“The time to buy is when there is blood in the streets, even if the blood is your own. “ This famous investing quote is credited to Baron Rothschild, a member of the Rothschild banking family who made a fortune buying during the chaos following the Battle of Waterloo.
Times of market turmoil often present the best buying opportunities for savvy investors. Contrarians find their best investment opportunities during times of panic. Cramer says “No one ever made a dime panicking.” The bear market of 1974 gave Warren Buffett the opportunity to purchase a stake in the Washington Post Company (WPO). This one investment subsequently provided Buffett with more than a hundredfold return. One of Buffett's famous quotes is "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
Our innate instincts encourage us to depart a sinking ship. This survival tactic impacts the way we invest. When market panic creates opportunities to buy stock in solid companies with sound prospects, hopefully you have powder dry and take advantage. The market is clearly at an inflection point. To open a position you must have courage in your convictions, just remember, fortune favors the bold. A market correction provides opportunity to buy great names at a discount price.
Bernanke said the Fed will meet for two days in September, instead of the one day planned, to discuss its options to provide additional monetary stimulus, among other topics. Bernanke went on to say he expects growth to pick up in the second half of the year. However, if signs of a recovery fail to materialize in the near term, the FOMC may consider additional policy tools at its September meeting.
We posit this presents essentially a “win/win” situation for oil stocks. Either the global economy recovers or Bernanke initiates some type of QE program. Either scenario bodes well for oil prices. Some are predicting a major downturn in the global economy. My instincts tell me it won't be as bad as some have predicted. Once everyone realizes the emerging markets are still growing, European debt issues are being solved, the street's profit taking is over, the global economic recovery continues, and the theory of peak oil may soon be proven true, I see energy stocks regaining past glory and reaching new highs. By the way, do these events give you a sense of deja vu? They should, practically the exact scenario occurred twelve months ago. There may be more volatility in front of us even with the more than 10% drop in the market recently. Nevertheless, this may be a good point to start a position in these buying opportunities.
Moreover, most of these stocks are trading well below consensus analysts’ estimates, have recent upgrades and positive analyst comments and PEG ratios of less than one. The PEG ratio is a broadly-used indicator of a stock's prospective worth. It is preferred by numerous analysts over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is undervalued. Many financiers use 1 as the cut-off point for PEG ratios. A PEG of 1 or less is believed to be favorable. As Warren Buffett would say, "Price is what you pay, value is what you get." Is the sentiment change regarding these stocks justified, or is this a case of the baby being thrown out with the bath water? Considering the broad based sell off, I submit it is the latter.
The seven energy stocks are: Baker Hughes Incorporated (BHI), Hess Corporation (NYSE:HES), China Petroleum & Chemical Corp. (NYSE:SNP), YPF S.A. (NYSE:YPF), SeaDrill Limited (NYSE:SDRL), HollyFrontier Corporation (NYSE:HFC) and Marathon Petroleum Corporation (NYSE:MPC).
Below are two tables with detailed statistics regarding each company’s current summary information, earnings per share and dividend information, followed by a brief review of each company, detailed current analysts' estimates and up/downgrade activity, followed by a chart of the company's key statistics. Nonetheless, this is only the first step in finding winners for your portfolio. Please use this as a starting point for your own due diligence.
Summary Statistics (Click images to enlarge)
Fundamental Statistics (Click images to enlarge)
Baker Hughes Incorporated supplies wellbore-related products, and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the oil and natural gas industry worldwide. The company is trading significantly below analysts' estimates. Baker Hughes has a median price target of $98 by 27 brokers and a high target of $140. The last up/downgrade activity was on Jul 26, 2011, when Howard Weil upgraded the company from Market Perform to Market Outperform.
Hess Corporation and its subsidiaries operate as an integrated energy company. It operates in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R). The company is trading significantly below analysts' estimates. Hess has a median price target of $93 by 14 brokers and a high target of $115. The last up/downgrade activity was on May 5, 2011, when Argus upgraded the company from Hold to Buy.
China Petroleum & Chemical Corporation engages in the exploration, development, production, and marketing of crude oil and natural gas properties primarily in China. The company is trading significantly below analysts' estimates. China Petroleum has a median price target of $122 by 3 brokers and a high target of $122.60. The last up/downgrade activity was on Oct 9, 2009, when HSBC Securities downgraded the company from Overweight to Neutral.
YPF Sociedad Anonima, an energy company, engages in the exploration, development, and production of crude oil, natural gas, and liquefied petroleum gas (NYSE:LPG) in Argentina. The company is trading significantly below analysts' estimates. YPF Sociedad Anonima has a median price target of $55 by 7 brokers and a high target of $56. The last up/downgrade activity was on May 3, 1999, when Morgan Stanley Dean Witter downgraded the company from Outperform to Neutral.
Seadrill Limited, an offshore drilling contractor, provides offshore drilling services to the oil and gas industries worldwide. It also offers platform drilling, well intervention, and engineering services. The company is trading significantly below analysts' estimates. Seadrill has a median price target of $41 by 12 brokers and a high target of $205. The last up/downgrade activity was on Mar 17, 2011, when RBC Capital Markets upgraded the company from Sector Perform to Outperform.
HollyFrontier Corporation operates as an independent petroleum refiner and marketer in the United States. It produces light products, such as gasoline, diesel fuel, jet fuel, and other specialty products. First Call expects 3.35 EPS for next quarter. The company is trading significantly below analysts' estimates. HollyFrontier has a median price target of $83.50 by 14 brokers and a high target of $100. No upgrade & downgrade activity is available for the company per Yahoo Finance.
Marathon Petroleum Corporation, together with its subsidiaries, engages in refining, transporting, and marketing petroleum products primarily in the United States and internationally. The company is trading significantly below analysts' estimates. Marathon has a median price target of $53.50 by 12 brokers and a high target of $60. The last up/downgrade activity was on Jul 25, 2011, when Dahlman Rose initiated coverage on the c0ompany with a Buy rating.