We need an updated strategy if we’re staying in the oil game. Not a new one, mind you – the plan I’ve laid out for the long-term trends in oil is, I think, going to be the absolute right one – but an adjustment for the trader in our midst is necessary.
I’ve been clear about what I believe is the most prudent way to invest in the sector – banking on a very slow rebound in oil prices can make for some conservative picks in energy companies that I believe are going to rebound best from the ‘shale bust’ . You’ve heard me talk often about EOG Resources (EOG), Cimarex (XEC) and Anadarko (APC), three names that are nearing value numbers again, by the way, on the back of the David Einhorn short recommendation.
But there have also been others that I’ve mentioned; other shorter-term strategies that could be employed, to find quick trades that don’t need to be held forever. These include some of the dedicated shale players with less than stellar balance sheets and some sub-sector oil plays that are often left off the radar screen. Let’s look at some of these now.
For a shorter-term play on shale players, you’d want to find those with good assets but fairly distressed debt positions, making their future rocky – but with enough cash to make their possible demise less clear. These three qualities allow the speculator to mark time as the crude markets play themselves out.
With every small rally in crude, the optimism of the “end” of the bust cycle allows these ‘less than stellar’ oil companies to rally when other smaller, more cash poor players will not. Examples of these types of stocks are Oasis Petroleum (OAS) and Northern Oil and Gas (NOG). These two have shown the capacity to rally strongly as crude has found a level above $55 in a way that even the strongest E+P’s previously mentioned have not. I have talked about, and traded, Oasis before and the shares have worked out well as a trading device between crude levels.
One other place to go is outside the shale players but in the most distressed of oil production sectors – offshore. Again, this is an idea I’ve mentioned before but is turning out to be a great trading vehicle as well, as oil bounces around between $50 and $60. The reason for this is the inevitable health of the deep-water sub-sector: While we can talk about the consolidation and survivors of shale,…