Having been through numerous energy cycles, I’ve learned on valuable lesson: Sell high and buy low. Sounds simple enough but its always difficult. Just a few weeks ago I recommended avoiding energy stocks (which turned out to be perfect timing).
Some history. I bought some energy focused mutual funds back when oil got down below $40 a barrel (Feb. 2016). The success of the U.S. oil shale discoveries had caused quite an inventory buildup. The bank’s adviser made me sign a release – they wouldn’t recommend it she said.
I sold these funds in September of 2018 – the oil price had risen to about $75 – and the funds had performed marvelously (no comment from the bank adviser).
So here we are again. A rule of thumb I’ve always found worked well: When the U.S. portfolio managers have no interest in Canadian energy stocks, buy them. As soon as U.S. investors start talking about Canada again…sell them. I can assure you no U.S. institutional investors are interested in any Canadian stocks, never mind energy-related.
I generally don’t go for the big safer names, but Suncor Energy Inc. (SU on the TSX) got my attention.
One of the best capitalized companies, it’s been hit as hard as others in the sector. Not long ago trading north of $40, and now down close to $15 or >-60%. The quoted dividend is $1.86 a share (although surely any board worth its salt will be cutting this) so the yield is more than 12%. I’m okay with a potential dividend cut – they can use the cash to purchase assets on the down low. It’s inevitable that there’ll be some consolidation taking place with a plethora of more junior oil companies bound to get their loans called by the banks as this financial crisis (caused by coronavirus) deepens.
I’m not immune to betting on a more risky name in the sector either. Crescent Point Energy (CPG on TSX) had a few problems prior to the meltdown, and has fallen from a fairly recent $4.00 to $0.99 (-75%).
Don’t misunderstand me. These are not trading ideas. Oil cycles typically last from 2 to 3 years. There’s too much of it, the taps are shut off and then oil prices rise again. At higher prices, the taps come on and there’s too much of it again. It’s likely I will sell names like these at a decent profit, and probably too early – but early is better than never. I’m not recommending anyone do as I do or say. Just sharing what has worked for me over a long career managing portfolios. For these types of longer term opportunities, I generally buy when nobody else will, avoid looking at the stock prices for at least a year, and when OPEC and Russia and U.S. shale producers are all happy again, I start looking for my exit point.