Black Gold- Is now the time?

[BLADEMDA]

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[BLADEMDA]

Crude oil just crashed below $40 per barrel for the first time since 2009.

West Texas Intermediate crude oil futures in New York fell more than 3% to as low as $39.89 per barrel.

On Friday afternoon, data from driller Baker Hughes showed that the oil rig count climbed by two to 672 — the fifth straight week with a rise. Shortly after the data release, WTI slipped below $40.

The slide toward $40 per barrel gained momentum earlier this week after the US Energy Information Administration reported a larger-than-expected build in crude inventories last week.

This added to signs that the oil market remains oversupplied, with unequal demand, as the 12-member oil cartel OPEC continues to pump at an unrelenting pace. The group's latest monthly report showed that its output surged to a three-year high in July, boosted by Saudi Arabia, Iraq, Angola, and Iran. More Iranian oil is expected on the market when economic sanctions are lifted.

Oil is now headed for its longest weekly losing streak since 1986, according to Bloomberg. Oil is in a bear market, and prices are down nearly 35% from recent highs.

Friday's drop comes amid a bigger sell-off in global markets. The major averages are seeing their sharpest weekly loss of the year, and the Dow lost more than 350 points during Friday's session.





Read more: http://www.businessinsider.com/crude-oil-prices-august-21-2015-8#ixzz3jYnIQ85q

 

[Mad Jack]

Oil is a definite buy and hold right now. All it will take is some positive economic numbers from China or a cut in Middle East production to send it back up over $60-80 a barrel, there's just no way it can stay this low. My prediction: Oil will double in price at some point within the next five years. Sell when it hits $80, walk away doubling your money, don't get greedy and hold out for $100.

 

[BLADEMDA]

 

[BLADEMDA]

I have always maintained that the plunge in the price of oil of is first and foremost a product of the Demand side of the Supply/Demand function. Events in China and the hard commodities markets (see Glencore’s stock) reinforce and confirm my view.

But to further bolster my “fundamentalist” view, here’s a picture of the supply/demand function per Merrill Lynch:

To be sure, oil has fallen quickly and sharply – conditions which could lead to an “oversold” bounce on short-covering from short term scalpers. The fundamentals will ultimately drive the price of oil into the $30’s. I made that call when oil first dropped below $50 in February and I’ve maintained that call since then.

And consider this: Merrill’s global “economists'” models are factoring in positive economic growth from the large “developed” market economies. Clearly that outlook is severely brain-damaged…

http://investmentresearchdynamics.com/time-to-short-more-oil-dennis-gartman-went-long/

 

[BLADEMDA]

Will Iranian production (due to removal of US sanctions) drive the price of Oil to $30 per Barrel?

 

[Mman]

the best time to buy is when there is blood in the streets.

Oil is either at or close to blood in the streets.

 

[deleted126335]

the best time to buy is when there is blood in the streets.

Oil is either at or close to blood in the streets.

There is no investment that you can buy that effectively tracks the spot price of oil. Baskets of oil company stocks are not the same thing. Collateralized Commodities futures funds have been a disaster.

 

[BLADEMDA]

There is no investment that you can buy that effectively tracks the spot price of oil. Baskets of oil company stocks are not the same thing. Collateralized Commodities futures funds have been a disaster.

I was thinking more like Chevron or ExxonMobil or an ETF like XLE.

 

[BLADEMDA]

Look at chevron's chart:

 

[BLADEMDA]

 

[BLADEMDA]

Xom at $69?

 

[gasdoc77]

Loaded up on CVX at 92. Thought it couldn't get much lower with its yield. If I had balls of steel I would double down.

 

[BLADEMDA]

Loaded up on CVX at 92. Thought it couldn't get much lower with its yield. If I had balls of steel I would double down.

I'm no fortune teller but once Oil hits $36 barrel that may be the time to double down. I'll likely buy XOM as it is the least riskiest of the bunch. But, CVX looks solid at these prices. My hunch is I'll see $72 or less for CVX.

 

[BLADEMDA]

Now that Exxon Mobil and Chevron – which were joined by ConocoPhillips (COP - Analyst Report) and Marathon Oil Corp. (MRO - Analyst Report) in making new 52-week lows Thursday – are hitting their lowest mark in a year, is it time to buy their shares?

After evaluating the energy behemoths' businesses and near-term prospects, we expect the companies’ eroding profits and price realizations to continue in the near term. Therefore, we would advise investors to wait for a better entry point before accumulating shares. Our Zacks Rank #3 (Hold) for both seem to suggest the same.

