60 Seconds with Frederick P. Leuffer Senior Managing Director, Bear Stearns by II Staff
You've been bearish on oil stocks, but you recently changed course.
What's up?
I think oil prices have hit bottom. The new OPEC production limits seem workable and stand a good chance of turning around the oil market in the second half. I think we can see prices at $18 a barrel by year's end, up from about $13 currently, and we'll see the companies start to perform better in the second half. Earnings still will have a tough time for the next couple of quarters, but share prices probably reflect expectations of lower oil prices, so now is a good time to put some money to work in energy stocks.
Do you consider yourself a contrarian on this issue?
There's a lot of skepticism about the OPEC accord, as you might guess,
but that's when investors ought to buy. If everyone believed this accord was going to work, oil stocks would all have been up five points apiece after the OPEC meeting, spoiling an opportunity to get in. We may be a bit early on this call, but I think the rates of return in the next 12 months will be pretty decent.
Which companies do you like?
The major oils Amoco, Atlantic Richfield (Arco), Phillips, Unocal, Royal Dutch are the ones I would buy. They have the best relative values, pretty good unit volume growth, and excellent dividends, particularly Amoco and Atlantic Richfield, at 3.7% each. |
