Oil & Gas Sector: Valuations Of Prospective Companies For Your Next Profitable Investments

by: Steven Bauer

This article focuses on the Energy - Oil & Gas sector of the stock market. (Please see the table of sectors below). I will write a similar article on one of these sectors per week.

I hope to share a mini-perspective on how I go about identifying future profitable investments by using these sectors. Profiting consistently in the stock market is a common goal for all investors. My work is an analytic process that has been profitable for over 50 years.

Exxon Mobil (NYSE:XOM) is the current primary focus for my Energy - Oil & Gas sector analytics. My mission is to identify the next set of companies, within each sector, that have the highest prospect of being the profitable, and lowest risk/reward threshold.

Remember, this stock market is a cycling and ever-changing venue. The same old companies are no longer, repeatedly the leaders, year after year. For me, that means I have to work harder to identify those companies and secure the consistent profits we all are seeking. I love this work. I always have and I always will be sharing my "stuff."

For you, folks that are seeking income, you may be interested in the following remarks. XOM is a company that pays a dividend of only 2.7%. Two-plus percent may seem like a low dividend to you if you are seeking income. Remember, you can instruct your broker to send you any amount you wish each month. If you study the chart of XOM, clearly you also have enjoyed conservative growth. Why not combine the 2.5% dividend with say 3.5% of the growth and get 6.0% per year? ExxonMobil suddenly becomes a better income provider than you may have thought. You might ponder these remarks about how to receive additional and safe income each month.

Identifying the future profitable component stocks of a sector is not a simple process. Most likely, you have heard these words used many times in financial articles. I focus my attention on these words, and call them "my three Ws." These three words are: What, When and Why. The components of my analytics are the companies within these sectors. Like in all sectors, each company in each sector belongs to an industry group. By valuating the component companies within each industry group I can affirm and/or discard both industry groups and companies. I keep doing this analytic process until I have identified the very best candidates for buying. The same valuation process works just as well if we are seeking to identify companies for a short sale. This work provides me with an excellent list of fundamentally sound candidates for investments. This is fundamentally the key to the important question of "what?"

Experienced technical analysis is the key to the important question of "when?" The "when" always depends on the current (bullish or bearish or neutral/transitional) cycle of the stock market itself. Investing in the best companies in a bearish cycle is just plain foolish. And shorting a company in a bullish cycle is just plain stupid. I apologize to you if my candor is a bother to you.

Now, with a little guidance and few more analytic tools, we can begin on a path of enjoying consistent annual profits.

Over the coming months, I will repeat this article on the Energy - Oil & Gas sector from time to time. I will offer updates, i.e. alerts (for buying) and warnings (for selling) for the companies listed below. The companies are a representative group of the large-cap Energy - Oil & Gas companies that should be familiar to all.

These "large cap" companies have competitors, within their industry group, that are what I call second and third-tier companies. These second and third-tier companies often have better valuations and a lower risk/reward factor to work with. So these top-tier companies always lead me to excellent alternative companies that I recommend for buying to my clients. Obviously, I am seeking very poor second and third-tier companies when I am in a bearish stock market environment.

I mentioned my three "Ws" above and still have not mentioned the why? 'Why" is a kind of conformation for me that all this analytic effort is correct and accurate. If I cannot answer the questions of why this company is a low-risk and potentially profitable investment, satisfactorily to myself, I will not recommend it as a buy or short sale to my clients.

The first obstacle is whether the company that valuates well is currently technically a buy, sell or hold? Now we are back to the "when" in investing wisely. In my work, that question is also rather easy to answer. Unfortunately, I have found that few investors have the patience and discipline to hold cash in their portfolio. Waiting sometimes for weeks for a company to be ripe for buying is not easy for most investors.

You may want to refer to my Instablog article on "My Rotation Model."

Table of Sectors: Ranking and Direction

ETF & Symbol

Ranking ( 60 - 100 ) & Direction (ascending / status quo / descending)

Most Recent Article

(Click on article for my latest posting)

Basic Materials - - SPDR (NYSEARCA:XLB)

( Click (chart) for a 15-year chart)

72 - - descending

Coming Soon


( Click (chart) for a 15-year chart)

74 - - descending

You are reading it.

Financial - - SPDR (NYSEARCA:XLF)

( Click (chart) for a 15-year chart)

76 - - descending

Latest - article

Industrials - - SPDR (NYSEARCA:XLI)

( Click (chart) for a 15-year chart)

80 - - descending

Latest - article

Technology - - SPDR (NYSEARCA:XLK)

( Click (chart) for a 15-year chart)

80 - - descending

Coming Soon

Consumer Services - - SPDR (NYSEARCA:XLP)

( Click (chart) for a 15-year chart)

81 - - descending

Latest - article

Health Care - - SPDR (NYSEARCA:XLV)

( Click (chart) for a 15-year chart)

78 - - descending

Latest - article

Utilities - - SPDR (NYSEARCA:XLU)

((Click (chart) for a 15-year chart)

72 - - descending

Latest - article

Gold - - SPDR (NYSEARCA:GLD) / Silver iShares

( Click (chart) for a 20-year chart)

78 - - descending

Latest - article

These rankings are conservative but the word "descending" should get your attention.

If you are an investor who is seeking dividend or monthly income, my work will help you meet your objectives of both income and modest growth. Often you receive your dividend check, and the company price is 'descending.' I suggest collecting dividends in one hand and losing price per share value on the other hand is just like shooting yourself in the foot. Your inquiries are welcome.

