I’ll be appearing on a Chicago radio station today (1:40-1:47pm EST CBS Radio WBBM Noon Business Hour w/ Sherman and Chris Chicago). They want to discuss oil stocks. They sent me a list of four. Here is my analysis below — since I’ll be sharing it with the Chicago listening audience, I thought you might like to read it, too …
I am not bullish on energy now. Exxon Mobil itself said today that it expects global oil demand to stay flat for a couple years. My outlook is a bit more pessimistic than that. Oil demand is falling faster than OPEC can cut production. In general, energy companies are slashing new investment and production far more sharply than analysts projected just a couple of months ago — lowering E&P spending 18% this year — and that does not show confidence in the future.
Then again, Jim Cramer called the bottom in oil yesterday, so I guess it’s going much higher, LOL.
Excess crude oil is a problem for the world. More than 30 supertankers, each with the ability to move 2 million barrels of oil from port to port, now serve as floating storage tanks.
Top Asian oil and gas producer PetroChina has cut its domestic production targets for 2009 by 10 percent to 20 percent at many oil fields because of falling demand. If demand is falling in China, I expect demand to fall in the world.
Outlook on the particular companies:
Exxon-Mobil - (XOM: 72.58 +0.08 +0.11%). The best of a stressed lot in integrated energy companies. It is making new oil discoveries (most recently off the coast of Brazil … again), it is investing $29 billion in projects this year and is going to increase its production in 2009 and projects that its production growth will rise 2% over the next five years. It does have massive reserves.
Compared to its competitors, it is expensive on a price to cash flow (5.45) and price to earnings (7.45) basis.
Exxon will survive the next few years of a downturn in the oil business, which is more than you can say for some oil companies. If your outlook is very long-term and you don’t mind prices going down, you can buy now and hope for the best. But my system gave a weekly ”SELL’ signal on this stock on February 11th.
Chevron (CVX: 77.53 +0.29 +0.38%)- a smaller version of Exxon, and in pretty much the same boat. It is a better value on price to cash flow (3.92) and price to earnings (5.77) basis. The company has nice cash flow, but that’s not saving the stock in this environment.
Chevron is working in Venezuela. Chevron must know something I don’t know about the world’s wackiest dictator. It has other geopolitical woes (Nigeria) and is postponing some development work. Really, I’m not bullish on it at all now. It is declining even faster than Exxon.
Hess (HES: 56.98 0.00 0.00%) - another integrated oil company. Not exactly cheap. It is on par with competitors on price to cash flow (3.74) and a bit higher on price to earnings (7.28). The company is under pressure from Libya to lower its stake in a project there. I’d stay away. I had a weekly “SELL” signal on this stock on February 17th.
Schlumberger (SLB: 64.40 -0.70 -1.08%) - this is hard times for oil services companies like Schlumberger. It’s not cheap on price to cash flow or price to earnings.
That said, Schlumberger’s chart is slightly more bullish than the others. It has real snap-back potential when (not if) oil starts moving higher again. If I had to pick one of these turkeys, I might go with Schlumberger. Oil services companies are getting hurt badly in this downturn, but Schlumberger’s phone will be the first to ring when the oil and gas drillers get back to work.
But I can think of better places to put your money to work than in any of these stocks now.
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