Value In Energy Stocks: Inside The Bull Case

Discussion in 'Commodities Forum' started by inthemoneystocks, Nov 16, 2015.

  1. inthemoneystocks

    inthemoneystocks Member

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    Oil is bouncing off the $40 per barrel level again. This is the third time it has hit this level and bounced. In terms of technical support, this would be known as major support level. One interesting factor that should be noted as well, in August 2015, oil saw the high thirties briefly. This low remains intact and has not yet been violated. As long as oil holds the $38.25 pivot low, oil stocks should be looked at as long term bargain investments.




    Many oil names are trading at levels not seen in years. For example, Chesapeake Energy Corporation (NYSE:CHK) and Southwestern Energy Company (NYSE:SWN). Looking at the charts alone will make you shudder. That is usually a good reaction as it shows panic from investors. If logic prevails and the thought is that eventually, oil will grind up to the $75-$100 level again, these plays could literally double, triple and quadruple in value. It is almost wise to view them as an options trade. Sure, in a catastrophic event CHK or SWN could drop 50% or more, but the upside potential is epic with patience. In addition, we are not seeing investors like Carl Icahn dump his investment in CHK either. That is something to pay attention to.




    Gareth Soloway
    InTheMoneyStocks
     
    Last edited by a moderator: Jul 8, 2016
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I sold off most of my energy holdings in the first couple of weeks of Oct of last year, realizing some very nice profits before things got too ugly. I did keep a little of some of the better companies, and have added a bit to them over time. I've also made liberal use of puts on the more volatile among them.

    I am waiting patiently to start buying back in heavily on these when I start to see some upward momentum. I also have oil on my land, and personally prefer oil prices to be higher for my own selfish reasons. ;)
     
  3. crimsonghost747

    crimsonghost747 Senior Investor

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    I do think that a lot of the oil companies look cheap... but there are reasons for that. If oil does stay this low then they really aren't that profitable and they might run into a lot of trouble with their finances when the interest rates go up and they will be forced to renew their bonds at much higher %. (not only because of the interest rates, which will have minimal impact right now, but more due to the fact that the companies simply are in a much weaker financial situation and have much lower profits and margins than they did when issuing the previous bond)
     
  4. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I do also have a few bucks in some high-yield bonds in this sector.

    The main problem right now is the oversupply of crude. Thanks OPEC. :(
     

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