Chevron Corporation (NYSE:CVX) moved the market on Wednesday accounting for 24.07 points of the Dow Jones 131.24 gain. The Chevron stock gained 3.48% as the price of oil gained more than 5% with encouraging economic data, including a 4.7 million barrel supply fall which was a surprise to the market. So now that oil is showing some resistance at the bottom investors may be wondering if now is the time to purchase oil stocks.
Oil and Gas companies have been hit hard over the last few months, with the Oil and Gas integrated industry down 23.71% since July 6, and the oil and gas operations industry down more than 30% over the same period. One reason for the large loss is the sell-off of oil and gas stocks due to the slumping price of oil.
It's no surprise that crude has dropped with such authority over the last three months as everything in the market experienced a sell-off. I am at a crossroad in regards to crude, on one side I want the price of crude to rise because it directly affects the price of oil stocks, but on the other side I want crude to remain low because it affects the price of gasoline.
My opinions regarding the economy center around the price of crude. I believe that if the government were to place a cap on the price of crude or set the price of crude at a certain level, by tapping into more of the domestic supply, than the economy would improve. I belive that high gas prices have plagued this economy as the consumer now has to incorporate gas money as a monthly bill, I know that in my household we spend more money on gas per month than we spend on our mortgage. And with the majority of Americans spending the same amount on gasoline there is less expendable income for vacations, dining out, shopping, etc.
My opinions that consistently low crude prices would help the economy are irrelevant, because the truth is that crude prices are not going to stay at $80 a barrel, or any price near or under $80 a barrel. During the recession crude prices were at all-time highs with prices that reached over $140 a barrel, and then as the price crashed down to below $60 the economy began to recover. And although this example shows the extreme inflation of crude, the commodity itself typically rises with the value of the market.
The Dow Jones is valued under 11,000 points, a value that I believe is significantly less than the net worth of the companies that it represents. However, when you incorporate fear and panic into the equation the value of the indice is fair and represents the pessimistic views of investors, and consumers, regarding the economy. In time, sooner rather than later, the indice, along with the S&P and Nasdaq will recover as will the price of crude.
I believe this increase in value will begin during Q4, over the next several weeks as earnings season kicks into full gear. The indices have each lost a considerable amount of value over the last 3 months yet very few of the dominant companies within the major indices have lowered guidance. And since the markets are a collection of individual companies that are priced according to earnings, I believe the markets will rise. Because I have been given no reason to believe that earnings will miss, with very few companies lowering guidance an investor must trust the company and its fundamental performance, rather than analysts' opinions, fear, or European debt.
It's my personal belief that the price of crude will begin to rise in the coming weeks as earnings season heats up. Crude is directly affected by the performance of the major indices and as earnings meet, or exceed, expectations for the market as a whole will become more optimistic and the indices, along with crude, will rise. And if the price of crude were to rise then we can assume that most of the large oil companies that trade within the market will rise as well.
Below are oil and gas stocks that have experienced a large amount of loss over the last 3 months, that I believe are perfectly positioned for immediate success. These stocks are trading at low prices compared to fundamentals that are performing better with higher revenue and higher income year-over-year. Not to mention, each of the stocks listed below have improved balance sheets with debt-to-asset ratios of less than 50%.
I believe that each of the 16 stocks listed below present the likelihood of posting large gains over the next 3 months, much like in February, when several oil and gas company's posted large gains as the price of crude increased very abruptly. Due dilligence will be required to decide which, if any, of these stocks would accomodate your portfolio, however I believe that each will post some level of gains from current prices. Below are the stocks presenting value with solid earnings, and also included are each stock's performance over the last 3 months as the price of crude dropped from $100.
|Company||Ticker||3 Month Loss|
|Royal Dutch Shell||RDS.A||13%|
Each of the stocks listed above have lost a considerable amount of value during the last 3 months. And as I have said, each company has an improved income statement and a strong balance sheet, but have been affected by the declining price of crude. I believe that each of the 16 stocks would make a great short-term investment assuming the price of crude is near the bottom and that it will rise with the market. I believe this is a likely scenerio and that each of these stocks present a significant amount of value compared to risk, with crude trading at such low prices.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in COP, SD, EOG over the next 72 hours. As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.