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

To: Shane M who wrote (55202)	4/23/2015 2:37:46 PM
From: Graham Osborn	1 Recommendation Recommended By Mattyice Read Replies (1) \| Respond to of 78711

Hi Shane, I agree with you that energy is one of the few places I'll part with cash this year. But the flip side is many producers are substantially overvalued on a multiples basis. Obviously those multiples come out pretty meaningless if you assume the price of crude will recover. But the question is whether that assumption is sufficient downside for investment. Historically and based on production costs/ low upfront cost for unconventional I don't see anything stopping Brent from bouncing around 60 for a year or more. Do I think the upcoming credit crunch is going to hasten the demise of the more leveraged producers? Absolutely. But they haven't been hit hard or long enough yet to put a serious dent in the "pipeline." A number of the small and mid caps I follow have rallied strongly the past month. New funds are springing up or existing funds expanding their desks to gobble them up. But I guess I just wonder how the discounting will look if and after 3-4 straight quarters of losses, debt covenant violations, etc. When I loaded up in February it was because Brent looked like it was headed to zero and it seemed impossible that the futures would not produce a sharp rebound and carry the sector along with it. Sticking with companies with the cash to hunker down of course. Right now what I see more is big 6-12 month downside on these, assuming no major corrections. Maybe the Middle East will decompensate (more) and the price will shoot to 90. But I think I'll sit tight and wait for the fear. Graham