Most energy investors probably feel like Leonardo DiCaprio's character in The Revenant as he's getting mauled by a bear. The struggle is brutal and DiCaprio's character is barely alive at the end -- which is probably how many investors feel after tangling with the energy market's current "bear."
West Texas Intermediate is down to the low $30s per barrel, or off more than 70% from its highs. And just this week, Goldman Sachs and others have been calling $20-a-barrel oil probable.
Natural gas has no pricing power, oil-rig counts are in a free fall and technology and conservation are making it easier than ever before to use less energy. On the supply side, new technology is making more output available, while Russia and the Organization of Petroleum Exporting Countries have no incentive to cut production.
My sense is that energy stocks are maybe 20% from the bottom, but will face a tough tape until mid-year or so. So, this a good time to check in with some energy-investment sources that I've long followed -- some for 30 years -- to see what they say:
Tudor, Pickering, Holt & Co.
This esteemed Houston-based energy-investment bank recently forecast a 50% to 160% upside over the next two years for MLP stocks, based on fundamentals and historic charts.
One favored name is Cheniere Energy Partners (CQP), which currently offers a 6.7% yield. The stock was down 23% in December, but Carl Icahn recently kicked out the old management and CQP's assets are valuable.
Famed hedge-fund manager Kyle Bass of Hayman Capital recently said in an interview that if you and look out a few years, you can see great energy returns. He said demand is near an all-time high, while global economic growth remains positive and there's only around a 700,000-barrel-per-day glut.
"The next six months are a great time to invest for the next four or five years," Bass said. "It's going to be a similar bounce to housing (in 2008)."
The Houston Breakfast Club
This is a group of five industry veterans I know who gather at a local diner each Saturday and probably have the best feel around for the market. They're still bearish -- they expect more pain and they don't see enough "blood in the streets."
"All of the MLPs are going south," one of them told me. "Everyone assumes they will get paid tariffs with minimum takes to save them, (but) if 'delivers on gas' are in Chapter 11, they have no way to pay the debts. Most MLPs have plenty of debt. It's going to get a lot messier."
The Breakfast Club's consensus is that things won't turn on a fundamental basis until year's end. (But note that energy-company stocks usually anticipate oil-price bottoms by three to six months.)
Club members also offer this cautious indicator: Anecdotally, they've heard that Downtown Houston has 7 million square feet of vacant office space and is heading to 10 million next year. Thus, they expect more consolidation in America's energy capital.
A Trusted Options Investor
One of the best options investors and tape readers that I know just started to dabble in energy on the long side this week. But he added: "I usually have to go in and out of a position many times before I make a real bet."
He was in-and-out of some long options on the NYSE Arca Oil & Gas Index (^XOI), but it's noteworthy that he's even willing to think about the long side.
My friend prefers to use ^XOI because that has a bit more volatility to it. "As the weak names in the index go out of business, the strong ones left will lead to good bounces," he said.
A Texas Friend
Finally, here's one more sentiment indicator. My close friend in Fort Worth texted me this week asking: "When was the last time that the oil price was this low?!?!?"
Getting that question from a person in Texas tells me that panic is setting in. And in case you're wondering, the last time oil was this low on an inflation-adjusted basis was in 1998.
The Bottom Line
Based on all of the above, I believe that we're approaching the bottom of the energy-stock debacle.
Investing in MLPs and oil ETFs for the long term might not make sense just yet, but I think it will in the months ahead. Many stocks are at lows not seen since 2008, and doing some homework on individual names (particularly among MLPs) should prove rewarding.
I'll offer some specific picks when the bottom seems to be forming. But for now, I'd recommend keeping an eye on the SPDR S&P Oil & Gas Exploration & Production ETF (XOP): Anadarko Petroleum (APC), Enbridge (ENB), Halliburton (HAL), Exxon Mobil (XOM), Schlumberger (SLB) and other big-cap names.
And "spoiler alert" -- Leonardo DiCaprio's character in The Revenant does survive the bear attack ... and later gets his revenge.
Correction: An earlier version of this article mistakenly identified Intrexon (XON) as a component of the XOP ETF. It has been corrected to Exxon Mobil (XOM).