Energy and basic materials names 2014, meet financial names 2008. So many names are trading like they are heading directly into bankruptcy.
Energy XXI (EXXI) is a name I've been watching for some time and it is getting absolutely demolished today. The name is down 34% on the month already and 14% today. The news on it recently probably could have been better, but even good news hasn't spared the drillers and exploration names. Simply look at Magnum Hunter Resources (MHR). I'm a buyer of both today with $8.54 my average on EXXI and $4.73 my entry on MHR. I have no intention of scalping these and I bought a size where even if they go to zero, I won't be looking for an open window on a high floor.
When you look at a list of large-cap names in the basic material space, you can see on this chart the carnage has been pretty nasty. Remember, these are just the large-cap names. If you adjust the list to include mid-caps and above, then the top 20 worst performers end with down 27.5% year to date rather than Mosaic's (MOS) number at down 8.72%, so this chart is actually a bit generous.
Still, there are many familiar names here including SeaDrill (SDRL), Vale (VALE), Freeport-McMoRan (FCX), Chesapeake Energy (CHK) and Valero Energy (VLO), just to name a few.
Below the original list of 20 basic materials names, I included another list that are only large-caps but have one simple filter. Here I added the filter that set both debt to equity and long-term debt to equity to under 0.3. Note, the first list was more than 100 names and I included the 20 worst. The second list only has 19 names total. On this list of 19, there are only five names in the red year to date.
Now, it is fair to note that all of them are red except for one over the past month, which is similar to the other 20 names, and the quarterly performance isn't a lot better. But if you are looking longer term, then the amount of debt should be a paramount consideration here. And if a result similar to 2008 were to develop now in terms of the financials to energy, then I would start by building my longer-term core holdings in names with very little debt.