Oil prices have been sliding and oil stocks have been dropping as well, down to targets we thought were worthwhile value areas to buy into. But something is making me much more cautious about wading into these "value" plays and the answer is obvious: The upcoming U.S. presidential election. This wild card continues to change by the day, disrupting our investment plans. And for right now, I'm wary of its outcome and sitting on the sidelines.
It's all gone according to plan: We had a great ride in oil stocks from earlier this year until about a month and a half ago, when I said oil stock prices had run ahead of where oil was likely to go in the near term. We sold many of these stocks for good profit and have been waiting for another opportunity to get back in.
And now we are here: Especially with the more oil-responsive E&Ps, we've seen some very tasty prices on some of my favorite oil stocks. Continental Resources (CLR) , for example, is back near $45 a share, after spending the summer nearly $10 higher. Another Bakken specialist, Hess (HES) , has come back down to well under $50, near the $47 target I named earlier as a good spot to get in. Less responsive Permian players like Cimarex (XEC) , Parsley Energy (PE) and Concho Resources (CXO) are dropping, but not quite as fast, as the appetite for Permian oil companies remains the strongest in the space.
So stock prices are lining up, at least in the Bakken. In addition, I am also predicting a real agreement in Vienna from OPEC on Nov. 30, which would force a quick rally in oil prices and these high-beta stocks. But today is not the right day to invest in oil stocks.
And that's completely because of the unknown outcome of this election. You don't need to know my politics (although I think I'm quite transparent) to objectively view an election of Donald Trump on Tuesday as disastrous for the stock market. It's not just the conclusion of every economist who has registered an opinion on the consequence of a Trump win, it can be seen in the action of the stock market itself, which declines sharply with every bad-news headline for Hillary Clinton and improving poll for Trump.
While the likelihood of a Trump victory, according to the polls, remains small, it has increased enough to make me very shy of investing in anything in this last week before the vote. The downside risks of a Trump victory, in my mind, far outweigh the positives to be gained if he loses. It is such a risk, in my view, that I am actually investing in some downside options strategies, just to protect somewhat on the possible outcome of a Trump win.
You may not feel like me. If you were looking to take advantage of this dip in prices and were more convinced of a Clinton win, you will do best in the higher-beta stocks -- which means those who have their primary exposure into the Bakken as opposed to the Permian or Eagle Ford shale plays. Besides Continental and Hess, you can look at some short-term exposure to other Bakken plays: Whiting Petroleum (WLL) , Apache (APA) and Occidental (OXY) .
As for me, I'll sit on the sidelines, and wait for another five days.