 

[BLADEMDA]

Some well-known energy stocks look overvalued if $40 oil is the new normal.



But, CVX looks CHEAP as does XOM even if $40 Oil is the new norm. I'll be buying BOTH in the next few weeks and I suspect at least 5% lower than their closing price on Friday.

 

[Mman]

Loaded up on CVX at 92. Thought it couldn't get much lower with its yield. If I had balls of steel I would double down.

the price of a stock can always drop in the short term. For a money making machine like the big oil companies, though, they are unlikely to not make money long term, and lots of it. If you are comfortable with the amount you own, no point in doubling down on it. If you were still looking to expand your position it'd be a reasonable buy. They still make money when the price of oil is $40 a barrel, but they will make even more when it eventually goes back up.

 

[Mman]

There is no investment that you can buy that effectively tracks the spot price of oil. Baskets of oil company stocks are not the same thing. Collateralized Commodities futures funds have been a disaster.

I never suggested there was. I was merely relaying an anecdote from Warren Buffet about the best time to buy anything.

 

[BLADEMDA]

The dividends alone make buying a distressed Oil stock like CVX or XOM look like good deals. XOM has the cash for the dividend and I think even CVX will weather the downturn fairly well.

XOM at $69?- That's a sale for sure

 

[BLADEMDA]

XOM hit $66 today!! I'm looking to buy if we retest the lows.

 

[Impromptu]

I own VTI (Vanguard Total US stock market ETF). Thus I own all the oil companies and I have none of the risks beyond market risk. There are many reasons oil could stay low for the foreseeable future. Invest, don't speculate.

Back when I just graduated from college, I did buy XOM. It was the one and only individual stock I had ever owned. It was available as a DRIP, so didn't cost any money to purchase and I could do it over the phone. I didn't have much money.

 

[FollowTheMoney]

VXX

 

[Mman]

I own VTI (Vanguard Total US stock market ETF). Thus I own all the oil companies and I have none of the risks beyond market risk. There are many reasons oil could stay low for the foreseeable future. Invest, don't speculate.

Purchasing a bundle of individual stocks that are well researched isn't "speculating" any more than purchasing an index fund is. By owning VTI you do own all the oil companies and you also own all the worst companies in it and you buy them when they go up and sell them when they go down which is not ideal behavior (because that's what an index fund has to do to track the index).

In fact, if you have a large enough investment pile of money, you can create your own S&P 500 except for cheaper than whatever you are paying the fund to do by buying each stock individually. 500 stocks * $7 a trade = $3500. Most funds are charging you at least 0.40% per year, or $4000 per $1,000,000 per year.


I'm not anti-fund. 100% of my IRA and 401K is invested via low cost mutual funds that average about 0.25% expense ratio. But after my 401K, IRA, and Pension plans are maxed out, I do pick individual stocks for purchase with some portion of my excess. I think it is fundamentally a cheaper and better way to do it, it just requires a lot of dedication, work, and patience. I personally find it enjoyable and for that portion of my retirement portfolio, I go for it. I have slightly beaten the S&P since I started and religiously track my returns to make sure I'm not doing a terrible job. But long term, it's reasonably probable I can generate better returns that way. You don't have to be a genius, you just have to be disciplined. Emotion has no place in decision making.

 

[Impromptu]

You can certainly create your own diversified group of stocks which will typically behave like an index fund, and many people do. You don't even need to buy 1000s of stocks to get diversification. 50 somewhat random stocks should do the trick.

Comparing against the S&P 500 is not always the right gauge, since the S&P 500 doesn't include reinvesting dividends. And if your chosen stock allocation contains heavier Value or Emerging markets, or whatever, then it is best to compare it against an index that is most in line with your allocation.

Expense ratios can be quite high, especially for actively managed funds. But most of the good passively managed ones have come way down in price, and they will typically beat the pants off of actively managed funds over the long run. VTI has an expense ratio of 0.05%. VXUS 0.14% (total foreign). Schwab and other companies will have similar funds available with similar expense ratios and no commissions.

Hoping that a certain stock will be the next Microsoft, Dell, Apple, or other rockstar stock and bring in the big win is what I consider speculation. If you want an energy tilt to your investment so place 10% in energy stocks, and keep investing at that ratio, then that is disciplined investing.

 

[deleted126335]

The dividends alone make buying a distressed Oil stock like CVX or XOM look like good deals. XOM has the cash for the dividend and I think even CVX will weather the downturn fairly well.

