Waiting Out The Long Oil Crash

Whenever an industry hits the skids there is value to be found. That is, unless the whole industry is going under. In that case value would take a while to surface. An active example is oil. There have been plenty of opportunities over the past two years to invest in oil and lose it all. While oil was attractive last summer when everyone thought it hit a bottom, the buy calls were short lived as oil continued to fall. At the same time we had commodities slowing down as an asset class. Now an August '16 crude futures contract is at $36.82 per barrel compared to a $93.11 closing price February 25, 2013. Brent Crude is at $34.26. 

Crude 2014 & 2015

Despite the carnage there will be equities (and bonds) worth buying. If you are dividend focused it will pay to do your research if you are going to buy new investments as dividends are being slashed, cut back or stopped.

Kinder Morgan $KMI is a name that has popped up since they crashed - despite the gloomy future of the industry that lies ahead - as a group that can start again and perhaps go on an M&A streak picking up the soon to be cheap oil assets. Credit Suisse and Stifel recently upgraded KMI to buy status but some analysts forecast it staying around $17.50-$18.00 until Q1 2018. They are also unlikely to go bankrupt. An estimated 40% of oil related companies are entering bankruptcy protection. In mid-2015 many oil service groups extended additional credit to energy firms to pick up the slack in the industry and kick start growth. Now with global growth slowing down and a growing oil surplus there is real exposure and losses that will need to be funded. The turnaround is just beginning to be planned and an entrance at this point would be premature. But it is time to build out a new watchlist for energy groups and avoid the urge to be dragged down the road while oil finds its bottom.

KMI 5 Year Chart

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