This guilt by oil association thing is starting to lose its luster. I am talking about the idea that there is a dark cloud lining to any company that has anything to do with oil and gas. Look, we all know that there is a very specific blast zone regarding oil, namely the companies and the suppliers themselves. I think some of them might have bottomed in the week leading up to the good Schlumberger (SLB) quarter; however they are all still very troubled.
On the other hand, the endless "hunt" for the next shoe to drop has gotten a little old. Remember when Boeing (BA) was supposed to be the big loser because we didn't need fuel efficient planes? I tried to shoot that down several times and got bowled over by so many different media outlets. They all seemed to forget that there is innate demand for planes and no one is going to scrap an order now because they have a ton of old planes. The airlines need EVERY plane they can get! That stock pulverized all who shorted it off these stories and the acolytes who pumped them.
Then we heard that companies that do a ton of business in Texas were going down for the count, everyone from banks to airlines. Why don't you go ask the shorts in Southwest Air (LUV) how that worked out. Being short the biggest percentage gainer of the day in the S&P 500 AFTER it was the biggest gainer for the year of 2014 is no picnic. And, did we forget that there are just a handful of independent Texas banks and they are all pretty well reserved? I gave up fighting that battle two weeks ago, though, because the bears are so "informed."
Of course, we heard that the pipeline companies, even the ones with little commodity exposure, would be gutted. But go listen to Rich Kinder explain how little sensitivity Kinder (KMI) has to the price of oil and gas and you will end up thinking, "what was I worried about?" In fact, Kinder's levered to the industry alright, but in a good way. He has the perfect structure to buy the assets of stricken oil producers with excellent infrastructure for sale, like the transport systems he just got for a pretty darned good price from Harold Hamm. That stock at $38 again would be a gift.
But now the cloud has descended on United Rentals (URI) where, arguably, all of 6% of the business could be hurt and, arguably 94% of business could be helped, helped by the cash flow that's going to businesses and individuals that can create projects that need URI's rental equipment.
It's a tradeoff, but a tradeoff that the number one machinery goods rental company will win, because of all of the new business that will be created as the "oil tax" disappears. The company only really moved into this business to please existing customers, and while $36 million in EBITDA could be at risk, you are talking about a company that should have about $2.6 billion EBITDA this year. It's almost comical that this stock could be cut from $119 to $86 on this, especially when you consider that last week in what now looks like a climax low it was at $74.
I thought it was most interesting that CEO Mike Kneeland laid all of this out eloquently -- and painstakingly -- on his conference call and with me on Mad Money (for more evidence read Bryan Ashenberg's excellent analysis from his newsletter) and nobody seemed to care.
What' s interesting about it, then? How about the fact that Boeing refuted the same kind of analysis forcefully not once, not twice, but three times before the bears released the jackboot from the BA jugular? Now it's furiously breaking out.
I think we will look back and try to remember why we sold this stock down to the $70s and $80s.
In this market, nobody will remember. The answer, though, is simple: we have been presuming the worst about any company -- not just the peripheral "oil" companies, but any company forever. And when the worst doesn't prove out, the pain's not over. It lingers. As it is doing now with URI.
And only then, after people realize, "hmm, this one has stopped going down," do they step out of the bunker and do some buying. Maybe it pays to be in the stock before they do.