If there is one thing I have learned as an investor, it is that money is made when you buy an asset. You just don't realize how much, until the asset is sold. Therefore, it would seem appropriate that the lower the price paid for that asset, the better the expected return. After all, who doesn't now wish they went all in when the S&P 500 was trading for below 700?
Yet the same people who would answer "yes" to the above questions would, for the most part, do the exact opposite. If the markets tumbled 50% in the next few months, how many would step up and bet big?
If you think you would bet big, you may not have to wait much longer. The continued precipitous drop in the price of oil is quickly creating what could perhaps be the best investment opportunity for the remainder of this decade.
Names like Pioneer Natural Resources (PXD) now trades for $130 vs. $230 per share less than a year ago. Pioneer has a market cap of $19 billion, $2.6 billion in debt, and annual EBITDA north of $2 billion. In other words, the balance sheet is not overleveraged. More so, Pioneer could assume additional leverage to do things like buy oil assets on the cheap from those highly leveraged companies who will not survive in this sub-$60 per barrel oil.
Concho Resources (CXO) looks even cheaper with a market cap of $9 billion, debt of $3.3 billion, but also generating $2 billion in annual EBITDA at the present time.
Cheniere Energy (LNG) and PBF Energy (PBF) are two businesses that Seth Klarman's Baupost Group picked up during the third quarter. Start with these two names, if you are trying to navigate the hundreds of energy-related companies to find potential ideas.
Any investor that has been awake for the last five years knows that this is a cycle. That doesn't mean that oil is at a bottom today and headed back to triple digits. But what it means is that cycles ultimately turn. Right now, the oil price is dropping and stock prices of energy companies are falling even harder. As the cycle runs its course, it will turn. The winner is not the person who times the bottom perfectly, but rather one who makes the right bets and sits still.