So the E&P stocks are pulling back, with the price of crude of course, are any value hunters out there in E&P stocks or related business?
I am completely out of the sector now, because I think that many (but not all) E&P's re overvalued based on the current price deck for crude. FWIW, I was a large buyer of TOT, when the stock was at <50$ and crude was 90-100$/brl + but I am not sure TOT is a great value at the same price when crude is below 60$ And earnings are going to be significantly less.
Now I understand the concept of buying something when the price is low, especially cyclical stocks, but first the price needs to reflect current fundamentals and I am not sure we are there yet.
In any case, the current 10k for E&P companies, should show some of the new realities. We also have seen some capital raises by CVE and ECA already, indicating that some companies are hunkering down for an extended downturn.
I am thinking however, that the better bets may be industrial companies that supply the E&P's and can achieve high ROE - companies like NOV, CAM and possibly CBI or FLR. Maybe they're are not cheap enough yet (they will have to deal with a sharply reduced business volume for years, but survival is not nd issue, since they have good balance sheets) but I think more money can be made than with E&P's, which frankly have mostly very poor capital allocation. |
