When you make a loud public call like I have on the long-term future of energy you can expect to hear from those who think differently when the trade is going in their favor. I have heard lots of "I told you sos" and "What were you thinking?" type comments in the past few days. I could explain that I have always said to stay small and move slow, so my energy positions are small relative to cash in my portfolio, or point out that I have always expected energy to be a long bumpy ride, but that's really a waste of everyone's time.
I have said that oil will go up over the long run and oil stocks will make you a lot of money over the next decade. I still think so. In the short run, however, oil prices are dropping, the world is ending and most of my oil stocks are down quite a bit.
I have no idea where oil prices are going, but I am pretty sure that out at Mr. Womack's farm the truck is warming up as our pig farmer friend heads to town to buy some oil stocks. Oil stocks are finding no love among investors, and that is usually an opportunity for long-term value investors to get some money to work at very favorable prices.
Yesterday, I talked about finding the ultra-safe and cheap in the oil patch and starting with those stocks. Another thing investors interested in this space should be doing is closely tracking insider buying in the industry since oil prices collapsed. As oil stock prices have tumbled in the past week, several industry executives and board members have cracked open their check books and bought shares of the companies they manage and oversee.
There have been some interesting purchases in the past week.
Insiders at Comstock Resources (CRK) actually started buying shares of the company at substantially higher prices. Both the CEO and CFO paid more than $11 a share early last month, while one director showed a little more patience and loaded up on the shares this past Monday at a little below the $9 level. As oil continued to fall, so did the price of Comstock stock, which currently trades below $8.
Comstock has been expanding operations in the Eagle Ford and Tuscaloosa Marin shale regions and production is up significantly year over year. Although shale operations will be squeezed if oil remains at the current level for long, the people running Comstock apparently believe the big picture is favorable. The stock is certainly cheap trading at 50% of book value, and insiders seem to think the company will survive long enough to eventually thrive.
I have avoided shares of Energy XXI (EXXI) simply because the company is highly levered and I could not find an adequate margin of safety. However, insiders seem to think the company will be able to deal with the lower oil prices. They have been buying EXXI shares for the past month. Three insiders, including both the CEO and CFO, bought the stock on Monday as the price tumbled. I am probably not going to buy this one, but will likely suggest my 26-year-old son pick up a few shares as a longshot option on the company's ability to survive. In July, this stock was over $20 and even a partial recovery could lead to a doubling or more of the battered stock price.
Pioneer Energy Services (PES) is a contract driller and production services company with the bulk of its operations in onshore U.S. properties. This concentration in the shale fields has sent the stock price tumbling by more than 30% in the past. However, CEO Stacy Locke seems to think enough is enough, as he wrote a check for more than $100,000 on Monday, adding to his stake in the company. This is another highly levered oil services company that is cheap, but not as safe as I usually prefer. I believe aggressive investors with a penchant for longshots might want to consider the stock as it trades at just 70% of book value and has substantial recovery potential.
As oil prices and oil-related stocks have plunged we are seeing insiders begin to buy shares in the open market. It is interesting to see that, so far, it is the insiders at the higher-risk, more-levered companies that have been doing the bulk of the buying.
If you have a 50% success rate with these companies there is a lot of money to be made speculating on the survival of the more leveraged oil companies. If T. Boone Pickens is right and oil will be back above $100 a barrel in 12 to 18 months, the returns should be spectacular for those who follow the insiders.