It’s become a cliche for investors to call themselves contrarians, because everybody wants to buy stocks when they’re down, in order to make a killing on the rebound. The questions are, of course, when, and which ones?
Mark Hulbert’s discussion of four oil stocks to buy now challenged investors who brag about not following the herd, to “show that you really mean it.”
Oil’s plunge spikes some bond yields to 9%(3:25)
High-yield bonds have taken it on the chin as the plunge in oil prices raises default fears. Should you nibble on those 9% yields?
Oil for January delivery CLF5, -1.68% on the New York Mercantile Exchange slipped below $55 a barrel in trading early Wednesday. With OPEC refusing to cut its output, it will take plenty of time for production cuts and curtailment of expansion plans by U.S. producers to have an effect. Nobody knows when oil will hit bottom, but maybe you don’t have to time things perfectly to make money after the bloodletting ends.
Saudi Arabia has the most important voice among OPEC nations, since the kingdom not only has the largest supply but can most easily adjust its production levels. The Saudis’ message has been quite clear, saying that the threat to its market share from U.S. shale oil producers is unacceptable. The damage has already been done. The S&P 500 Oil and Gas Drilling subsector is down 35% since November 1.
Another dramatic result of the of the oil-price drop and OPEC’s policy has been for Russia’s currency to crash, causing the country’s central bank to raise its key interest rate to 17% on Tuesday. That wasn’t enough to stop the pounding, with the ruble in free fall. At one point on Tuesday, one U.S. dollar in Europe bought about 80 rubles USDRUB, -6.72% The currency had strengthened by early Wednesday, with the dollar buying about 68 rubles.
Oil prices will bottom eventually. Hulbert’s list focused on quality companies with attractive dividend yields that have significant ownership among institutional investors, high ratings, a strong earnings track record.
Meanwhile, we have put together a larger list of oil producers and refiners that have shown consistent profits and are not highly leveraged. This is important, because creditors faced with a revenue downturn and cut to expansion by energy borrowers are likely to make their terms much more strict.
Staring with a list of 469 North American companies in the Energy Minerals sector provided by FactSet, we narrowed the group to nine companies with ratios of long-term debt to equity of less than 20% as of their most recent quarterly filings, that have also reported positive earnings per share for at least eight straight quarters.
Here they are, ranked by how much they have pulled back since Nov. 1.
