When an energy bull market ends, good energy stocks keep going
When a bull market slows down, says a U.S. expert, wise investors don’t bail out but look for opportunity, as shown by an oil sands stock.
This just in — bull markets end.
When there’s a big run-up in prices, in the stock market, in precious metals, or in resources, gravity ensues.
What went up inevitably goes down.
But that doesn’t mean it’s become worthless. If you’ve bought solid stocks, they won’t wilt under the pressure. They’ll be back.
So it is with the recent regression in commodity prices, including that of oil, which stalled when the sky appeared to be the limit.
Don’t listen to the negative media chorus, says one U.S. expert. Invest wisely in an essential commodity and it will ultimately pay off. Handsomely.
The expert is Roger S. Conrad. We heard from him just three days ago on the subject of income stocks, particularly Canadian stocks (he publishes an online advisory entitled Canadian Edge).
But Mr. Conrad wears many investment hats. He also edits a publication called Utility Forecaster. And it is in that capacity that he writes on the energy bull market, in an article printed in Bull & Bear Monetary Digest.
“If the crash of 2008 had anything to teach us, it’s that even stocks of the strongest companies can get caught up in a selling wave — but as long as the underlying business stays solid, recovery is inevitable.”
Recovery is also inevitable in a changing energy market. As shown by one intriguing Canadian stock Mr. Conrad singles out.
Don’t be buffaloed
The media was quick to point to the “bubble” in resources, says this analyst. As governments like China’s tightened interest rates to kill off galloping inflation, economic growth would suffer.
When demand for gasoline in the U.S. dropped, it was widely assumed that more bad news was on the way. Sure enough, oil slipped below US$100 a barrel and other commodities fared even worse.
The U.S. dollar strengthened, “shocking many who had bought into the hype that its value is headed for zero.”
Don’t be buffaloed by worst-case scenarios, says Mr. Conrad. Remember that two years after the bottom-scraping market lows of March 2009, people who held onto quality stocks were “made whole and then some.”
The losers were those who weren’t vigilant in good times — they were stuck with low quality investments — or who bailed out at the bottom.
So if the bull market in energy has run into a wall, it only means that new opportunity is opening up, says this analyst.
New supplies
Every resource bull market must come to an end. Sooner or later consumers respond to higher prices, whether they’re end users filling their gas tanks or companies that need that commodity to make other products.
Higher prices also encourage the use of alternatives. It may take time to make them economically feasible, but private enterprise and government will make a move.
Not least, higher prices spur the search for new supplies. This is pointedly so with oil. “The massive, easy-to-develop fields that used to provide the world’s petroleum are increasingly supplemented by far more expensive sources such as Canada’s oil sands and Brazil’s pre-salt fields, thousands of feet under the ocean floor,” writes Mr. Conrad.
So where do we stand today on energy?
Heating up again
The 2008 price crash that sent oil plummeting from $140 a barrel to less than $30 temporarily put a halt to many development projects in the oil sands. And last year deepwater development was swamped by BP’s disaster in the Gulf of Mexico.
But activity is heating up again, a fact that showed clearly in the first-quarter results of stocks providing energy services. It may actually help, writes Mr. Conrad, that the United States is no longer the world’s most important market for energy.
Consumption per capita is still highest in America, but it is “rapidly losing relevance in the face of inexorably rising demand in developing nations.”
New sources are opening up to meet that demand. MEG Energy Corp. (TSX-MEG; OTC-MEGEF) “proved with its first-quarter earnings that oil sands development doesn’t have to be extremely expensive,” notes the analyst. This stock has climbed considerably over the past year and trades at $51.49, with no dividend.
Even projects with higher operating costs, like the vast Syncrude joint venture, are ramping up output, he adds.
Don’t let the “doom and gloomers” scare you out of the market, the analyst tells his readers. Selling may make you feel good for a while, but when the bull market starts a new leg, the temptation to get back in could be an expensive one.
Indeed, the price of oil shot back up above $100 yesterday as the markets snapped back. The fact is, we can expect greater volatility in the energy market, says this expert.
And the flare-ups in energy prices caused by political upheavals are usually bad times to buy. Patience is at a premium.
“The long bull market is very much intact,” concludes Mr. Conrad. “But you’ll do much better buying on the dips, not the blips.”
|
E-mail this article
Printer-Friendly
