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Pain and Gain

By  Roger S. Conrad
Issue No.66 . Jul. 31, 2015
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Oil prices will stay lower for longer: We reiterated this outlook in the July 18 issue of Energy & Income Advisor and have maintained this forecast since fall 2014, despite many commentators calling for a V-shaped recovery in prices.

Earlier this year, far too many investors eager to load up on what they regarded as emerging values. And the short-lived relief rally in oil prices and energy-related equities earlier this year gave them confidence that the market had bottomed and emboldened them to plow money into ostensibly bargain-priced stocks.

Although many energy stocks look inexpensive relative to their recent price history, industry fundamentals have changed dramatically; a cheap stock can always get cheaper.

Investors should expect an uptick in bankruptcies among highly leveraged exploration and production companies with marginal assets. For example, investors betting that a takeover offer will rescue their underwater positions in SandRidge Energy (NYSE: SD) likely will be disappointed.

And even shares of best-in-class energy companies will suffer further downside if West Texas Intermediate (WTI) crude oil drops to less than $40 per barrel during the upcoming refinery turnaround season. This downside likely would extend to high-quality midstream names and the major integrated oil companies.

But real opportunities lurk amid all this pain.

Next Issue Date : Aug. 14, 2015View Past Issues

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