I would consider buying the following stocks for Peak Oil in the medium term. (1 year to 10 year timeframe)
Burlington Resources (BR)
Burlington Resources Inc. is engaged in the exploration, development, production and marketing of natural gas, crude oil and natural gas liquids (NGLs)
For the six months ended 6/30/04, revenues rose 21% to $2.64 billion. Net income before accounting change rose 21% to $733 million. Revenues reflect higher sales volumes, and increased commodity prices.
Exxon Mobil Corporation is engaged in the energy and petrochemical business. Through its divisions and affiliated companies, Exxon Mobil operates or markets products in the United States and approximately 200 other countries and territories.
For the six months ended 6/04, revenues rose 14% to $138.30 billion.
Valero Energy Corporation is an independent refining and marketing company that owns and operates 15 refineries having a combined throughput capacity of approximately 2.4 million barrels per day.
For the six months ended 6/30/04, revenues increased 34% to $24.89 billion. Net income applicable to Common totalled $874.6 million, up from $298.8 million.
For the 1st half of 2004, the energy sector has been the best performing sector of the stock market. When that happens, historically it is usually a negative for the overall market.
So if you have any money to invest and firmly believe that we are facing Peak Oil, how do you position yourself?
I am very grateful for having found out about Peak Oil. It enabled me to get out of my stocks that were positioned for the economy to rebound. But I have not been sure what to invest in going long until recently.
Most of the oil stocks (examples I like: XOM, BR, HAL, VLO) are priced for Oil going back to $30 per barrel. If you look at their earnings estimates for 2005, most of them are projected for earnings to fall from 2004. That is because the stock analysts believe that Oil is going back to $30 in 2005.
But what happens to those energy stocks if oil stays in the $40 to $50 range, or goes higher? They all go up significantly. They are priced for $30 oil.
There are energy mutual funds that you can also use if you only have a small amount to invest. Check out the no-load fund companies to keep expenses low. Fidelity, Vanguard, etc.
If you are unsure about investing purely for Peak Oil, here is something that I am doing.
Short the airline stocks that are in trouble financially anyway. They get hurt when oil goes up. Even if oil goes back down, these companies were not profitable even with oil at $30. Many are so financially in trouble that they are facing backruptcy and the stocks going to $0.00 within the near future.
Delta is at $4.27. They could be bankrupt by the end of this year. Pilots are most overpaid in the industry. Pension funds are killing them. $21 billion in debt. Less than $2 billion in cash in the bank and burning thru $5 million per day. Estimated that they will file bankruptcy at $1.5 billion in remaining cash, same as United did.
US Airways at $1.92. This airline might file bankruptcy by the end of September. Unions wont even negotiate anymore. Tough to short such a cheap stock. But you can still sell the calls for Sept and Dec 2004. Or buy puts.
American Airlines at $8.86. This is the largest airline in the USA. They have about $3 billion in cash, $20 billion in debt. They barely avoided bankruptcy last year. United Airlines is dumping it's pensions in BK court, so this puts American Airlines at a huge disadvantage. This could force American into bankruptcy also. Also, every $1 increase in oil costs American $90 million per year in added fuel expenses. They are getting crushed right now.
Short them all. This industry is horrible at making money. In the entire history of airlines, they have lost money. They have destroyed more shareholder capital than you can possibly imagine. Peak Oil will push the old legacy airlines to $0.00. They will likely go to $0.00 even if oil declines. These companies will be in and out of bankruptcy for years.
Shorting the airlines is a risky maneuver because it requires your timing to be very right.
If there is for some reason a resurgence in airline stocks because oil drops temporarily some airline stocks (which are often quite heavily shorted) will go up by two or three times wiping out many shorties.
A great many people bankrupted themselves by shorting tech stocks in 1998 and 1999. They were ultimately right but that didn't help them.
This is something for the experts who know how to risk manage such a risky position.
If you short airline stocks that should make up only a very small position of your portfolio.
I don't think the impact of rising oil prices on the airline industry as a whole will be THAT big.
