We’re seeing oil stock prices come down along with oil prices themselves, to targets that we had established long ago as worthwhile spots at which to get back in. But something is making this drop in prices a bit more suspicious than some others. The answer is obvious: The upcoming U.S. Presidential election is still causing a wildcard in our investing plans. And for right now, I’m wary of its outcome and the implications for our oil stocks.
Everything seems to be on target: We had a great ride in oil stocks from earlier this year until about a month and a half ago, when I implied that oil stock prices had run ahead of where the commodity was likely to go. We jettisoned many of these stocks and waited for another opportunity to get back in at better value prices. And so, here we are: Especially with the more oil-responsive E+P’s, we’ve seen some very tasty prices to look again at renewing exposure to oil stocks. Companies like Continental Resources (CLR) are back near $45, after spending the summer nearly $10 higher. Hess (HES) with similar exposure into the Bakken is well under $50, and near the $47 target I named earlier as a good spot to get in. Less responsive Permian players like Cimarex (XEC), Parsley Energy (PE) and Concho Resources (CXO) are dropping, but not quite as fast, as the heat in the Permian remains strong.
I am also predicting a substantive agreement in Vienna from OPEC late in November, which would also deliver a quick rally into oil prices and these high-beta stocks. But I am not sure that today is the right time to take that chance.
And that’s because of this election. You don’t need to know my politics (although I think I’m quite transparent) to admit that an election of Donald Trump this coming Tuesday would be disastrous for the stock market. It’s not just the conclusion of every economist that has registered an opinion on the consequence of a Trump win, it can be seen in the action of the stock market itself, which declines sharply with every bad news headline for Hillary Clinton and improving poll for Donald Trump.
While the likelihood of a Trump victory remains small, it has increased enough to make me very shy of investing in ANYTHING in this last week before the election. The downside risks of a Trump victory far outweigh right now the positives to be gained if he loses. It is such a risk, in my view, that I am investing in a few hedging positions on the…