Oil Above $50 and Still Has Legs - Cramer

“BP, which is my favorite of the integrated oils right here, a stock I like so much they bought it for my charitable trust, you can follow along as I do the buying. It’s trading at the same price it was when oil was under $40. How on earth does that make any sense now that oil’s over $50? Especially when BP just said in a big analyst meeting that $50 crude was the magic number in terms of keeping its notoriously big dividend, juicy 8.3% yield intact. We’re at $50 now…

All right, now, how about a stock that gives you an even bigger dividend from the ride in oil? Something that should spring higher as crude gets more expensive, I’ve got one for you, BP Prudhoe Bay Royalty Trust, that’s a mouthful, but we call it BPT for you home gamers. It’s an energy trust. It has to pay out nearly all of its deposits to shareholders in exchange, it doesn’t pay taxes…

I just like Prudhoe Bay more because it’s a better play on higher oil prices, no natural gas keeps going down. Here’s the bottom line. The big story today, not AIG bonuses as much as we all hate those guys, is that oil’s back above $50. I think it’s headed $10 higher. I think you ought to look at BP and BPT as terrific dividend catch-up plays. They’re trading like crudes in the $30s.” --Mad Money 3/19/2009

As Cramer notes, crude prices have quietly and steadily risen over the last month more than 25%. This is in the face of weaker than expected storage data that suggests demand has continued to slow. However, the low crude prices of the last few months have led to serious declines in capital expenditures budgets for domestic oil companies and massive OPEC supply cuts. Oil prices have begun to ascend on the likelihood of an economic recovery, and the potential of having a serious supply crunch when that recovery takes place.

According to Cramer, oil has bottomed and this run up still has legs to run to $60 per barrel. If that is the case, then there are some oil stocks that have not yet begun to see significant appreciation from this crude appreciation. When there is a mismatch like we are seeing in oil stocks and you expect the trend to continue, then it is a great time to buy. Cramer’s two favorites, largely because of the exceptionally high yields, are BP (BP) and BP Prudhoe Bay (BPT). At Ockham, we have a Fairly Valued valuation on BPT and an Undervalued valuation on BP at current prices. Of course, these stocks have significant potential if oil continues to rise.

Original post

Comments

[erniem:]

It makes me nervous when Cramer pimps oil. It's volatile enough. Today traders are playing it on the long term view of an expanding economy. When everyone jumps in, another frothy bubble emerges.

Mar 20 11:22 AM

[Alexander_M:]

meaning, short oil.

Mar 20 11:25 AM

[IanChaplin:]

The date is March 19, 2008? Is that right? A year ago?

Mar 20 11:54 AM

[Ockham Rese...:]

My apologies, that was last night's Mad Money. I will make the correction. Thanks for the catch.


On Mar 20 11:54 AM IanChaplin wrote:

> The date is March 19, 2008? Is that right? A year ago?

Mar 20 12:00 PM

[FE812:]

I have to think that most all of the major oil companies are a bit underpriced right now. With the run up in oil last summer many investors are probably scared to get back in oil for fear of a continued global demand decline resulting from new energy sources and policies combined with semi-permanent alterations in driving habits.

I don't buy it. I have my fears about the industry but this isn't one of the them.

ONE of MY fears is the continued lifecycle of the renewable fuels standard. It could cause a tumultuous future if it isn't looked at again soon.

Mar 20 01:45 PM

[NEGRININVEST:]

We are looking for $70.00 pbl at July 2009. China start buy now oil in Venezuela, Russia, Iran and more signing purchase contracts for 20 25 years. We are loosing the foreign sources of oil and we mast to go for renewable.

Mar 20 02:20 PM

[urbanhiker:]

HEY NEGRININVEST Is english a second language? China start buy now oil......? It's losing, not "loosing. We "mast to go". I will read your posts just for the humor.

Mar 20 07:35 PM

[Larry Belle...:]

Scares me a bit that people are starting to pump up oil too much, too soon. As much as I am a believer in the long-term bull case for Crude, you have to look at the large stockpiles that have to be widdled through. I do believe that Oil should rebound more in the 2nd half of 2009, as Stimulus project use a lot of Diesel (Generators, Machinery and Worker Trucks). As well, many that might have flown to a more expensive vacation will chose to drive in the US Summer Driving season.

Watch for Oil to fully recover (north of $100) sometime in 2010, when the BRIC countries resume their long-term middle class growth plan.

Larry

Mar 20 07:44 PM

[tunaman4u2:]

Dammit, Cramer recommending Oil now, thats a sure sign its about to drop.
March 6th he was calling doom & gloom. Now after a big run up hes saying buy. He's done this a million times now. Honestly do people really still listen to this guy. He is the ultimate follow the trend guy, buy at the top, sell at the bottom

Mar 20 08:44 PM

[tunaman4u2:]

Look at him saying Nat Gas is going down... thats the time to buy & if you did on Wednesday you did alright. This guy is wrong all the time.

Mar 20 08:47 PM

[a. palmer jr.:]

Just got my dividend from Harvest Energy...I only have 200 shares, but $4.75? Looks like another stock I can write off as charity!

Mar 21 08:37 AM

[john s. gordon:]

just remember jim cramer is in the entertainment business.

will the days of 30 to 1 leveraged speculation on oil futures return? who knows.
> jack

Mar 21 08:39 AM

[toobad41:]

Working Interest Owners of oil production tell me that they have a break-even price of $56 a barrel at the pump. Any price below that is at a loss. So why is oil being produced domestically at a loss? Much of the cash flow was coming in when oil was selling for over $100 a barrel but now that cash flow is ending and the $45 dollar pricing is taken over. The end result is people are losing their jobs, just like any other industry today....to save costs. The current economy is also hurting the oil industry as well. Oil runs civilization. Nothing else comes close. Nothing exists on the horizon to replace oil. Yes the supply is outpacing demand. That is short term contango. It will not last.

Mar 21 09:30 AM

[Dark Night:]

Oil should go up not because of what Jim Cramer says but on supply and demand reasons.Henry Groppe - a noted oil analyst - said oil would hit $40 last year (mainly due to market specualtion bubble ) now he says that the supply and demand conditions would push oil toward the $60-70 range this year. I would rather trust Mr Groppe opinion (an independent oil expert) then Jim Cramer opinion anyday.

Mar 21 10:40 AM

[whisperonth...:]

I have BPT, and I came very close to selling yesterday. Today, I finished doing my taxes - which involve more work because of oil trusts - and I'm really glad I kept it. So short it if you want, take the price down, and I'll get back in for more. Now that I know just how much this one gives me in both dividends and deductions, I'm ready to buy more. I just wish their tax booklets were a little easier to understand. And Cramer had nothing to do with my decision to keep this one - it was a money decision all the way. (urbanhiker, how's MY English?)

Mar 21 10:43 PM

[sr9web:]

buy pwe

Mar 23 01:15 AM

[User 422933:]

Thanks I know only financial business
WTI CRUDE FUTURE (USD/bbl.) 66.310 1.230 1.89 05/29


On Mar 20 07:35 PM urbanhiker wrote:

> HEY NEGRININVEST Is english a second language? China start buy now
> oil......? It's losing, not "loosing. We "mast to go". I will read
> your posts just for the humor.

May 31 03:28 PM

[NEGRINIENERGY:]

NATURAL GAS FUTR (USD/MMBtu) 3.976 0.141 3.68 05:51
WTI CRUDE FUTURE (USD/bbl.) 68.080 1.770 2.67 05:54

Jun 01 06:45 AM

[NEGRINIENERGY:]

NATURAL GAS FUTR (USD/MMBtu) 3.976 0.141 3.68 05:51
WTI CRUDE FUTURE (USD/bbl.) 68.080 1.770 2.67 05:54

Jun 01 07:09 AM

[NEGRINIENERGY:]

Oil 70.82 0.81 1.16

Jun 09 10:16 PM

[NEGRINIENERGY:]

Oil 70.82 0.81 1.16

Jun 09 10:17 PM