Energy Stocks Are Too Cheap to Ignore - Barron's 35 comments
an article to
-
Font Size:
-
Print
- TweetThis
One of the sharpest corrections ever in energy stocks, which has dragged shares of most large energy companies to below 10x next year's earnings, is a seldom-seen opportunity to make 25% or more on your money over the coming year, Barron's Andy Bary says.
Energy analyst David Kistler notes major independents like Anadarko (APC), Devon Energy (DVN) and XTO Energy (XTO) are trading at little more than half their net asset values, making their risk/reward excellent. Such firms are heavily focused on North American E&P, which shields them from much of the geo-political turmoil multinational peers have suffered in Venezuela, Russia and Nigeria. APC and DVN are also prime takeover targets at current prices.
Investors worry the oil majors (ExxonMobil (XOM), Chevron (CVX), BP (BP), ConocoPhillips (COP)) are being hurt by largely undisclosed production-sharing accords with nations in which they drill. Given high oil prices, the agreements - which limit producers' returns after recouping initial investments - are quickly putting the host countries in control. Barron's notes that for Exxon, only 20% of its output is subject to such accords, and thinks its problems and those of its peers have already been more than priced into its shares.
Lehman's Paul Cheng likes Chevron, which trades for just 6.6x 2008 earnings. He sees CVX boosting output by 4% in 2009 and 2010.
Suncor Energy (SU), the most prominent oil-sands play, trades for just 8.5x 2009 earnings. Bear in mind it consistently trades at a premium due to its enormous reserves that could last 100 years vs. 20-30 for other oil majors. XTO Energy (XTO) is another company whose historic premium has vaporized.
"Given such valuations, it seems tough to go wrong now with XTO or almost any major energy stock, even if energy prices fall a little further."
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,
as ranked by their peers-
1
User 353732
-
2
Moon Kil Woong
-
3
doubleguns
-
4
optionsgirl
-
5
Mayascribe
Top Commenters » -
1
-
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
what happens if oil price coming down further say to below $100?
The unwinding of these positions is not over ande will bankrupt many yet.
The windmill,the nuclear and hydroelectric energy play ,has been mostly exhausted as well.
Even the grain prices had a spike as a result of conversion to ethanol(corn).
To me one very promising source that could allieviate shortage of oil, is the Canadian oil sands.
However ,this sector appears to have been totally ignored.Time will tell.
Many experts claim that it is not the oil shortage that is the problem ,but rather inability of most refineries to "crack"the heavy crude,as the heavy crude is readily available.
I could not help but notice one Canadian company that is working on the oil sand conversion to oil and conversion of the heavy crude to light crude .In addition the company is looking for oil in China and produces small amount of crude.
That type of company (energy) could make a sense but it will not likely make a great move untill it is discovered by some hedge fund By then it is too late.
- going thru Exxon-Mobil’s 2007 Annual Report:
• From ’03 to ’07 - # of shs o/s diluted went down from 6.7 bill to 5.6 bill; net inc per diluted share rose from $3.23 to $7.28
• Exxon makes money regardless of the price of oil. For instance, they sell lots of plastics & resins, if the price of oil falls, Exxon’s cost of goods sold goes down & their profit margins in these areas go up.
• In summary, given Exxon’s tremendous earnings & reduced share count, it seems to many that the stock price can easily exceed $100 share. Especially since Exxon is buying back about 1.4 million shares of stock every day. XOM closed at $78.33.
The "energy" stocks do nothing more than supply product. The social impact of a destabilized market place is the one area these companies could perform and instead they accept any term or condition to produce product.
In the northeast by way of example the hyper pricing we've seen has caused near panic or more so breaking points a person or company can withstand to accept the given price for any of the products the "energy" companies supply.
Government programs that help the poor pay for heating oil will fail at the price levels of $4.50 per gallon of heating oil or above. $5 diesel simply shuts down trucking firms. Four day work weeks, lay offs, or factory shut downs are cost that displace every aspect of lifestyle and livelihood.
For the amount of profit generated is it really worth the social cost to society? I would argue respectfully there is also excessive waste of fuel and more so that most homes heated with oil are using outdated or poorly planned systems, the houses antiquated, or that waste is 20% regardless of stated efficiency. I'd argue further that the value of alternative fuels in any given area are now marked to the market and the local energy market for any given sort of fuel is an economic base not yet fully realized and in parts of the northeast for energy money to be spent on local hard goods is something never experienced on the scale as we have before us now.
The measure of change is how effectively the local markets shift away from relying on "energy" companies to provide the fuel required for their (our) own well being, and that is fundamental to any term or condition the market place is likely to move towards.
A fair and equitable means of exchange where fuel cost can be moderated given the local condition of heating or transportation. When oil runs out then of course the stock will be worth no more than the hole in the ground, and still at the cost ruin.
in Peru, down there the price for premium gasoline is $6 and regular
$4.50, with a monthly minimum wage of $200.
IS THAT CALCULATED WITH OIL AT $140 A BARREL?
THEIR ASSET VALUES HAVE BEEN GOING DOWN, DOWN, DOWN...
THEIR STOCKS ARE JUST REFLECTING THAT.
$1200 to fill a logging truck with diesel fuel is not viable or sustainable. They will have to find an alternative fuel in order to continue. Same is just as true to fill a 275 gallon oil tank with home heating oil. On average, a home may well consume 1200 gallons of heating oil each heating season. Or, as stated is likely using in excess of 20% more than it should by design, or consumption. Maine households for example consume 400 million gallons of home heating oil, its institutions 100 million gallons per annum.
As a side note. The world's largest pellet mill is located in Florida. It primarily ships wood pellets of southern white pine for home heating to the EU. The home equipped with a pellet boiler in parallel or in series with an oil boiler, will require perhaps 6 tons of pellet fuel per heating season at $300/ton. Generally, a cord of wood is 155 gallons of oil, or, 1 ton of pellets are less than 1 cord of wood in terms of btu/hr.
The demand for pellet stoves, boilers, and wood pellets has temporarily exceeded current supply. The exhaust from an outdoor wood burner can be equivalent to 4 trucks idling. Cord wood cost $220 delivered.
mesys.net/index.php
Don't get distracted by the home heating issue (with due respect to folks in the NE). Over 70% of a barrel of crude goes into transportation fuel (~45% motor gas & ~25% diesel/jet fuel). Until the US significantly reduces its dependency on the car to get from home to work (years), switches the motor fleet to alternative fuels or engines (technology arriving but many years to switch), and finds an alternative way to move food and consumer goods from source to centers of population (railway resurgence?), the demand for oil is staying high.
Nat gas is a great alternative, especially for power generation. The floor for nat gas price is generally set by coal, which has also been coming down but is probably near bottom (not my area of expertise - anyone care to comment on where coal prices are headed?) The floor for oil is, in my opinion, set by international supply vs. demand (e.g. China, India) rather than US demand. Provided the global economy doesn't get too adversely affected by US woes, overall supply/demand stays tight and oil price stays $90+ (long term, today's dollar value on foreign exchange)
I'm sitting tight on my US oil and gas exploration and production stocks; painful to watch them tank the past few weeks, but hopeful they will rebound (at a more sensible pace, perhaps) over next 6-12 months ... and deliver 30-40% gains (my estimate, by mid next year).
"A Bubble attracts most investors, until the only perceived direction is UP." The Media has been calling for the Bubble to burst for years. When they get on board and start GUSHING, the I'll call it a bubble.
finance.yahoo.com/q/bc...
one hears stories from time to time of contents of residential fuel oil tanks being stolen in garrett county MD. don't try that w/propane unless you want to set the forest on fire.
> jack