• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

An Oil Play that John Templeton Would Love

He bought weak big-caps in 1939. You can do the same today with oil.
By SHAM GAD Jun 07, 2016 | 12:00 PM EDT
Stocks quotes in this article: CHK, XCO, BXE, CRK, MEMP

The late Sir John Templeton was arguably one of the 20th century's most underrated investors, with a sound investment approach and incredible long-term track record. Let's look at a trade that Templeton made in 1939 that's applicable to the energy sector today.

In the midst of a market meltdown, Templeton bought $100 of every stock trading below $1 on the New York and American stock exchanges. He paid about $10,400 for this basket of 104 companies, of which 34 ultimately went bankrupt. However, Templeton still managed to sell the rest four years later for more than $40,000 -- or a roughly 300% return.

I believe that today's investors can make just such a trade in the oil-and-gas sector. After all, energy stocks are trading for a fraction of what they used to given the pounding that the segment has taken.

Now, some oil-and-gas firms will likely either go bust or face slow, painful declines because of the industry's prodigious use of leverage. But others will probably see their share prices rise to several multiples of current levels.

Of course, not all oil-company stocks trade below a $1 a share, and I'm not going to recommend a basket of names for you to invest in. Instead, I'd suggest picking up a copy of the Value Line Investment Survey or simply using the Internet to research the hundreds of oil-and-gas companies that trade publicly.

Look at the balance sheets of firms that look interesting -- perhaps those with high insider ownership, a quality management team, a highly regarded investor as a shareholder or another variable or two that stand out. A few names to consider include Bellatrix Exploration (BXE), Chesapeake Energy (CHK), Comstock Resources (CRK), EXCO Resources (XCO), Kosmos Energy (KOS), and Memorial Production Partners (MEMP).

The key is to to remember that you're not trying to pick the one winner, but making a bet on the likelihood of a general uptrend. After all, Templeton bet in 1939 that the overall market and economy would improve.

Similarly, buying a basket of stocks in today's beaten-down oil-and-gas sector is a bet that the overall energy industry will stabilize, with weaker players driven out of business and the more-efficient producers prospering in a less-competitive environment.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Gad was long XCO, BXE, CHK, although positions may change at any time.

TAGS: Investing | U.S. Equity | Energy

More from Energy

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

Time to Nail Down Some Profits on Halliburton

Bruce Kamich
Jan 14, 2021 10:47 AM EST

Our latest technical analysis and trading strategy for the oil services stock.

A Rising Tide Is Going to Lift LNG Shippers in a Very Cold Winter

Jim Collins
Jan 14, 2021 10:30 AM EST

Also, my take on Jack Dorsey and Twitter, along with Facebook.

It's Only a Month, but This Deep-Value Portfolio Is Performing Quite Nicely

Jonathan Heller
Jan 11, 2021 10:30 AM EST

The aggregate return of the 2021 Double Net Value Portfolio one month since inception is outpacing a handful of Russell indices.

EOG Resources Has a Big Base and It Could Get Even Bigger

Bruce Kamich
Jan 8, 2021 2:31 PM EST

Bases in the energy market can take a long time to form.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:09 AM EST GARY BERMAN

    Is Copper About to Turn to Rust?

    Below is a very long-term copper chart.  As you...
  • 08:02 AM EST GARY BERMAN

    Tuesday Morning Fibocall for for 1/19/2021

    SPX (Long-Term View) The 1/8/21 high @ 3826.69 i...
  • 09:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    When it's time to sell, will you act or freeze?
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

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

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.

FactSet 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.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login