XOM at $69?- That's a sale for sure

Sometimes dividend yield is high because the board of directors hasn't yet lowered it.

 

[Mman]

Sometimes dividend yield is high because the board of directors hasn't yet lowered it.

and sometimes it is high because the market irrationally valued the company too low when they have plenty of cash on hand and good prospects going forward to keep paying it.

There is just no way anybody can consider the market prices for a stock to be rational at all times. Between Friday and Monday, Visa's stock price went from $73 to $60 and back up to $70. That's like an 18% swing in market cap in 16 hours worth of trading.

 

[sevoflurane]

I'm not a buyer of oil here... not now... I don't see any good signs of recovery in the short term in that sector. Still going to let that sector settle down a bit.

Besides, there are a lot of other solid buys on SALE right now. Put a significant amount of sideline funds to work over the last 24 hours.

 

[BLADEMDA]

I'm not a buyer of oil here... not now... I don't see any good signs of recovery in the short term in that sector. Still going to let that sector settle down a bit.

Besides, there are a lot of other solid buys on SALE right now. Put a significant amount of sideline funds to work over the last 24 hours.

Do you mind sharing what you are buying or looking to buy right now?

 

[sevoflurane]

VTSAX, VGHCX, VFIAX, ONEQ and some others.

Individual stocks: Apple, NXPI, PANW, NFLX, GILD... contemplating buying more HRTX, but it's up 178% since I suggested it on this forum 3 months ago.

Not jumping fully in, but I have started to mobilize after a 4-5 month hiatus.

 

[Mman]

I'm eyeing Berkshire which is now down to P/B ratio of about 1.3 and Buffet himself said when it's 1.2 he'll just repurchase shares it's such a good bargain. Also Disney, IBM, Wells Fargo, Diageo, McCormick, Johnson&Johnson, and American Express are all great companies and cheaper than they've been in a while.

 

[deleted126335]

dr doze said: ↑
Sometimes dividend yield is high because the board of directors hasn't yet lowered it.

and sometimes it is high because the market irrationally valued the company too low when they have plenty of cash on hand and good prospects going forward to keep paying it.

There is just no way anybody can consider the market prices for a stock to be rational at all times. Between Friday and Monday, Visa's stock price went from $73 to $60 and back up to $70. That's like an 18% swing in market cap in 16 hours worth of trading.

By

JOSHBECKERMAN

Transocean Ltd. is seeking to cancel the third and fourth installments of its dollar-denominated dividend this year, which the company had already approved in May.

Shares dropped 12% to $10.75 in after-hours trading. Through Tuesday's close, they had fallen 67% in the past 12 months.

The offshore driller said in February that it planned four installments of 15 cents each, which represented an 80% reduction from the previous payout rate, citing its "cyclical and capital-intensive industry."

 

[BLADEMDA]

dr doze said: ↑
Sometimes dividend yield is high because the board of directors hasn't yet lowered it.










By

JOSHBECKERMAN

Transocean Ltd. is seeking to cancel the third and fourth installments of its dollar-denominated dividend this year, which the company had already approved in May.

Shares dropped 12% to $10.75 in after-hours trading. Through Tuesday's close, they had fallen 67% in the past 12 months.

The offshore driller said in February that it planned four installments of 15 cents each, which represented an 80% reduction from the previous payout rate, citing its "cyclical and capital-intensive industry."

XOM has been around a long, long time and will easily survive this drop in Oil prices. Once oil reverts back to $60 per barrel in 12-18 months XOM will go back up to $95. CVX is a slightly riskier bet but not much once oil recovers to $60. If you believe Oil will stay at $40 per barrel then avoid those stocks.

 

[sevoflurane]

Oil will make a come back... no doubt. The question is how long will that take and what will happen to the rest of the market in the meantime.
At this time, I believe that other areas of the market will rally as oil stays stagnant. I mean at $40 a barrel, everyone is still pumping it out of the ground.

http://www.bloombergview.com/articles/2015-08-24/why-oil-producing-countries-keep-on-pumping

I could be wrong. I'm a buyer once the production slows down.

 

[sevoflurane]

Russia, US and Saudis have not stopped. Venezuela is dependent on oil exports (no diversification in that country).

 

[deleted126335]

XOM has been around a long, long time and will easily survive this drop in Oil prices. Once oil reverts back to $60 per barrel in 12-18 months XOM will go back up to $95. CVX is a slightly riskier bet but not much once oil recovers to $60. If you believe Oil will stay at $40 per barrel then avoid those stocks.

