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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (54795)	1/15/2015 12:04:07 AM
From: Jurgis Bekepuris	1 Recommendation Recommended By Mattyice Read Replies (1) \| Respond to of 78627

Well, you are right on one side: if oil goes down and stays down, a lot of companies might not be good investments. And the biggest risk is if we fall into global recession: then oil can stay down long time. On the other hand, I feel like your arguments are rehash from 2008. It was all the same then: if oil stays down, "There will be a lot of reserve write offs, some unexplored land will probably be worthless. Companies dealing in the Energy Capex sector will probably see 30% revenue reductions", the whole world is going to implode, and so on and so forth. Doom and gloom all the way. It can only get worse, sell, sell, sell. The time to sell was when oil was at $100, not when it is at $45. But when oil was at $100, you and others were telling to buy: APA, CVX, etc. Wasn't it more risky to buy when the oil was 55 bucks more expensive? When stocks were 2x-5x higher than now? Isn't the whole point to buy low and sell high and not the other way round? Can oil fall to $20? Sure it can. Should we wait to buy until it falls to $20? That's really your call. You might hit the nail on the bottom if you are really good. I'm not good. I don't have a clue if oil will fall to $20. But I have a plan and I'm sticking with it. In the worst case, everything is worthless and I will lose ~20% of my portfolio (my current exposure is 10%, I'll get to 20%+ by the time oil hits $20). But, for example, GTE has 360M in cash. No debt. The company is selling for ~1B today (was lower yesterday). So 1/3 of market cap in cash, no debt. DRAGF - 2.4B in cash, 3.5B market cap. SPND - 33M market cap, 17M cash, no debt. So let's not go into "they are all worthless" routine. :) Ultimately, it's your call though. There are pretty much two outcomes. World goes into global recession and you get to buy much better companies much cheaper while I have wasted (some of) my money on oil plays. Or economy does not collapse and then oil plays might be the only attractive investment. Cause seriously man, most of the rest of the market does not look attractive at all. Good luck. :)

To: Spekulatius who wrote (54795)	1/17/2015 5:36:24 PM
From: Mattyice	Read Replies (1) \| Respond to of 78627

I tend to agree with you on this one, I feel like some value investors are rushing to jump into the energy complex because they have missed such large moves in other areas and get the feeling they are looking at the energy complex thinking it has all the makings of a value opportunity that they are trained to look for- fear, sell off, cheaper, etc.. I think your analysis about the capex environment is spot on. The return rates on a lot of these projects were already pretty marginal at $90 - there was a lot of risk taken on multi year projects just to earn a marginal return. Obviously you can point to some shale outfits and some of these guys are doing it cheaper and are going to keep getting better at producing while lowering the cost. I suppose if you think you have better insight than most on these particular companies then by all means go for it, but i feel like it's going to be a crap shoot and probably a longer drawn out process. If you want to play in the depressed energy complex I would steer towards the nattygas heavy and transport/infrastructure folks. The natgas players have had time to adjust to a landslide in price. The discounts to henry hub in certain basins are going to continue to close (expanding pipeline capacity) while the cost to produce is going to continue to decline. In my opinion that is a relationship that you would want to be on. You can possibly use this sell off to your advantage. Oil dominated producers whether it be the different shale plays or ludicrously expensive offshore projects just seems to risky to justify your hard earned capital going towards it at this juncture. You guys know that I love any sell off as much as the next value guy.. but this is one I am not in a rush to jump into. I am probably wrong, and always assume the case. So just my opinion.