With new planes they get 70 miles to the gallon I believe.
I don't think the impact of rising oil prices on the airline industry as a whole will be THAT big.
With new planes they get 70 miles to the gallon I believe.
I have seen studies that equate every $1 rise in oil and how that transfers to the bottom line expenses for jet fuel per airline.
For American Airlines (#1 in size), every $1 increase in oil costs them about $90 million per year in added jet fuel.
For Delta (#3 in size), every $1 incease in oil costs them about $75 million per year in added jet fuel.
Oil has gone from $38 to $48 since the last quarter. That means we can roughly approximate how much their expenses have risen in the past 6 weeks. Plus they are all entering their slow period of the year.
American will hemorage an extra $225 million per quarter approximately.
Delta will hemorage an extra $190 million per quarter approximately.
This is above and beyond the estimates of just 6 weeks ago, which already projected huge losses with oil at $38 to $40.
I agree that only a small portion of any portfolio should be used for shorting stocks. But I view airlines like Delta, US Airways and American as toast. Southwest, JetBlue and other low cost airlines have too many advantages.
It might be an interesting idea to go long the budget airlines and short some of the names you mentioned. After all, the airline industry as such will probably survive and the longs will protect you to some degree if there is an unexpected runup in airline prices.
I am a bit wary of common oil stocks.
After all, the public realization of Peak Oil will mean that they are seen as a dying industry.
I think it makes much more sense to look at proven alternative technologies.
The best candidate here IMHO is SASOL, a company that has been doing coal liquefaction for decades (Apartheid South Africa was under an oil embargo).
This is the kind of stock which could see a massive speculative runup when Peak Oil goes mainstream.
It might be an interesting idea to go long the budget airlines and short some of the names you mentioned. After all, the airline industry as such will probably survive and the longs will protect you to some degree if there is an unexpected runup in airline prices.
I expect that as US Airways and Delta announce bankruptcy this year, we might get a pop upwards in the other airlines because the 1st impression is that there will be less competition/capacity. Most seats filled on other airlines.
But it is just too easy to start a discount airlines these days. All those extra planes are cheap to lease. Richard Branson is starting a new airline in the USA this year. Independence Air is expanding rapidly. Southwest, JetBlue and AirTran all have the capital to expand their low cost model.
In the long run, the following airlines will all be forced into Bankruptcy because they have high pension costs, higher fixed costs, older workforces with more senority, inefficient hub/spoke business model.
American Airlines (BK in 2005?)
United (already in BK, ditching pensions now)
Delta (Entering BK later this year)
Continental (2 BKs in the 1990s, so they are in better shape)
NorthWest (BK in 2005/2006)
US Airways (BK by September 30th, 2004)
I am currently short American, Delta and US Airways. I feel those have the best chance of declining the most based on high oil prices and current poor financial condition.
I am a bit wary of common oil stocks.
After all, the public realization of Peak Oil will mean that they are seen as a dying industry.
I think it makes much more sense to look at proven alternative technologies.
The best candidate here In my honest opinion is SASOL, a company that has been doing coal liquefaction for decades (Apartheid South Africa was under an oil embargo).
This is the kind of stock which could see a massive speculative runup when Peak Oil goes mainstream.
I am a bit wary of common oil stocks.
After all, the public realization of Peak Oil will mean that they are seen as a dying industry.
I think it makes much more sense to look at proven alternative technologies.
The best candidate here In my honest opinion is SASOL, a company that has been doing coal liquefaction for decades (Apartheid South Africa was under an oil embargo).
This is the kind of stock which could see a massive speculative runup when Peak Oil goes mainstream.
I did some reading on SASOL based on your info. That does seem like a solid investment for Peak Oil. But it is not a pure play on synthetic fuels. They seem like a well diversified energy company.
It is likely as good of a pick as any other energy stock in a Peak Oil environment.
In the long term, oil is a dying industry. But in the initial post peak years, even if they are producing slightly less oil, the margins expand dramatically.
1 million barrels of oil at $25 = $25 million.
