Seeing stock price fall below the 200-day average, we place the Contrarian Buy designation on previous Buys including Chevron (NYSE:CVX), BG Group (OTCPK:BRGXF), Royal Dutch Shell (NYSE:RDS.A), Statoil (NYSE:STO), Total (NYSE:TOT), PetroChina (NYSE:PTR), and Lukoil (OTCPK:LUKOY). Contrarian Buys offer the appreciation potential represented in low McDep Ratios without the company of as many similarly minded investors.
There is the suggestion that a downward price trend may continue, but not the assurance of such. Some rest in gains after sharp recovery following financial panic could be normal. Nor is it much surprise that the chatter in the broader financial markets should turn to threatened defaults in Greece or California, for example. Throughout history, currency volatility and sovereign defaults have occurred in the wake of banking defaults such as we saw in 2008, explains a new analysis (see the book, This Time is Different, by Reinhart & Rogoff).
Stocks often recover quickly from banking defaults while sovereign defaults may slow global growth temporarily. At the same time, six-year oil has ended an eight month uptrend by settling at $81 a barrel, which is below the 40-week average of $82. While that may also signal a need for medium-term caution with regard to appreciation prospects, the six-year quote remains above the long-term oil price of $75 we use to calculate McDep Ratios. At a median of 0.75, McDep Ratios imply attractive investment value by our fundamental analysis. Patient investors can continue to buy and hold low-McDep Ratio oil and gas stocks to build a target portfolio weighting.
Originally published on February 9, 2010.