else to cut production, but no one wanted to do it themselves. We saw US production decline a bit, while demand rose, but the Saudis and others continued to produce more, driving inventory levels higher and prices even lower.
Assuming demand holds up (i.e. developing economies grow, most importantly China), you will see demand increase further while production is unlikely to keep up. This should shrink or eliminate the over-supply in the market. The biggest variables would be how much does demand grow, how much incremental oil can Iran supply, does Libya come back online, and does Saudi Arabia have room to produce more. I think you are starting to see signs that the market will move into some balance as we are at a price which causes pain for producers, including the Saudis, as their economy is driven by oil revenues and they have had to dig into their piggy bank to fund domestic spending...something they can continue to do, but not forever.
With pessimism at a very high level, I expect you will see additional capital expenditure cuts, which will shrink the ability to produce in future periods, while existing production in many places (the US, Latin America, Russia, China, Canada, etc.) are likely to be flat to slightly lower. If/when people are more comfortable with the supply/demand picture and have more clarity into Iran, I think you have a lot of upside in the equities as long as you don't go down in quality to names that may not survive the next 12-24 months (in other words, buy reasonably high quality or something like XLE).
Let's be honest. Every big money manager at this point is underweight energy and doesn't want to miss the boat when the fundamentals start to shift more favorably. A ton of pessimism is baked into the stocks right now. If you have a time horizon of 24 months or more, I think you would look back and be very glad to have bought at these levels. If your time horizon is two weeks and you are looking for a quick buck...I have no idea.
For the past year, despite falling oil prices, supply and demand remained out of balance. Everyone wanted everyone else to cut production, but no one wanted to do it themselves. We saw US production decline a bit, while demand rose, but the Saudis and others continued to produce more, driving inventory levels higher and prices even lower.
Assuming demand holds up (i.e. developing economies grow, most importantly China), you will see demand increase further while production is unlikely to keep up. This should shrink or eliminate the over-supply in the market. The biggest variables would be how much does demand grow, how much incremental oil can Iran supply, does Libya come back online, and does Saudi Arabia have room to produce more. I think you are starting to see signs that the market will move into some balance as we are at a price which causes pain for producers, including the Saudis, as their economy is driven by oil revenues and they have had to dig into their piggy bank to fund domestic spending...something they can continue to do, but not forever.
With pessimism at a very high level, I expect you will see additional capital expenditure cuts, which will shrink the ability to produce in future periods, while existing production in many places (the US, Latin America, Russia, China, Canada, etc.) are likely to be flat to slightly lower. If/when people are more comfortable with the supply/demand picture and have more clarity into Iran, I think you have a lot of upside in the equities as long as you don't go down in quality to names that may not survive the next 12-24 months (in other words, buy reasonably high quality or something like XLE).
Let's be honest. Every big money manager at this point is underweight energy and doesn't want to miss the boat when the fundamentals start to shift more favorably. A ton of pessimism is baked into the stocks right now. If you have a time horizon of 24 months or more, I think you would look back and be very glad to have bought at these levels. If your time horizon is two weeks and you are looking for a quick buck...I have no idea.
I've avoided averaging down on some names because one or two might be headed to bankruptcy. I did just buy APA; I like them. Some like KMI at this level. But who the hell knows.
Yes, sell your $45 Silver at $14 and buy oil at $38 before it hits $20 or $40.
Come back to this college football message board often for more useful financial advice.
Come back to this college football message board often for more useful financial advice.
I'm tempted to do the same but I think I have enough exposure to this sector.
I do think fresh money could make a killing picking the right energy & biotech stocks. But you better know what you're buying.
I agree time frame is important, and probably big and well-capitalized companies would be interesting if you have a long time frame.
Just diversify, however you do it. And maybe average into your positions, as some have suggested.
Just remember about companies whose dividend yields are really high: There is a reason those yields are high (and not just because the stocks prices are low). Sometimes companies with high dividend yields have those high yields because there is some risk to the level of the dividend. Sometimes dividends get cut, when companies need to preserve cash. So when someone says you are getting "paid" a nice dividend yield to own the stock, that is true until that company cuts or eliminates its dividend. The yields of Chevron and Exxon are not so high to indicate there is imminent risk to the dividends (though Chevron seems pretty high at 5.6%), but if cash bleeds from them fats enough, the stocks might end up reflecting greater risk to the dividend (meaning the stock price could drop more), and the dividend could end up being reduced. I do not know enough about the earnings and cash flow risks of any of the oil companies to advise anyone properly ... just enough about analyzing companies and their prospects to point you towards the general types of risks you should be looking at
Just diversify, however you do it. And maybe average into your positions, as some have suggested.
Just remember about companies whose dividend yields are really high: There is a reason those yields are high (and not just because the stocks prices are low). Sometimes companies with high dividend yields have those high yields because there is some risk to the level of the dividend. Sometimes dividends get cut, when companies need to preserve cash. So when someone says you are getting "paid" a nice dividend yield to own the stock, that is true until that company cuts or eliminates its dividend. The yields of Chevron and Exxon are not so high to indicate there is imminent risk to the dividends (though Chevron seems pretty high at 5.6%), but if cash bleeds from them fats enough, the stocks might end up reflecting greater risk to the dividend (meaning the stock price could drop more), and the dividend could end up being reduced. I do not know enough about the earnings and cash flow risks of any of the oil companies to advise anyone properly ... just enough about analyzing companies and their prospects to point you towards the general types of risks you should be looking at
I added to KMI today. I like that the dividend was cut 75%, giving them the cash flow to avoid issuing equity, fund capex, and manage their balance sheet. I'd rather a safe and secure KMI with a lower dividend, then one with an unsustainably high dividend. Results for 4Q coming out very soon...maybe they can convince the market that they aren't going out of business anytime soon.
FWIW...a killer bull candle (hammer) was put in today after trapping shorts off of 2014 lows...oversold bounce? countertrend? who knows but something to look out for...
The second part of your paragraph negates the first part of your paragraph. There is extremely little risk that either company will cut their dividend and the div yield is slightly above its 30 year average for CVX & slightly below for XOM.
Whole energy sector is toast with oil in the mid 20s. It's unsustainable for their balance sheets. MLPs will go after the E&P companies do.
When do you think oil goes back to 40 at least? What if Libya a huge wild card in this ramps up production in 2017 like Iran this year. Oil prices can stay down here easily for a few years.
I think you can wait to buy oil stocks.
MLPs I would wait until after they all cut distributions which is inevitable.
When do you think oil goes back to 40 at least? What if Libya a huge wild card in this ramps up production in 2017 like Iran this year. Oil prices can stay down here easily for a few years.
I think you can wait to buy oil stocks.
MLPs I would wait until after they all cut distributions which is inevitable.
I own CVX. Was thinking about buying some more or BP but then I'd be too weighted on the energy stock. Also had my eye on Toyota
I don't believe CHV or XOM have cut their dividends in a quarter century, but I could be wrong. Then again we haven't seen oil take this bad of a beating in quite some time. My guess is the '08 - '10 lows get tested. I'll be interested in buying some of these in the 60-65 range and adding more below 60.
As I've said in the other thread when oil is acting "normal" or going up I'm willing to invest in names mentioned above or an SLB, APC, COP, BP, HES etc..but when it's going down like it is now there are 2 names I only like as proxies if I'm interested in energy and that's CVX/XOM. I like that they're integrated and that I think they're dividends are solid, specifically XOM. I can't say that for a company like BP (don't think dividends are as sacrosanct overseas) or a company like COP, also don't like that they spun off their downstream refining business which could help cushion the blow when oil is falling like this.
Could an XOM/CVX cut the dividend, of course they could but I still think they'd cut capex by a bit or issue debt to fund it before they cut the divy. I don't put it out of the realm of possibility though and would be prepared psychologically if they did and I happened to own them. Frankly, if by some chance they did cut the dividend, I'd take a company like that cutting it as a sign that we're close to the bottom in energy.
As to buying now, I've been tempted but haven't waded in yet. It could be a little early but as long as you're not jumping in with both feet in companies like CVX/XOM I think those lows in the morning weren't a bad spot to start a position. I'd prefer a 6 handle though, haha. I just gave an example of one of my own trades involving them where I bought in the low 90s for CVX and it dropped to high 60s, similar drops for XOM but I still came away with a nice gain. I averaged down to the low 80s, they rebounded to the low 90s and I sold in the high 80s, same type of gain for XOM. Got a quarters worth of dividends too. Keep powder dry to average down at certain areas if it goes down further. Never take a full position all at once. You can do 1/2, 1/2, a 1/3, 1/3, 1/3, or 1/4, 1/4, 1/4/, 1/4, or whatever you choose. No rules saying to buy all at once or sell all at once for that matter.
I said before there's a saying the market can stay irrational longer than you can stay solvent and I never let myself fall prey to that and make sure I'm way ahead of that curve and can deploy resources as necessary at certain points.