Is there something that you know about the company or the price of oil that the market doesn't? Isn't all that disseminated into the current stock price?

 

[BLADEMDA]

Is there something that you know about the company or the price of oil that the market doesn't? Isn't all that disseminated into the current stock price?

Doze,

XOM is the classic Graham/Bernstein stock. The market hates it right now so the price is low. It's a quality company selling very cheaply. This is what Buffett did back in '08/'09 when he bought BAC for $5 and WFC not to mention Goldman Sachs. XOM is too big for a take over but not too big for patient investors. If you think Oil is staying at $40 or less avoid XOM.

 

[deleted126335]

Doze,

XOM is the classic Graham/Bernstein stock. The market hates it right now so the price is low. It's a quality company selling very cheaply. This is what Buffett did back in '08/'09 when he bought BAC for $5 and WFC not to mention Goldman Sachs. XOM is too big for a take over but not too big for patient investors. If you think Oil is staying at $40 or less avoid XOM.

I just don't believe in single company risk.

 

[BLADEMDA]

I just don't believe in single company risk.

Not just any single company- XOM the largest component of most of the oil ETFs. Anyway, Vanguard energy and XLE both have XOM along with CVX as 1 and 2 in their holdings. Like in the GFC in '09 when nobody would buy financials that was the time to buy them.

 

[BLADEMDA]

Source: Mebfaber.com

 

[BLADEMDA]

Top portion is the Energy sector- maybe it has more room to fall?

Bottom Portion is GDX ETF (Gold Miners) which are down 80% from the highs. I expect GDX to fall below its 52 week low this week and bottom at around $11-$12 per share representing a 90% decline from the high. That's blood in the streets for sure.

 

[deleted126335]

Top portion is the Energy sector- maybe it has more room to fall?

Bottom Portion is GDX ETF (Gold Miners) which are down 80% from the highs. I expect GDX to fall below its 52 week low this week and bottom at around $11-$12 per share representing a 90% decline from the high. That's blood in the streets for sure.

I don't market time, but if I did I would say that there is blood in the streets when financial markets are continually leading the national news and elected officials are talking about political responses to financial market conditions.

 

[Mman]

dr doze said: ↑
Sometimes dividend yield is high because the board of directors hasn't yet lowered it.










By

JOSHBECKERMAN

Transocean Ltd. is seeking to cancel the third and fourth installments of its dollar-denominated dividend this year, which the company had already approved in May.

Shares dropped 12% to $10.75 in after-hours trading. Through Tuesday's close, they had fallen 67% in the past 12 months.

The offshore driller said in February that it planned four installments of 15 cents each, which represented an 80% reduction from the previous payout rate, citing its "cyclical and capital-intensive industry."

Is your point that some companies can be a bad investment? Of course they can. That's the fundamental problem with buying indexes, you get stuck with all the crappy companies just like the good ones. But if you are comparing Transocean Ltd with Exxon, well that's just a bit crazy. Transocean lost nearly $2B last year, or more than $5/share. Is it surprising they can't pay a dividend? Of course not. Hell as far as I can tell they've only paid a dividend 3 years in their history. Exxon on the other hand earned something like $33B after taxes last year, or $7.59/share. Nothing new for them as they've been cranking out profits for decades. They've also paid a dividend every year since 1987 and it's never been lowered in that time frame. Oil prices go up and down, Exxon keeps making money and keeps returning it to shareholders. They are a very well run and very profitable company that shows no signs of slowing down. They may have a quarter here or there with lower earnings, but year after year they are going to keep printing money and increasing the rate at which they do so.

 

[Mman]

I just don't believe in single company risk.

Which is great because you don't have to.

Then again that also means you don't believe in single company reward. But the risk in every company is not the same. Berkshire Hathaway is a "single company", but it's really a bunch of them and they print money hand over fist. The risk of Berkshire going broke is zero. If Berkshire goes broke, we have bigger problems because the world as we know it is over. Other companies can obviously have more risk. Pacira is a fun topic around here and they obviously carry a lot more risk. But just because you buy an individual stock doesn't mean you are necessarily assuming a high risk, especially if you own a basket of individual stocks in various sectors.

 

[Mman]

A great timely article on the big oil companies from a value investor in the Ben Graham/Warren Buffet mold.

