Is It Time to Buy Oil Stocks?

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Is It Time to Buy Oil Stocks? By www.ProfitableTradingTips.com

Transcript of Is It Time to Buy Oil Stocks?

Page 1: Is It Time to Buy Oil Stocks?

Is It Time to Buy Oil Stocks?

By www.ProfitableTradingTips.com

Page 2: Is It Time to Buy Oil Stocks?

http://profitabletradingtips.com/trading-investing/is-it-time-to-buy-oil-stocks

Now that oil prices have bottomed out

is it time to buy oil stocks or are there

still oil companies that are overpriced?

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In general, energy stocks have taken

a beating and are trading at levels

appropriate for current oil prices.

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Before We Continue…

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The exceptions are a group of

Canada oil

stocks. bloomberg reports the story.

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canadian energy companies are

trading at record valuations, signaling

their shares haven’t caught up to the

reality of crude oil’s continued decline.

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suncor energy inc., canadian natural

resources ltd. and other stocks in the

standard & poor’s/tsx energy sector

index are priced at 65 times expected

earnings

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an all-time high and more than double

the average of u.s. peers, according to

data compiled by bloomberg.

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those valuations sit in contrast to

crude, which touched $42.03 a barrel

for the u.s. benchmark last week, the

lowest since march 2009.

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as surging crude output strains

storage facilities and pushes prices

down in the u.s., canadian producers

are cutting thousands of jobs and

reducing spending to weather the rout.

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high valuations suggest that might not

be enough to help support earnings

which are projected to drop 24 percent

for the group in the second quarter

from the first, according to data

compiled by bloomberg.

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It seems obvious that these stocks are

overpriced, but what do investors in

and traders of these stocks know that

the rest of the market does not?

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The Crack Spread

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Value walk offers an opinion

about undervalued oil stocks.

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even though everything related to oil

sold off, there is one group in the oil

sector that has differentiated itself - oil

refiners.

Page 16: Is It Time to Buy Oil Stocks?

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that’s because instead of it being an

even match, there is a spread in the

market that is stacking the odds in the

refiners’ favor … and now is the time

to jump in.

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it’s known as the crack spread - the

difference between the price of crude

oil and the refined oil product (like

gasoline).

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this is basically what sets the tone for

oil refiners’ profit margins as they sell

the refined oil for a higher price than

the crude.

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as the price of oil fell, oil refiners fell

right alongside them because the

crack spread tightened.

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but that has started to change

dramatically in march.

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while crude oil has slipped to new 52-

week lows, prices at the pump haven’t

followed suit.

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in fact, the national average for a

gallon of gasoline today sits around

$2.40, compared to an average of just

$2.03 earlier this year. that’s a

significant tailwind for oil refiners.

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It would appear that there are profit

centers in the oil industry that are

pumping out money even while the

overall picture would seem to be

bleak.

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Is it time to buy oil stocks? Maybe the

answer is yes if the company is a

refiner.

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The Long Term

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If you interest lies in investing as well

as trading you may be considering

what bargains to pick up in the energy

sector now that prices are at historic

lows.

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Motley Fool poses an interesting

question about drillers or

pipelines as long term cash cows.

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the energy sector has gone through a

huge amount of turmoil in recent

months, as plunging oil prices have

put some companies in jeopardy of

suffering through a painful period of

losing money.

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drillers have taken the biggest

immediate hit, being the most directly

affected by falling prices.

Page 30: Is It Time to Buy Oil Stocks?

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but some investors also worry about

the prospects for pipeline companies,

especially if dramatic production cuts

reduce the need to transport energy

products.

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As with all investing and trading

working out the dollars and cents

helps create substantial gains.