Feature Article

Considering oil’s historic sell-off in recent weeks, it’s worth stepping back to look at the big picture and offer a more detailed short, intermediate and long-term outlook for the commodity.

In the March 25 Energy Commentary “Energy Bonds are Ripe Again,” we highlighted an emerging fixed income opportunity in bonds of battered energy companies up and down the value chain.

To call the High Yield Energy List we launched last May a disappointment so far would be the understatement of the year. The one thing that went right was that none of the initial 10 recommendations has cut its dividend, with the exception of EnLink Midstream (NYSE: ENLC).

We expect to see more pressure on energy stocks. So why shouldn’t someone just sell everything now and wait for a bottom? There are basically three reasons. First, market history teaches us that when energy does hit a final bottom, spotting it will be much more a matter of luck than insight or skill.

Some investors may raise an eyebrow at this recommendation, as well as our risk rating of the midstream MLP as “Conservative.” And Energy Transfer hasn’t held up well in the COVID-19-inspired energy sector selloff either, with the share price closing in on its lowest point in four years and the yield a distressed-looking 11 percent plus.

Q4 earnings and guidance updates are now all in for EIA Actively Managed Portfolio and High Yield Energy List companies. As we pointed out in the February 20 Alert “Q4 Verdict: Our Midstream Distributions are Safe and Worth Buying,” investors in general have handed out little or no reward when companies reported good news.

What’s the most important takeaway from energy sector Q4 results so far? There are still a number of companies yet to report. That means plenty of room for surprises between now and the end of February. As readers can see in the Portfolio discussion section, that’s when the last of our recommended companies will release their numbers and update 2020 guidance.