I'm looking to start averaging into a position in either BP/Arco or Chevron. We may not be at an absolute bottom in the oil patch, but it's close enough for me. By that I mean bottom due to oil production specifics, not the general market. But I'm wondering if the current commodity rout might actually confer some immunity to the next major general market decline. I wonder how low can oil go without becoming ridiculous?
BP of course is beginning a recovery from the Gulf fiasco, but most of the liability for that seems to finally be under control. I was interested to see that today the S&P was down 2%, but BP only sagged 0.75%. Their P/E is awfully high right now at 38, but that's a reflection of their depressed earnings ever since the Gulf disaster. As Bee pointed out in another thread, their dividend is very nice at almost 7%. Per share cost is at a 52 week low of about $34 and change. Ownership of BP is only 2% institutional, so the share price can't be affected by large players deciding to cut and run. If most of the skittish small folks are still out of the market as has been frequently suggested here on MFO, it would seem that those remaining are probably not going to sell en masse when the market turns, though of course you never know for sure.
Chevron doesn't have anywhere near the financial problems of BP. It's share cost is also at a 52 week low of $79, roughly twice that of BP. The PE is quite low, around 12, and the dividend is about 5.4%, still very respectable in today's market. It may be more volatile, and still have a greater way to fall to a market bottom than BP, as it went down today about 2%, along with the rest of the S&P. It's 63% institutionally owned, so subject to the big guys playing games.
I'm leaning towards Chevron, but if anyone has any other thoughts on this, I'd really appreciate any input. As one of my old bosses used to say, "two heads are thicker than one".
Thanks- OJ
Comments
That said, look at these companies.
XOM was here in 2006. CVX is - remarkably - almost back to where it was in 2009. COP spun off PSX but otherwise has been clobbered. BP has been creamed for multiple reasons.
The concern that I have is that oil seems to be drawn to 40 like a magnet. If it goes through that, you could see much more distress in the oil sector and possibly a major may "adjust" its dividend. Look at Conoco with a 6% yield; I worry that that isn't sustainable/realistic if the situation with oil gets much worse or stays low for a few years.
Why is oil going to go up? I think that's a question and the only thing that really comes to mind that would move oil substantially in the near-to-mid-term is if they do QE4. We've done QE 1, 2 and 3 and now oil is around where we were when they did QE1.
Had a much longer post with a bunch of other thoughts on energy and energy-related ideas but can't seem to post the full thing, get a weird error every time I try. I'll try to post the rest later. Basically, I'm out of oil names but I'm really thinking I will not revisit them and will instead focus on other ways to get exposure to energy. I'd rather look at the railroads, commodities exchanges (especially ICE, which has done well the last week while the market is terrible) or - and I don't own it - things like Fleetcor (FLT), which is a major fuel payment card company.
http://news.investors.com/081115-766075-fleetcor-technologies-raises-guidance-partners-uber.htm?ven=yahoocp&src=aurlled&ven=yahoo
Private equity (OAK, BX) may look to buy energy if it gets worse. Both generate K1s and BX is particularly volatile.
Pipelines have been taken down way too much and while K-1s are a PITA, things like EPD are values. I like ETE, which has done well and seen massive insider buying, but it provides the "gift" of a particularly terrible K-1.
Again, I'll try to post the rest later, but that's my 2 cents.
I like Intercontinental Exchange and to a lesser degree, CME. You have the commodities exchanges - the casinos don't care what you're betting on as long as you're betting and often. These are volatile stocks, but look at ICE since oil dropped last Fall and in the last week. ICE has exchanges in multiple countries, while CME provides a nice dividend (and has been providing a special dividend each year lately.) Neither are conservative stocks.
For companies that are not supposed to be really correlated (aside from KMI, to some degree, which has oil production in TX) to the price of commodities, pipeline companies have seemed to take the double hit from interest rate worries and commodity prices. Even some of the very best - including Enterprise Products (EPD) - are down considerably. Also, I feel much better about EPD's 5.5% yield than the similar yield of some of the oil majors.
For conservative investors looking for yield I'd feel more comfortable recommending an EPD or KMI.
For some reason there seems to be a continual community that is bearish on Kinder Morgan (KMI), but that's down substantially and yielding 6%. I like ETE, which is a general partner and has stakes in other MLPs. That has held up better than most in the category. ETE has also had a lot of insider buying.
ETE corporate structure:
http://www.energytransfer.com/ownership_overview.aspx
The railroads are down substantially with concerns about economic growth and lower energy (coal and oil) shipments. Look at diversified rail Canadian National (CNI), which is down quite a bit on concerns about the sector and the terrible performance of the Canadian dollar has not helped shares. With rail, you get strategic/vital infrastructure and hard assets.
Visa and Mastercard - people using their cards to buy fuel. There's also FLT, which I mentioned earlier, although I like V/MA more.
Canadian banks. The Canadian banks are down substantially for a number of reasons, but one of which is the move lower in oil. If oil can rebound, it will likely bring Canadian banks higher.
Not interested in a plain, jane broadbased etf that includes many of the big oil?
This chart has a few compares. VDE is the etf choice for this; but you may have other similar available at Schwab. VDE dividend ranges from 2.2 to 3% for trailing 12 months and current SEC rate. On the chart, one may use the left side slider to move the view range backwards.
Just my 2 cents worth.
Catch
Edited to add - oil briefly below 40.