You see the pattern in the oil stocks? It's a bizarre stair-step where oil goes up, taking the oil stocks with it, then oil goes down and the oil stocks go down less, then oil goes back up and you get new highs, all within the confines of $45 to $50.
This is the new dynamic where we recognize that no matter what happens in this country there are forces overseas that are truly driving the bus while, at the same time, the shale depletion rate picks up, making the majors more valuable and the independents more vulnerable.
Classic cases in point: Look at how Exxon Mobil (XOM) and Chevron (CVX) are back to where they were when West Texas Intermediate was at $50 yet we haven't pierced that level yet.
That's a sign to me that investors are recognizing that the downside of the range has changed. The notion that we are going to go back to the $30s is being taken off the table.
How about courses of action? If oil has bottomed, then Pioneer Natural Resources (PXD) doesn't look so stupid buying the rights to those 28,000 juicy acres that Devon Energy (DVN) let go last week. Yet the stock is still three points below the big print of 5.25 million shares that Pioneer used to buy those rights.
Or how about Schlumberger (SLB), which is part of the Action Alerts PLUS portfolio? Here's a company that has been able to take advantage of the disarray of the failed merger between Baker Hughes (BHI) and Halliburton (HAL) and it had a magnificent quarter last. It tends to trade with the best of the best, namely Exxon and Chevron, yet it is three points from the high.
You want higher tech? Consider Core Labs (CLB), which is at $123 is $12 off its high and yet consistently has met its forecasts given how it is really a technology company that finds oil more than it is a driller like a Helmerich & Payne (HP) that, to me, has too much risk.
You want yield? How about the 4% that you get from another Action Alerts PLUS holding, Occidental Petroleum (OXY), which is no longer in danger of having to cut its payout? You want to take on a little more risk? Then think about the stock of BP (BP), with a 7% yield and the litigation risk pretty much behind it.
I see natural gas continuing to roll higher and that's what propels Southwestern Energy (SWN) to better levels. I know that like many of these others you sure haven't caught the bottom, but it might make sense to put on a light position now.
Ultimately I have to tell you that this group is the most important group when we get earnings, not for themselves but for the banks. Now I know the Fed's decisions control the upside for the banks, including everything from the rates they can charge for money to what payouts and buybacks they are able to do.
But if you want to know the downside, that's all about these oil companies. The banks have so much exposure, so much more than we knew, that they are trading at levels that say their book value is nonsense given the exposure they have.
The higher the price of oil, the more you should want Wells Fargo (WFC), another Action Alerts PLUS holding, which was pulled down hard by oil. I know you can risk Bank of America (BAC), but I am tired of doing that given the myriad other problems it has.
So, with oil's downside defined and the upside meaning less to the stocks, there's a lot to like here. That's especially the case because you have to expect that the dollar isn't going to hurt you as much as it might have given the newfound strength of other currencies around the world -- something that always lends support to the price of crude.
