By Justin Spittler, editor, Casey Daily Dispatch
Oil stocks are ripping.
The Energy Select Sector SPDR ETF (XLE), which invests in 32 large U.S. oil and gas companies, is up 13% since mid-August. That’s double the S&P 500’s return over the same period.
You can see this big move in the chart below.
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has done even better.
XOP is another major energy fund. It invests in 64 oil and gas producers.
Below, you can see that it’s up 26% since mid-August. That’s four times the S&P 500’s return over the same period.
• Investors aren’t used to seeing energy stocks do this well…
That’s because energy stocks have underperformed the market since 2008. You would have actually done much better blindly investing in an index fund.
Because of this, most investors gave up on energy stocks.
In fact, energy stocks make up just 5.9% of the S&P 500 today. That’s down from 42% in 2013.
This is totally irrational. People are acting like the U.S. oil and gas industries are going out of business.
But Dispatch readers know better.
You see, the energy sector is highly cyclical. It goes through booms and busts.
And after lagging the market for nearly a decade, the stage is now set for a monster rally in energy stocks.
• That’s why I’ve been stalking the sector for months…
In June, I showed you how energy stocks were starting to bottom.
Then in September, I showed you how XLE had just broken out of a downtrend. As I explained, this was the buy signal I’d been waiting for.
Since then, XLE has jumped 3% while XOP is up 7%.
These are decent gains. But they’re nothing compared to what we’re about to see.
You see, energy stocks are in the early innings of a new bull market. And early investors stand to make a fortune.
So today, I’ll tell you the best way to cash in on this bull market. And no, it’s not XLE or even XOP. The opportunity I’m talking about has far more upside than either of those funds.
I’ll explain why in a second. But let me first tell you why energy stocks are rallying…
• The price of oil is skyrocketing…
It’s up 25% since August.
It’s now trading above $56 for the first time since June 2015.
That’s obviously given energy stocks a huge boost. But what we really want to know is if energy stocks will keep rallying. And all the evidence suggests they will…
Demand for oil is rising. In September, the International Energy Agency (IEA) raised its global oil demand by 100,000 barrels per day (bpd). It was the third straight month that it raised its estimate.
Global oil inventories are declining. According to the IEA, global oil stocks are returning to normal levels after being extremely bloated for months. It also said that oil inventories of the Organization for Economic Cooperation and Development (OECD) could fall below their five-year average “very soon.”
Global oil production is coming down. The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 14 major oil-producing countries, has cut its production by 1.8 million bpd since the start of the year.
This is all great news for companies that pump oil. That’s why XLE and XOP have taken off.
• But this is even more bullish for oil services companies…
These companies sell machinery and equipment to oil producers. They also provide services like seismic testing and rig transportation.
You can think of them as the “picks and shovels” companies of the oil industry.
But like oil producers, these companies are highly sensitive to the price of oil.
Think about it. When the price of oil is low, producers make less money. That leads them to drill fewer holes…pump less oil…and buy less equipment and machinery.
• That’s the problem that’s been plaguing oil services companies for the last few years…
The price of oil plunged 75% between June 2014 and February 2016. This huge crash pummeled major oil producers.
To survive the downturn, major oil companies cut their dividends. They laid off workers by the thousands. They also cut spending to the bone.
In other words, pain spread to oil services companies.
The VanEck Vectors Oil Services ETF (OIH), which invests in 26 oil services companies, fell 63% between July 2014 and January 2016. Many individual oil services companies fell more than 80%.
Those are staggering declines.
But oil isn’t falling anymore. It’s surging.
• Thanks to higher oil prices, major oil producers are making money again…
Last quarter, profits for ExxonMobil (XOM) and Chevron (CVX) jumped 50%.
BP (BP) saw its third-quarter profits double. The same goes for Dutch Shell (RDSA).
Then there’s Statoil (STO), another major oil producer. Its profits nearly quadrupled last quarter to $2.3 billion.
This is incredibly bullish for oil services companies.
It means producers will drill more holes, pump more oil, and buy more machinery and equipment.
• The market is starting to “price in” this good news…
Just look at this chart of OIH.
It’s up 19% since mid-August.
That’s a solid move. But oil services stocks still have a lot of catching up to do.
You can see why below. This chart compares the performance of OIH with XOP.
When the blue line is rising, it means OIH is doing better than XOP. When it’s falling, it means OIH is underperforming XOP.
You can see that OIH has been lagging XOP since March 2016. This tells us oil services stocks are by far the most hated oil stocks out there.
• So, consider speculating on oil services stocks if you haven’t already…
You can do this easily with OIH, which basically lets you bet on the entire industry.
You could also concentrate your bets by picking shares of individual oil services companies. Here are four major oil services stocks poised to deliver fat returns in the months ahead:
➢ Schlumberger (SLB)
➢ Transocean (RIG)
➢ Halliburton (HAL)
➢ Noble Energy (NBL)
Just understand that oil services stocks are highly volatile. So, treat them like a speculation.
Don’t bet more money than you can afford to lose. Use stop losses. And take profits when you get them.
This way you’ll be able to capture big profits without exposing yourself to heavy losses.
New Orleans, LA
November 8, 2017
Today, incredible feedback from a reader who’s taken full advantage of the cryptocurrency boom:
I've been following the cryptocurrencies for several years through newsletters written by Doug, Teeka, and others. I started investing/speculating when bitcoin was between 200 and 400 dollars. I've taken out my original investment amount and still have over 6 figures in cryptocurrencies. I appreciate the in-depth research and valuable opinions. This is in addition to the valuable insights I've received from the newsletters on securities, which have also proven very valuable. Thanks for everything.
And one reader shares another problem plaguing electric carmaker Tesla. (You can read our recent writeup on why you should avoid the company right here.)
I have put options on TSLA. But I thought someone would pick up on the fact that the batteries under the seat of the driver cause a gauss meter to go off the charts for radiation. I tried to get a couple of guys to investigate that and let it be known, which would hopefully cause the stock to adjust to more realistic figures, but no one seems to have time. And who has the know-how? Thank you for your efforts.
In Case You Missed It…
If you missed Teeka Tiwari’s special cryptocurrency webinar last week, here’s your last chance to watch the free replay…