When governments around the world told people to stay home and many did, the immediate effect was to take cars off the road which made driving easier. The cars off the road resulted in demand for gasoline to drastically fall which made prices fall and add a supply war between Russia and Saudi Arabia has meant all energy companies shares have declined. The question for investors is as restrictions are taken off and demand for gasoline goes up, which companies benefit. Should you buy the an index stock similar to Energy Select Sector SPDR Fund which is down 36% or buy individual companies? Are there any companies benefiting from low oil prices? Gary Christie who works Trading Central offered some names who are benefiting.
He started with S&P 500 energy companies with a minimum market capitalization of $1 billion.
He looked for energy stocks with a P/E ratio less than the S&P 500 (19.7) to find undervalued companies
Cash flow is important, it needs to be positive (last quarter versus Prior Year)
Operating margins of 10% or more. (how much profit does the company make on each dollar of core revenue?)
He included dividend yield, year to date performances (they were all negative), the 1 year performance and recent price.
Company Mkt Cap P/E Div CF Growth Oper 1 Yr Recent
($ Bil) Yld % Margin Pref Price
TC Energy 44.7 15.1 4.9 104.6 45.3 0.7 47.00
Frontline Ltd 1.5 9.5 6.7 161.2 24.7 -6.1 7.56
Euronav NV 2.2 18.5 6.0 71.5 19.4 2.1 9.89
Cdn Nat Resources 18.3 4.7 7.9 37.6 22.9 -45.6 15.47
Enbridge 65.6 16.4 7.9 6.1 17.3 -16.7 32.45
ONEOK Inc 12.5 14.9 12.7 n/a 20.7 -56.6 30.29
Valvoline Inc 31.9 13.6 2.8 63.6 15.5 -10.0 16.97
EOG Resources 28.2 9.7 3.3 30.4 23.9 -45.3 48.42
Cactus Inc 1.2 9.5 2.4 161.6 28.2 -57.7 16.28
The importance of charts such as these is there are always companies that make money during any cycle of the economy. Some of the above are pipeline companies, the energy area is oversold which was done for very good reasons. At some point the energy companies will perform better, it is good to know which ones should do better. For the decade it was possible to pick a variety of companies working in the oil shale parts and the stock to go up. Now you have to be more narrowly focused, but as you see more vehicles on the road including commuting and driving across the country, demand for gas will increase which means some companies are making more money.
Linking to dividend paying stocks, just because it pays a dividend does not mean the price will fall, in the oil industry we have seen 50% decreases which helped push yields up and the question is the yield sustainable? As the price of the shares increase, the yield falls. Cash flow and operating margin help you determine if the dividend is sustainable and whether to hold, buy or sell (fold). Kenny Rodgers song the Gambler did sum it up.
There are more questions than answers, till the next time – to raising questions.