Eight Valuation Criteria with their Status of the: Energy - Oil & Gas Sector

Valuation Criteria


Earnings Growth:

The Energy - Oil & Gas sector earnings peaked at in early 2010 and have declined ever since. A further decline is projected for the last half of 2012.

Price per Share - Performance:

The Energy - Oil & Gas have been strong since the beginning of the 2009 rally. However, the Energy - Oil & Gas have begun to under performed. I expect that to accelerate in the coming months.

Forward Earnings:

The bad news is that Energy has already turned negative.

Forward Revenues:

The Energy - Oil & Gas sector revenues have peaked and are currently coming down.

Forward Profit Margin:

Profit Margins have turning over the top since mid to late 2011. They are definitely on the decline.

Forward Price / Earnings Ratio:

P/Es are on the decline since mid 2009. That can be considered both good and bad.

Long Term vs. Short Term Earnings Growth:

Longer term is flat to declining. The Short term appears to be turning down?

PEG Ratio:

Energy - Oil & is less than 1.0 and may be falling.

Valuation analytics is a time-consuming part of a financial analyst's day. However, the reward for the long hours is necessary if you are seeking consistent annual profits.

Valuation Analytics Table - - Large Cap - Energy - Oil & Gas Companies



Valuation Divergence (%)

Six Months - One Year Projected from a Mean - Sigma and from the next Bullish or Bearish Inflection Point.

(These are averaged for all companies and conservative numbers )


(My General Remarks for the Energy - Oil & Gas Sector are: I never invest when the trend is against me. Currently, the trend is bearish; therefore, in many good valuations, I prefer holding cash. )

Exxon Mobil XOM

((Click (chart) for a 20-year chart)


Minus - 12+%

XOM is eventually coming lower in price per share. In the mean while, enjoy the growth.

Chevron Corp. (NYSE:CVX)


Minus - 12+%

CVX is also a very excellent company. The current problem with the Energy - Oil & Gas companies is that the earnings growth is slowing. That means that I must put out Warnings and watch the price per share movement very carefully.

Schlumberger Ltd. (NYSE:SLB)


Minus - 19+%

SLB is a fine company who's price per share has mostly gone sideways for the past year or so. Hold but be cautious, a pull back could well develop in the near to short-term.

Companies to Focus on for the Next Bullish Cycle



My General Remarks for these Five Energy - Oil & Gas Sector Companies

Petroleo Brasileiro S.A. (NYSE:PBR)


PBR from a high of $32 the shares are coming lower. Be patient and buy off a low.

Ecopetrol S.A. (NYSE:EC)


EC has a much lower target price. I suggest $40. is a good down-side target price.

TotalFinaElf S.A. (NYSE:TOT)


TOT is $10. off its highs and coming lower.

BP plc (NYSE:BP)


BP is also very far off its highs. Could it be basing? Fundamentals are saying - No!

ConocoPhillips (NYSE:COP)


COP is stronger than its peers. The down-side remains the prevalent direction.

I often suggest that second and third-tier companies also offer low risk investing. Here are a few with my longer-term positive valuations. It may be some time before any of these companies makes it back to the top of my recommendations list. Do not buy without consulting a seasoned financial analyst or contacting me by email.

Market Status

My general market opinion is, the fundamentals are over-valued; the technicals are over-bought, and the consensus opinion is way too bullish. Economic and financial news is very negative and not supportive of taking further bullish positions.

I am currently a bear because my valuations are convincingly negative, the charts are breaking down on a weekly basis. And, we are in a bearish cycle; it's just that simple!


Patience and discipline are more important than the above data, tables, charts and information. However, the focus is always the question: do I buy, sell or hold? My question for you is, do you have the patience and discipline to hold cash for a time? And, can you wait until you can be sure to profit?

My criterion for taking a bullish position is that the company must have the prospect within its fundamental valuation and technical charts to outperform the general market, its sector, and industry group.

Currently, the above tables and charts present notable warnings about these companies. It is a fact that, the stock market cycles endlessly both fundamentally and technically. It continuously moves from bullish cycle to bearish cycle and then back to bullish cycle again. Unfortunately, this is a pattern that is not well-understood or taken advantage of by most investors.

This analytic work I do each day is fun and profitable. There is always a list of the best (for buying) and worst (for shorting) companies to further valuate and study. Seeking profits by focusing on the best companies, or perhaps the worst companies is definitely a challenge. The companies between the best and the worst are never considered as a current investment. All companies rotate into favor and out of favor. Each company is in rotation taking its turn at being a profitable investment. Sometimes it is one of the best and at other times it is one of the worst! To be consistently profitable, you must maintain lists of the best and the worst companies. This analytic work must be complete, well ahead of the next bullish or bearish market cycle.

Within this present bearish time frame, there is nothing (longer-term) wrong with these companies. It is just an on-going process and what happens when companies turn bearish.


I am currently bearish on both the world economies and the general market. My more recent Instablog postings are focused on securities that should not be currently held in your portfolio. I suggest that it is important for you to understand that holding cash is often a wise decision. During bearish cycles, this advice is always profitable for you. I can assure you that; this is definitely a "bearish cycle" time frame!

I can also assure you that I am longer-term bullish on all of these companies. Their bullish cycle will return again in the coming months. Currently, my "holding cash" advice is both prudent and investing wisely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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