900,000 barrels of oil at $100 = $90 million.
(That is a gross over simplification. But it makes the point)
SASOL has a 52 week high of $18.20. It closed at $17.72 on Friday. I have placed a buy stop limit order to purchase SASOL if it sets a new 52 week high. This might be a keeper. Thanks.
I have a relatively small position in Sasol right at the moment and .
I expect to see a massive drop in the stock market within the next 12 months because valuations are very high, the economy is faltering, the presidential cycle is going into its first and worst year and the oil price is surging.
Weirdly, a stock market drop because of an oil shock also appears to hit oil stocks in the short term, at least it has done so historically.
I hope it will be similar this time as I would love to really load up on the stock on a pullback to 14 or so.
As for buying the stock on a new ATH - I am a technically oriented trader too, but I don't think that it makes much sense to buy breakouts if you plan to hold the stock for several years. I do that kind of thing when I apply a trend following strategy which aims couples the initial buy with a trailing stop-loss or something similar.
If you want to hold the stock for years it makes sense to buy it on pullbacks, or simply at market.
I did some reading on SASOL based on your info. That does seem like a solid investment for Peak Oil. But it is not a pure play on synthetic fuels. They seem like a well diversified energy company.
You are right in saying that they are well-diversified, but the point is that as far as I can see the feedstock for ALL their petrochemical activities is NG and coal. Other petrochemical companies use oils.
SSL produces various petrochemicals that are not synthetic fuel but used in plastics and all kinds of applications, but the key point is that all of the competing petrochemical companies which use conventional feedstocks(oil) will be at a serious disadvantage when tshtf, and SSLs margins should increase strongly across its entire portfolio of products.
As for buying the stock on a new ATH - I am a technically oriented trader too, but I don't think that it makes much sense to buy breakouts if you plan to hold the stock for several years. I do that kind of thing when I apply a trend following strategy which aims couples the initial buy with a trailing stop-loss or something similar.
If you want to hold the stock for years it makes sense to buy it on pullbacks, or simply at market.
I trade based on relative strength. I like to buy stocks that are going up thru a moving average when the market is going down. That is showing relative strength compared to the overall market.
I also try to do this mainly with stocks that I agree with on the fundamentals of their business. So I am looking for energy stocks that fit this. SSL fits this if it can set a new high.
I am rarely a buy and hold type. I will take a short term percentage profit and move on. I am a short and hold on the airlines. I have been short for about 2 months on those. It's been a good 2 months.
The thing I like about shorting a stock is that it is never too late to make 100% on your money. $10 to $0.00 is a 100% return on investment when short. $5.00 to $0.00 is also 100% return. Just more shares. Some people ask, "Why bother shorting now? You should have shorted when it was $20". That is so not true. You can short it all the way to $0.00 and make a 100% return on investment. Stocks typically go down much faster than they go up.
I did some reading on SASOL based on your info. That does seem like a solid investment for Peak Oil. But it is not a pure play on synthetic fuels. They seem like a well diversified energy company.
You are right in saying that they are well-diversified, but the point is that as far as I can see the feedstock for ALL their petrochemical activities is NG and coal. Other petrochemical companies use oils.
SSL produces various petrochemicals that are not synthetic fuel but used in plastics and all kinds of applications, but the key point is that all of the competing petrochemical companies which use conventional feedstocks(oil) will be at a serious disadvantage when tshtf, and SSLs margins should increase strongly across its entire portfolio of products.
I see what you mean. It is sort of the same concept as Valero for refining. SSL is designed to produce the same oil derivatives with coal, giving them an advantage over pure oil based companies producing the same. I like the concept.
I like to buy breakouts of new 52 week highs. Stocks typically set a new 52 week high for a reason. There is no telling where it stops. Also, shorts typically get scared and cover on a 52 week high.
All times are GMT - 6 Hours Goto page Previous1, 2, 3
Page 3 of 3
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot vote in polls in this forum
News
Discussions
Resources
Members
Forum FAQ
Search
Usergroups
Profile
Log in to check your private messages
Log in