As for today's action, while the market didn't turn completely positive the heavy down morning and reversal in the afternoon makes me think a short term bottom might be in the process of being put in and we're feeling our way to it. It doesn't mean it couldn't go down lower later on though. I didn't buy any oils but this morning I did buy back the telcoms and consumer staples I've been trading in lately. Also bought some NKE for a trade which was around a support level. As to utilities while they have the same defensive qualities as the areas I'm in now, I don't find them cheap so while I've been in them in the past I'm not in them now unless they drop more. Just my 2 cents, but always do your own due diligence.
Could an XOM/CVX cut the dividend, of course they could but I still think they'd cut capex by a bit or issue debt to fund it before they cut the divy. I don't put it out of the realm of possibility though and would be prepared psychologically if they did and I happened to own them. Frankly, if by some chance they did cut the dividend, I'd take a company like that cutting it as a sign that we're close to the bottom in energy.
As to buying now, I've been tempted but haven't waded in yet. It could be a little early but as long as you're not jumping in with both feet in companies like CVX/XOM I think those lows in the morning weren't a bad spot to start a position. I'd prefer a 6 handle though, haha. I just gave an example of one of my own trades involving them where I bought in the low 90s for CVX and it dropped to high 60s, similar drops for XOM but I still came away with a nice gain. I averaged down to the low 80s, they rebounded to the low 90s and I sold in the high 80s, same type of gain for XOM. Got a quarters worth of dividends too. Keep powder dry to average down at certain areas if it goes down further. Never take a full position all at once. You can do 1/2, 1/2, a 1/3, 1/3, 1/3, or 1/4, 1/4, 1/4/, 1/4, or whatever you choose. No rules saying to buy all at once or sell all at once for that matter.
I said before there's a saying the market can stay irrational longer than you can stay solvent and I never let myself fall prey to that and make sure I'm way ahead of that curve and can deploy resources as necessary at certain points.
As for today's action, while the market didn't turn completely positive the heavy down morning and reversal in the afternoon makes me think a short term bottom might be in the process of being put in and we're feeling our way to it. It doesn't mean it couldn't go down lower later on though. I didn't buy any oils but this morning I did buy back the telcoms and consumer staples I've been trading in lately. Also bought some NKE for a trade which was around a support level. As to utilities while they have the same defensive qualities as the areas I'm in now, I don't find them cheap so while I've been in them in the past I'm not in them now unless they drop more. Just my 2 cents, but always do your own due diligence.
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Check out the dividend on TeeKay LNG...32%
Of course there is a good chance they'll cut that dividend, but even at half, 15% is nice rent.
8.77
-0.72 (-7.59%)
Jan 20 - Close
NYSE real-time data - Disclaimer
Currency in USD
Range 7.92 - 9.27
52 week 7.92 - 40.73
Open 9.06
Vol / Avg. 1.04M/1.01M
Mkt cap 758.91M
P/E 5.34
Div/yield 0.70/31.93
EPS 1.64
Shares 79.51M
Beta 1.00
Inst. own 47%
Of course there is a good chance they'll cut that dividend, but even at half, 15% is nice rent.
8.77
-0.72 (-7.59%)
Jan 20 - Close
NYSE real-time data - Disclaimer
Currency in USD
Range 7.92 - 9.27
52 week 7.92 - 40.73
Open 9.06
Vol / Avg. 1.04M/1.01M
Mkt cap 758.91M
P/E 5.34
Div/yield 0.70/31.93
EPS 1.64
Shares 79.51M
Beta 1.00
Inst. own 47%
If history is any guide, this oil glut will last a long time, maybe decades. That doesn't mean prices won't bounce back or stock prices won't hit bottom and rebound but it suggests the really high flying days of energy companies may be over for some time.
Not sure I buy the idea that oil glut will last for decades.
My biggest concern is really on the demand side. Developed market demand has largely been flat for a long time (15-20 years) as everything becomes more efficient. All the demand growth is really coming from developing economies China/Asia/Africa. If demand flattens out, then I would agree that we could be here for a long time as we have sufficient oil to meet demand.
At the same time, at prices like this, you are seeing supply destruction just begin (again...US production was lower last year, CNOOC announced 2-3% production declines for 2016, Venezuela and other banana republics can't afford to invest in production, some production is simply uneconomic, always risk of a supply shock of some sort (ISIS blows up a pipeline, etc.). Hell, even the Saudi's can't handle this forever. I think it is more likely than not that we are close to the bottom in oil prices, linger along for a bit, and as long lead-time projects get shuttered, the market balances.
Personally as you can tell from above, I don't put anyone in the class of XOM/CVX in the energy sector. So even if some of these other companies cut their dividends I don't necessarily take it as a danger sign for XOM/CVX. I could even see COP/BP and others like them do it and you'd think they are similar to XOM/CVX. IMO, I think their balance sheets are stronger and they are able to weather more difficult circumstances for longer than most other players.
Having said all that it doesn't mean it couldn't happen but personally I see them in a class above other players in the industry.
Waiting for 67-68 to buy XOM and CVX. Brought some COP when it hit its 52 week low but look like it will go lower.
Can't believe how awesome my XOM dividend has gotten. The dividend percentage has just skyrocketed.
it went up 4-5 cents a share this past year correct? Is that considered a big jump?
The dividend payment is the same but the dividend % increases only because the stock price went down. I wouldn't be so happy with your stock loss unless you plan on buying more when it's low.
made the mistake in the last financial crisis - buying and holding BAC. Dividend was very robust until they cut it back.
You may never be able to buy at the absolute bottom - however a stock like Exxon with a solid balance sheet and strong dividend history may be worth it at these lows.
Always look at the amount of debt a company is carrying - more so when an industry sector is in crisis. May be hard to judge as this industry is very capital invested historically.
You may never be able to buy at the absolute bottom - however a stock like Exxon with a solid balance sheet and strong dividend history may be worth it at these lows.
Always look at the amount of debt a company is carrying - more so when an industry sector is in crisis. May be hard to judge as this industry is very capital invested historically.
Financials during the crisis is pretty much the only time I've lost in my terms what I consider a good amount of money in my personal trading. Luckily made up for those losses with trades/investments in other things during that time where you could throw a dart at the board and everything came back and went up a lot.
I never will invest in financials again because of that. It's not even the dividend cuts that were a problem for me it's I don't ever trust them to actually have a good handle on their "real" exposures in a crisis. They're just too big to know the full scope. I think some of the new laws help but I still can't trust them and of course things go out the window during times of fear/greed.
I think Jamie Dimon is one of the best CEO's around, if not the best, and even he can't always know everything. They had a big trading loss in London awhile back. I think JPM is best of breed in the sector. But Jamie Dimon isn't going to be there forever and will the next guy be as good, not likely. So I'll never invest/trade in them again in my personal trading because I don't think they ever know the full picture of their own exposures. Now of course I'll have them through mutual funds etc..just not my own trading/investing.
So if I go to anything with any financial flavor it's mainly a V/MA where there's no credit risk and just transactional fees. I like that business model. Occasionally an AXP where there is some credit risk but it is to a higher quality customer. They've been struggling lately with the loss of Costco but I do think they're in Sam's now. Sam's is actually accepting Visa too now starting Feb so they'll have all 3. Insurance companies are something I might consider as well. But as far as the banks, investment banks forget it no more for me.
Sold the telcoms (VZ earnings were solid), staples and NKE this afternoon that I bought yesterday. They may go higher but this volatility and down trend has made me cut short the duration of how I usually trade. Still not tip toeing into CVX/XOM yet.
They are, especially in an uncertain time like this even if I just traded it. I bought it just under 44 2 days ago and yesterday I got rid of it a little above 46. Same for T. VZ was over 5% divy and T around 5.7% and the last thing people will get rid of is a cell phone but I still look at technicals and still not sure market has hit the ultimate bottom. Could be feeling out a short term bottom though which I said was a possibility after that turnaround afternoon even though the market didn't go positive. So I tend not to hold things as long right now but I would have been fine averaging down and buying more if it was necessary. Futures strong this morning, oil is showing some strength we'll see if it holds through into the weekend. Even if things go further up after I sell them that's fine, as they say you never lose money taking a profit. I just move on to the next thing or revisit the same thing if it drops again.
VZ had solid earnings, decent growth and less churn. I think pressure from T Mobile is possibly abating a bit lately now that they've (VZ/T) come closer to matching them on price/services. So I don't know that they will experience as much churn in the future. They all seem to be rolling out those services now where you can stream data from certain sources and not have it hit your data limit, of course they probably pick up fees from those providers too.
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I have both VZ and T. I have recently been buying Diebold 4.6% div, ETN 4.6 %, CSCO 3.7%, EPR 6.7%, IP 5%, PFE 3.9%, UTX 3% most of them at 52 week low and down 25-40%. Might still go down more and then will buy the BIOTECHS and high flyers.
today looks like a short squeeze on oil - which in turn has the overall market positive. May tell a positive trend if the market closes up going into a weekend - to me that would signal a bottom to this correction.
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