Is Now the Time To Buy Big Energy?

We hear a lot of chatter about the consumer not being able pay his bills. That's led to legislation on bailing out troubled homeowners. It has led to tax rebates for families earning less than $150,000. It has even led to drastic rate cut activity by the Fed, as well as a "potential" change in the definition of a conforming loan ($417,000 to $625,000).

That's a lot of stimulus! And yet, many believe that little if anything will work.

(Perhaps that is why the stock market still struggled to break even on the week. And... the S&P 500 is down 15% from October 9 highs.)

If a recession is in the works, many believe that world demand for oil/resources could tank (pun intended). Already, we've seen a barrel of crude slip nearly 10% from the $99 per barrel level to $90 per barrel.

It strikes me as odd, however, that the companies engaged in the location, distribution and sales of natural resources are down 14% in January alone. Is Big Energy really going to fall into a profit recession?

Energy/resources have fallen further in January than most sectors. With the possible exception of technology, energy/resources may have taken the biggest hit.

Granted, I am not inclined to describe the previous bull market leaders (e.g., energy, tech) as tomorrow's leaders, but does anyone really expect the likes of Conoco Phillips (COP), Schlumberger (SLB) and Transocean (RIG) to go the way of the dinosaur? Or, conversely, might now be a time to consider getting iShares GS Natural Resources Fund (IGE) on the cheap?

I believe IGE may be ripe for the resourceful investor. We're still filling up our tanks in this country. Supply is still tight. And the rest of the world, while fearing our slowdown, is not in less need of resources than they were yesterday.

Keep in mind, we've experienced a sharp correction based on recession fears already. Now that we've experienced it, however, it's time to look at how current monetary and fiscal policy are likely to send oil prices up and keep oil company profits free-flowing.

Comments

[mixter:]

I am a fourth generation "oilie". I graduated with a B.S. in Geology in 1958, and they were firing 20 geologists to every one they were hiring as there was a glut of oil on the market. (My first job out of college was as a welder's helper)!

The oil industry has a history of ups and downs, just like the earth's temperature goes up and down in cycles.

I went through the oil bust of the early 80's. I saw many people go broke and close to 600,000 people lose their jobs. To hell with Hillary Clinton and her rants about obscene profits by oil companies! Doesn't she realize that close to 97% of the world's oil reserves are controlled by foreign countries? Yes, buy oil and/or energy stocks, just watch out for "greenie weenies" who want to save the planet by letting us freeze to death or starve because food can't be transported utilizing fossil fuel energy. Al "Gork" flies in his private jet, but claims we shouldn't drive a car!

2008 Jan 29 10:34 AM

[Yael Pipano:]

Yes, buy BIG energy!!! This is a portion of an article I read today, from seeking alpha, quoting Byron Wein (I copied short bio on him for you readers out there): " My view is that people underestimate the seriousness of the energy situation. We are only finding oil at a rate equivalent to replacing the oil production that erodes every year as a result of the existing wells getting tired.

In addition to that, China and India are consuming less than two barrels of oil per person per year while we consume 26 barrels, Western Europe consumers 13 to 15 barrels, Japan, Korea the same amount. As China and India increase their consumption, even if the two and a half billion people there only increase their consumption a quarter of a barrel of oil per year, there's no way the world can meet that demand. So I think the price of oil is going a lot higher."

"Oil is going to probably $125 a barrel. I forecast that it would go to $80 last year. "

Byron Wein's updated bio a/o 9/27/07:
Westport’s Pequot Capital Management, Inc., today announced that Byron R. Wien, managing director and senior investment strategist at Morgan Stanley, will join the firm Dec. 1 as chief investment strategist.

Wien will work closely with Arthur J. Samberg, Pequot chairman and CEO, and the firm’s investment team to develop global macro-investment strategies, an announcement said. He Mr. will work out of Pequot’s New York office.

Wien is a seasoned strategist who brings over 40 years of experience in the global financial markets. Prior to joining Morgan Stanley in 1985, he was a portfolio manager for 20 years, primarily at Weiss, Peck and Greer, where Samberg was also a partner.

2008 Jan 29 05:31 PM