<His view on E&P is that most of them are depleting their assets, and not replacing their reserves at reasonable costs.>
The Raymond James recs (some of which I decided to enter back in Nov.) seemed to use asset growth as a criteria: APA, CRK, DNR, EVG, OEI, PXD, SWN, UPL, XTO. The performance of these stocks has been nicely up (and very strong relative to the market), although admittedly disappointing given the big move in the underlying commodity.
<E&P is that most of them are depleting their assets, and not replacing their reserves at reasonable costs.>
This is true across the resource sector. I've focused on gold (and successfully)since late 1999, and would say precious metals producers are really guilty of this. However, higher prices should cure most of this guilty problem, and I really see the problem more as underinvestment.
Marc Faber in his terrific new book (Tommorrow's Gold: Asia's Age of Discovery) gets into social economy theory. Faber quotes the work of Guyot, Pigou and Ropek who in essence say that business people (such as oil executives)have a high degree of psychological interdependence: they tend to think alike. During boom periods they tend to develop "errors of optimism" (also called "heightened expectations"). During downturn or busts (and I think late 01-late 02 qualifies as a bust in energy), errors of pessimism (diminished expectations) set in. Obviously investors suffer from this as well, which explains the muted reaction (or poor rationalization) to the powerful forces now at work in energy. Faber even gets into the condition we see on this thread, where even well informed bulls have doubts and ask questions about tape action, disconnects, etc. Very typical early bull market action he says. Often at these extremes both investors (and the execs) are proven wrong, sometimes severely so.
Faber also discusses how slow a market can be shifting away from errors of pessimism. Of course the slow reaction also serves to build the strong fundamentals even further by adding to the shortages, and continuing to erode production and supply, which in turn leads to even more powerful sector bull moves. BTW, Faber is a big energy bull, especially longer term. |