 

[deleted126335]

ten year return for Vanguard Energy is 5.60% as of June 30 2015
ten year return for Vanguard Index 500 is 7.7%

I would add that S & P 500 (cap weighting) is not the most efficient way to capture the equity premium of large cap stocks.

dividend stocks which you have repeatedly touted are one strategy of capturing the value premium. Also not the most efficient way.

“Dividend Investing: A Value Tilt in Disguise?” appeared in the April 2013 edition of the Journal of Financial Planning.

Fisher’s study covered the 33-year period from August 1979 through July 2012. His objective was to determine which factors best explained stock returns. Using Barra’s performance-attribution methodology, various risk factors such as value, growth, momentum and company size were separated out to determine the contribution of each to the portfolio’s returns.

For the high-dividend strategy, he used the highest-yielding 10 percent of the Russell 3000 Index. The Russell 3000 was used to represent the market portfolio. The following is a summary of his findings:

The high-dividend-yield portfolio’s annualized return was 1.27 percentage points greater than that of the total market portfolio (12.42 percent versus 11.15 percent).

The high-dividend strategy had, as should be expected, a high loading on yield: 1.60. Other loadings of note were leverage (0.42), momentum (-0.22), growth (-0.41), value (0.53), volatility (-0.37) and earnings yield (-0.47).

By tilting the portfolio to high-dividend-paying stocks, investors were—perhaps unknowingly—tilting their portfolios to value stocks.

The factors with the largest contributions to the excess return of the high-dividend strategy were: earnings yield (2.28 percent), volatility (1.22 percent), value (0.41 percent) and growth (0.40 percent).



Fisher drew this conclusion: “If it is long-term outperformance over the broader market that investors are seeking, findings from this study suggest a more direct approach would be to employ a portfolio tilt toward value and high-earnings-yield stocks.”

Value is defined as a high book to market stock. One of Graham's criteria. Earnings yield is not the same as dividend yield.
Graham's "intrinsic value" often involved subjective judgements that reasonable people could disagree about. In short it was a from of fundamental analysis and not passive management.








Single company risk is not rewarded for the overwhelming majority of investors. Perhaps you are the minority. If so congratulations.




“The Capitalism Distribution.” The study, which covered the period from 1983 through 2007 and the top 3,000 stocks, found the following:

• 39 percent of stocks lost money during the period.
• 19 percent of stocks lost at least 75 percent of their value.
• 64 percent of stocks underperformed the Russell 3000 Index.
• Just 25 percent of stocks were responsible for all of the market’s gains.

Investors picking individual stocks had an almost two-in-five chance of losing money, even before considering inflation, and an almost one-in-five chance of losing at least 75 percent of their investment, again before considering inflation. And the odds of picking a stock that outperformed the index were just more than one-in-three.

 

[Mman]

Investors picking individual stocks had an almost two-in-five chance of losing money, even before considering inflation, and an almost one-in-five chance of losing at least 75 percent of their investment, again before considering inflation. And the odds of picking a stock that outperformed the index were just more than one-in-three.

I agree that the average public shouldn't be picking stocks. They do not take the time to analyze them appropriately and get too emotional with decision making. For most people they just shouldn't do it. Simple as that. But that rule doesn't apply to everybody. People that can take the time to learn how to read balance sheets and quarterly and annual reports and have the proper mindset can do quite well picking individual stocks, although they should obviously be invested in a good number to offset the risk of any 1 company going under.

Stock prices for all sorts of companies can frequently be wrong. If you can identify companies that have a very high likelihood of being profitable going forward and wait to purchase them until they are well underpriced, you can achieve the "margin of safety" that Ben Graham and Warren Buffet are so fond of. Pay 50 cents for something worth a dollar often enough and you almost assuredly come out ahead in the long run. It isn't complicated, but having the discipline to wait for the right price to buy isn't easy either.

 

[Mman]

By tilting the portfolio to high-dividend-paying stocks, investors were—perhaps unknowingly—tilting their portfolios to value stocks.

Personally I'm a pure value investor, not a dividend investor. Sometimes the 2 can go hand in hand, sometimes they don't. Dividend is obviously relevant information, but only in as much as it is part of the current and projected earnings and how safe those earnings are likely to be as well as what the capital structure of the company is. A company can have a great dividend, great earnings yield, and still be a terrible value because of a high debt load or high capital requirement going forward.

Investing for value is one of the safest ways to invest for the long term out there.

 

[sevoflurane]

Good read.

Blade... you may have me on this one. I'm starting to get tempted to buy and hold for a while.