Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20

Market Oracle FREE Newsletter


Three Reasons to Invest in Oil Stocks Now

Companies / Oil Companies Jan 07, 2015 - 03:45 PM GMT

By: Investment_U


Marc Lichtenfeld writes: After trading north of $90 since June 2012, the price of oil has crashed, falling more than 50% from its high this summer and dipping below $50 per barrel Monday.

Nearly every pundit out there is declaring low oil prices are here to stay. With the glut of oil being produced by OPEC and the U.S., the days of $90 oil are over, they claim.

But, always a contrarian, I suspect oil prices may surprise people and move higher in 2015, which is why I love the big integrated oil companies - and their dividends - right now.

What Will Push Oil Prices Higher

On the first day of Economics 101, you learn about supply and demand. When supply outstrips demand, prices fall. And that’s exactly what is happening in the oil markets.

The United States and the OPEC countries are producing more oil than the world needs, particularly with Europe still struggling and China slowing down.

As a result, it’s tough to find any expert who believes prices are going higher or oil stocks are a good buy.

Here’s why I think they are wrong:

  • Crises happen - In 1978 there was an oil glut. Then a revolution took place in Iran and the price of oil doubled. Considering that the Middle East isn’t exactly a model of stability and Vladimir Putin is likely to roll more tanks across the borders of former Soviet republics, there is a decent chance some crisis will occur that pushes oil higher.
  • Free markets work- Rick Rule, founder and chairman of Sprott Global Resources Investments Ltd., has a great quote: "Markets always work; the cure for high prices are high prices, the cure for low prices are low prices, each is the author of the other."In other words, when prices get out of whack, the market stabilizes. When prices are too high, demand falls off and prices decline. When prices are too low, demand increases and so does the price.Oxford Club Energy and Infrastructure Strategist David Fessler agrees. In his words: “Lower prices means more drillers will stop drilling. This will eventually cause the supply surplus to dry up. Remember, we’re only talking about 1 million to 2 million barrel per day surplus over demand. Once that happens, prices will do a quick U-turn. I think it’s going to happen in the next six months or less.”
  • Being contrarian works - Contrarian investing is investing against the conventional wisdom. One reason it works is that the crowd is often wrong. But the other important reason is that when you are a contrarian, you are buying what everyone else is selling and selling what everyone else is buying.

Going back to our Econ 101 class, if everyone is selling a stock, that means you get to buy it cheap. And if the crowd is buying a stock, you sell it when prices are high.

What You Should Buy

The thing about contrarian investing is you sometimes have to be patient. The crowd usually isn’t proven wrong the week after you buy a stock. Contrarian themes can take months (or longer) to develop. At the same time, you don’t want to be in stocks that post huge losses while you wait for things to turn around.

For that reason, I’d avoid the smaller oil producers and services companies - particularly those with a lot of debt on their balance sheets. As companies receive less dollars for their oil and the oil companies spend less on services, the businesses with high debt levels may have a tough time servicing their debt, which could require a dilutive equity offering.

If they have to cut their dividends, the stock price will get hammered as we saw recently with Seadrill Ltd. (NYSE: SDRL) and Civeo (NYSE: CVEO). (For more on the Civeo story, check out my latest article  for Wealthy Retirement.)

The big integrated oil companies appear much safer. Stocks such as Chevron (NYSE: CVX), Exxon Mobil (NYSE: XOM) and ConocoPhillips (NYSE: COP) have solid balance sheets and experienced management teams who are not going through this type of market for the first time.

Additionally, they pay solid dividends that can help investors stay patient while they wait for a turnaround in the oil market. Chevron and ConocoPhillips both pay over 4% yields. And all three of the companies I just mentioned trade at a price-to-earnings (P/E) ratio ranging from 9 to 11. Meanwhile the S&P 500 trades at over 18 times earnings.

These stocks are cheap, pay a healthy dividend yield and this is a great opportunity to buy low.

You can either follow the masses into the “oil is never going higher” camp or you can look at years of economic history and crowd psychology and decide, like me, that this huge sell-off presents us with a unique opportunity to buy low... and get paid to do it.

Good investing,



Copyright © 1999 - 2014 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules