A week of very difficult market conditions calls for another macro view on the energy sector – and a further emphasis on my recommendation of oil and gas stocks being at fantastic, generational values.
One of the most important value quotients in any investment is not just about price – it is about relative price. What I mean is that when we allocate to invest, we’re not just thinking about the upside potential – or at least we shouldn’t. We should also consider the downside risk should the rest of the macro environment turn sour. This is precisely where we are now, as energy shares show relative strength, even as the ‘correction’ in the major indexes continues.
It is telling to me that oil has shown mid-$40’s stability in light of a continuing commodity and stock market down cycle – and I believe that even if prices don’t get constructive for the next two quarters, I am doing the right thing in recommending repositioning into the energy sector now.
To be fair, oil companies have surprised me in their nimbleness. I had expected to see much more carnage from the exploration and production companies and many more signs of clearing markets by this time late in 2015. Production efficiencies including heavy sand fracs, refracs of previously inefficient wells, spacing and water renewal programs have helped all of the E+P’s get more oil and gas out using less and less money. Add that to the staunch…