Companies that are closely tied to a commodity are sensitive to the underlying like oil, cotton or chicken, as examples, because margins are directly impacted by price movement in the commodity. The energy sector, particularly Exploration and Production (E&P) stocks have been beaten down as its commodity, crude oil, remains weak due to the oversupply glut and lack of seasonal demand. Producers are impacted because the lower crude oil goes, the more their margins get squeezed and the harder it is to make earnings and generate revenue. And that is evidenced in 2Q15 as the energy sector saw a 62.9% decline in earnings, according to S&P Capital IQ. Dan Dicker, Senior Energy Analyst at TheStreet, tells Jill Malandrino that there could be a slew of M&A deals on the longer-term time horizon because many U.S. shale companies are finally reaching good values and becoming potential buy out targets.
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