Don't Trade Into OPEC Meeting, Jack Mohr Says

 | Nov 21, 2016 | 4:01 PM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

xle

,

oxy

,

slb

As oil prices continue to be volatile ahead of Nov. 30, when the Organization of Petroleum Exporting Countries (OPEC) is expected to finalize plans to curb production, TheStreet's Chief Investment Strategist Jack Mohr says, "Don't trade into an OPEC meeting."

Oil prices skyrocketed on Monday, reaching a three-week high. Both benchmark Brent crude and West Texas Intermediate crude oil were up by approximately 4%, trading at around $48.98 and $47.49, respectively.

Prices moved after OPEC's No. 2 and 3 producers, Iraq and Iran, signaled that OPEC should be able to deliver the promised production cuts -- the latest in a string of comments from the cartel members over the past couple of weeks.

"We expect rumors to run rampant in the meantime, leading to a continuation of volatility in oil prices," wrote Action Alerts PLUS portfolio co-managers Jim Cramer and Jack Mohr in a recent note to subscribers.

As a result of the comments made Monday, the energy sector as a whole moved higher. The Energy Select Sector SPDR ETF (XLE) was up more than 2% during the trading session.

Action Alerts PLUS holdings Occidental Petroleum (OXY) and Schlumberger (SLB) , which are both in the XLE ETF, were two names that were showing gains to start the week.

Occidental has been an AAP holding since June 2015, but the story behind the stock has changed recently as Vicki Hollub took over as CEO for Stephen Chazen. With Hollub at the helm, management surprised investors during the latest quarter as the company shifted its focus almost fully toward the Permian Basin. Hollub and her team also view 2017 "as a transition year," as was mentioned on the conference call with analysts on Nov. 1.

Cramer and Mohr believe that the shift in strategy "all but removes the chance for a dividend increase in the near future." Given the new outlook under Hollub, AAP downgraded OXY to Three from Two, meaning that they would sell it on strength. The portfolio managers are planning to "exit the name entirely if shares approach $70," they wrote.

As for Schlumberger, the story is distinctly different and is one of the "best in class," according to Cramer and Mohr. Since an initial buy date in March 2016, the stock has gained nearly 11%.

Jefferies upgraded the stock last week to Buy from Hold and raised its price target by $7 to $96 as analysts viewed the landscape for diversified as "favorable."

"We agree that SLB is the best of breed in oilfield services and should continue to benefit from its technological leadership," wrote the AAP portfolio managers. However, Cramer and Mohr maintained their $85 price target, adding that they would look to add on "any meaningful pullback."

But Mohr says that both OXY and SLB trade on macro trends -- which will largely mean any signals from OPEC about a deal for the next couple of weeks, in addition to domestic economic data.

Bottom line: the outcome of the OPEC meeting later this month is "unpredictable," says Mohr.

"Regardless of whether the deal is in fact finalized at the end of the month, OPEC knows it has the power in the meantime to keep prices from dramatically dropping any further," Cramer and Mohr wrote.

With that being said, it may be prudent for investors to wait on the sidelines until the cartel reaches an agreement and has a means to implement it.

Columnist Conversations

DIS has been green since the opening bell and is trading at its best levels of the week with less than 30 minu...
Looks like RUTH will finish the week at new 2017 highs.  Still has room to run, not overbought(MACD).&nbs...
A big THANK YOU to all the men and women in uniform this weekend, and for those who served and paid the ultima...
View Chart »  View in New Window » View Chart » 

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.