TheStreet.com's Jim Cramer says names in this group are now trading vehicles, not long-term investments, but that doesn't mean they're any less critical to own.Here we are again in the weeklong pullback in oil where the stocks all get thrown out and no one wants to touch them. We will soon hear from the chartists (as I call technical analysts) that these stocks were unable to take out their highs, or they are getting the right -- and cold --shoulder.
How long until I hear that now that the bubble has popped and you are looking at Exxon (NYSE: XOM) (Cramer's Take) as Toll (NYSE: TOL) (Cramer's Take) at $50 and Chevron (NYSE: CVX) (Cramer's Take) as Lennar (NYSE: LEN) (Cramer's Take)?
Plus you have the ne'er-do-wells, like the ridiculously poorly run BP (NYSE: BP) (Cramer's Take), truly stinking up the joint.
So, what should you do?
How about buy them?
I don't care where the price of oil goes, as long as it doesn't go below $70. When it is up here you are going to see some great earnings reports from these companies -- not as great as before, but then again, oil stocks are funny.
They are no longer going to get forward price-to-earnings ratios of 6 and 7. They throw off too much cash and they can buy back too much stock.
In that sense, stocks like Royal Dutch (NYSE: RDS.A) (Cramer's Take) or Total (NYSE: TOT) (Cramer's Take) or Chevron or Exxon are true quandaries. We don't know how to value companies that don't have up earnings but have huge earnings and cash streams.
If we value, say, Occidental (NYSE: OXY) (Cramer's Take) as a long-term option that's wasting away, we shouldn't be willing to pay much more than it is now, maybe lower.
But is that the right way to view companies that are able to replace their reserves? Is it the right way to view a company like Conoco (NYSE: COP) (Cramer's Take), which is deciding to return a huge amount to its shareholders?
I believe that the way to buy these stocks is simple: When they come down 5-7%, I'd buy them with the expectation that oil prices will firm because of demand, but when they spring back to new highs or have nice increases from where you bought them, I'd sell them.
They are now trading vehicles, not long-term investments, because we just got five years of crude price increases in the span of a few months.
But to not own this critical group seems wrong to me. Is it "late"? Yes. But is it over? No.
Not by a long shot.
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long ConocoPhillips.
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Reader Comments (Page 1 of 1)
10-23-2007 @ 11:03AM
michael schneider said...
As a commodity oil prices are volatile and many people own the oil stocks now and are overweighted so there is risk. Oil recently has come down with fears of a slower economy and projections of a warm winter. As long as the long term trend is bullish, I'd agree that investors can make money as long as they don't get overextended. At the moment, it seems too early to jump back in without a catalyst however. One catalyst could be another Fed rate cut which is likely coming soon but since it is not a certainty could give us an up move. For a long list of energy stocks which Jim Cramer has given bull signs to since the start of his Lightning Round on CNBC's Mad Money see http://www.Barrelomoney.com.
10-23-2007 @ 12:15PM
Gumby said...
Most of us is still driving alone to work and back home. We installed diamond lanes but it is not working. Big oil stocks has relatively few shares against their revenues. We are addicted to oil and big oil stocks are secluar bullish stocks. Secular means like unseen ..
10-23-2007 @ 1:31PM
Zip said...
Here is a REVERSE bargaining chip that should create a price cap:
I KNOW oil stocks are a good investiment short term...but long term...if gasoline hits $4 plus a gallon by next summer...we could see the introduction of liquified coal, to try and push away from a possible recession. Also add in a vigorous enthanol campaign. That could create a drop in crude prices for at least a year, regardless of supply. ALL modern oil refineries except liquified coal, especially out west. Our strategic oil reserves are FOR middle east embargo events, etc...so we can buy enough time to switch to liquified coal. We can switch to almost all liquified coal in as little as 6 months, with no interuptions in available hydrocarbons for the next 200 years if they choose to do so, and send the middle east into a full recession.
10-24-2007 @ 3:14AM
john said...
Liquified poo-shaw
10-24-2007 @ 4:54PM
Carletti said...
I couldn't agree with you more, Jim. Get into oil! It's absurd for one not to consider a major oil stock in their portfolio given the times we're in. But I like international conglomerates from Europe and Canada more than I do the U.S. powerhouses. For example I like Eni SpA (E) from Italy, and I second the notion that Canadian oil exploration in the Alberta oil sands asks for a good look. So Canadian Natural Resources (CNQ), which is trying to become a part of an oligopoly in the Alberta oil sands area, comes to mind, although I would wait for the target price for that stock.
Bottomline, get into some kind of oil stock, as indications are that the fight for oil will only continue and that the Western hemisphere is unprepared to let up on the demand in the long run, and most certainly in the short run.