Here we go again. The oils. Whenever traders see oil jump through $40 they have to reach for the common stocks that they are used to making fortunes on when crude is higher.
Let me say, first of all, I see oil creeping up. I am not blind. I know there are parts of the economy that are growing stronger as economies re-open and I keep thinking that as people start realizing how you don't get covid on a plane if you wear a mask -- remember there have only been 19 instances of covid on planes or airports since the pandemic became ingrained in our culture -- there will be more trips taken. Plus, the roads everywhere are now jammed and you don't need a weatherman to know which way the wind blows.
Sure there's less business or vacation travel than expected but there's a cooped up factor that is going to cause more travel than we think right now.
So, I see the demand side getting stronger. But that's not the side I am really worried about.
It's the supply side that's got me dubious. Oil, the commodity, can only trade so high before more supply hits the market and turns prices back and that's the case even if OPEC does its best to try to maintain price discipline.
Now don't get me wrong. It's not like the old days where the oils never turn off the spigot. They've gotten smarter than that.
Instead, what they can do, especially now that so much pipe has been built and the ports are much better at exporting, is pump aggressively once they see oil pass through the $40 level as it is now.
It doesn't matter. People are jonesing for what hasn't run in this market so I will at least give you what I think won't hurt you that badly when you suffer through the inevitable disappointment.
First, just yesterday, CNBC's Becky Quick interviewed Chevron's (CVX) CEO Mike Wirth, and his company has taken on the role of king of the group. While no company can guarantee its dividend these days, least of all the oil companies, I trust Mike when he spoke cogently about his company's commitment to a dividend that yields almost 7%. That's terrific. Wirth also knew to drop out of the of the bidding for Anadarko Pete when Occidental (OXY) paid an astounding $55 billion for the company. Instead he bought Noble for $5 billion which has some amazing properties both in the Permian but also off the coast of Israel, in what may be the largest national gas field on earth.
Let me give you some perspective about how much Occidental overpaid and what a bargain Chevron got in an apples to apples comparison. Five years ago Anadarko's market cap was $24 billion. Noble's was $14 billion. Occidental paid more than twice for Anadarko. Chevron paid about a third of the market cap for Noble.
If you want a fast growing bite-sized company then go buy Parsley (PE) at $10. It has great management and is the American oil company most caring about the environment. Sure it's fossil but at least they are trying.
Now why am I so long-term negative? Politics. The president doesn't care where we drill. I am sure he would be happy with derricks in Yellowstone and pipes all over Yosemite. He's addicted. Vice President Biden? Let's just say the growth part of the oil business is the Permian and anywhere near it. I can see the whole process slowing down or getting more expensive. So one leader wants oversupply, which is a nightmare. The other wants less supply, something that's dreadful to earnings.
Either way it's bad.
All that said, again, I expect one more run here now that everyone seems to subscribe to my theory that they are uninvestible.
But they are not untradeable and, as oil works its way to $45, I just gave you one that will be protected by the dividend and the other by its growth.
You are on your own.