Getting Some Energy
“We aren't addicted to oil, but our cars are.”
- James Woosley
The Portfolio Performance
The portfolio is up 2.26% YTD
Our benchmark, the S&P 500 is up +12.24% YTD
Buying Oil Services
Today I went shopping in the oil industry. I typically avoid oil companies for the Stay Invested portfolio for a variety of reasons, most notably the need to really understand and track crude oil trading. However, we have a special situation that was created by COVID-19 that presents a great opportunity for us. When the oil industry cut production due to a massive decrease in global demand we saw oil prices decline to the $35-$45 range and the VanEck Oil Service ETF declined below $100/share. Restarting those wells and getting oil delivered from overseas producers takes a lot of time, especially at a time when many oil tankers are being used for storage. All those storage ships have to make a delivery somewhere and then return to receive newly pumped oil or oil in shore based storage. The backlog globally means there is a lot of crude oil that needs to be worked through the entire supply chain before any additional oil can be pumped, which would increase supply and lower prices. Oil services companies are key to getting the supply chain back to normal.
Today I bought the VanEck Vectors Oil Services ETF (OIH), a fund that seeks to replicate as closely as possible, the price and yield performance of the MVISA® US Listed Oil Services 25 Index. The price gap between $60/barrel oil and where oil stocks are trading makes this fund look very cheap. Oil is up 40% year-to-date, the OIH is up 53.75% year-to-date, and I'm expecting an even greater rise as oil prices increase. I didn't dip a toe in the water, I took a full position in this fund as I think the upside is exceptional.
Looking at historical prices for oil and the oil services industry as represented by the OIH, I see a massive disconnect between oil prices and the OIH. The chart below illustrates the relationship between Crude Oil and the OIH ETF between 2000 and 2021. When oil was historically in the $60 range, the OIH was in the mid $700's. Looking at the far right side of this chart we see the blue line (OIH) trading at an exceptionally lower price while oil prices continue to rise. I think we're seeing a fundamental misplacing in this stock.
Oil is on a path to $80/barrel. The last time oil was at $80 the OIH was trading around $1,300 / share. While there have been new efficiencies in the oil industry over the past several years I don't see enough to justify this massive gap in the oil services industry. Were oil services over priced in 2005 - 2009? That's possible but I'm not finding evidence of that.
Today's Actions
BUY OIH 156 shares @ $235.73
"Markets don't go to zero, Portfolio's do.
Buy quality, be patient...and look twice for motorcycles."
- Clay Baker
Stay Invested,
Clay Baker
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Keep Me Honest 2021
The S&P 500 will achieve year-end earnings of $170-$175 (1-1-2021).
We are likely to have a significant pull-back during the 1st quarter, about 5%-10% (1-1-2021).
Stocking picking will outperform algorithmic trading again as it did in 2020 (1-1-2021).
Clay's Rules
Rule #1: Don't lose money
Rule #2: See Rule #1
Rule #3: Portfolios go to zero, markets don't, Stay Invested
Rule #4: When good stocks you own drop 10% below your cost basis, add shares
Rule #5: Bull markets aren't sustained without the Transports
Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase
Rule #7: When an investment bank sells below book value, buy it
Rule #8: Tips are for waiters. Do your own homework.
Rule #9: Don't sell a stock because you're bored with it. Do your own homework.
RULE #10: Being early and being late is the same as being wrong...move on.
Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:
AMD, AMRN, AMZN, AAPL, ARKK, ARKG, CNRG, ENPH, FB, GNRC, GBTC, GLD, HRTX, HD, IPOD, MSFT, NVDA, PSTH, TWLO, VBIV
I am invested short in these securities mentioned in this post:
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
