A wise man, ahem,
once said that a
diversified
portfolio should
contain
an oil stock.
Jim:
We have just stared
to see the oil and
natural gas
companies report
their latest
quarters… they are
not pretty… in fact,
they have been hit
by the $40 oil ugly
stick… but that
doesn’t mean that
the stocks do not
already reflect
acne, maybe
dandruff, B.O…. we
can’t do a reality
make over of the
group… but we can do
a reality check… the
state of oil and gas
sure isn’t strong…
but I do believe the
crude prices have
seen their
admittedly zoftic
bottom… and there
are some good plays
out there now that
they have come down…
at least a couple of
oil and gas names
that I think that
you should buy, buy,
buy… especially with
the pullback in the
group that we saw
today.
Now, in the first
gospel according to
me…
Jim Cramer's Real
Money…
now available in
paperback at a
bookstore near you…
I said that oil
stocks should be
part of any
diversified
portfolio… that was
back before the huge
multi year rapid oil
that has since been
completely and
utterly repealed…
but the advice is
still sound… as long
as you know how to
pick them… so what
do we want these
days from an oil and
gas stock… whenever
a stock is tied to a
commodity price… you
have to accept some
volatility… because
these stocks trade
with their
underlying
commodities… with
oil and natural gas
prices first… and
the fundamentals
second… given how
volatile this
commodity is… and
this market has been
bigger when it comes
to the oils then any
other time…you know
that it is a big
part of the S&P… it
causes problems… but
bigger also gives
you a more diverse
mix of businesses…
Jim:
There is exploration
and production…
refining and
marketing… when you
open up an oil
company… that gives
you more stability
than if owned a
smaller pure play on
one of these areas…
oh by the way, we
have seen what has
happened to the
smaller ones… the
small wildcatters…
at the first sign of
a natural gas or oil
decline… they get
crushed… crushed
worse than my
wildcat, Cromac…
that is right,
Cromac.. run over by
an 18 wheeler… at
least she had the
honor to be named
after a once great
disc drive company…
before her untimely
death… I am still on
the lookout for a
timely one.
But bigger isn’t
better… bigger isn’t
enough… in this
miserable market…
and boy did we have
a miserable market
today… you also need
dividend protection…
a nice notoriously
B.I.G. juicy
accidental high
yield…that will help
cushion the
downside… give you
income… even if the
stock does nothing…
even if the stock
goes down… this is
the process… this is
how you should go
about picking
stocks… I would call
it the education
part of Mad Money…
not exactly “Saved
by the Bell” but
definitely superior
to “The Wonder
Years”… as I know I
alienated the
younger demographic
the other day with
references to
Dickens' Spencer,
Dick Van Dyke… no
one has ever heard
of those anymore…
where does this
leave us… I got two…
I got two high
yielding integrated
oils… Conoco with
it’s 4.0% yield… and
BP for it’s large
and in charge 7.8%
yield… I like these
two stocks so much
that my charitable
trust owns them… I
just added to both
positions today… I
just thought it was
right… that is the
strongest
endorsement I can
give… believe me, I
am tempted to add
more… I like
Marathon, on a
potential break up…
and it’s Dustin
Hoffman Lawrence
Olivier lineage… and
Chevron, at $65 or
less… when it yields
above 4%… but for
now Conoco and BP
will do… when oil
tests that low $30’s
level… I do think it
will test it… I do
think it will hold
it… then I will get
more aggressive.
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Jim:
But why am I
focused more on oil
tonight than ever…
because Exxon
reports tomorrow…
and I expect it to
be ugly… and the
whole group could
slide… as a result
you have to be ready
with the names to
buy… not sell… but
to buy… we like
Conoco because it
let’s us play the
natural gas market…
as it’s the largest
producer of natural
gas in the U.S… and
should benefit when
natural gas prices
eventually recover…
$4.25, $4.50 today,
unbelievable… in the
meantime Conoco’s
diversified enough
that low natural gas
prices shouldn’t
kill you… as I know
it did for the pure
plays… it is the
third largest U.S.
oil company… and the
second largest
refiner… that
business is doing
well by the way…. as
we learned when
Conoco reported it’s
4th quarter…
Conoco’s earnings
were a little better
than expected
operationally and
the stock is now up…
it is down $4 from
where it was just
yesterday… at one
point… because its
exposure to
refining.. a
business that does
better as oil prices
move down… because
oil is a refineries
main cost… buy some
oil in the open
market… you paid
more than you should
have at the pump,
you know that…
Conoco has fallen
from its peak of $95
to $47... 50%
decline… I think any
bad news is
microwaved into the
stock… we used to
say baked… but we do
not have time for
that any more… since
the company that
just took a massive
$26B impairment
right down… on
assets that are now
worth less… because
of lower oil prices…
and lowered its
capital expenditure
plans… I think
Conoco is the best
of the majors… and
it trades at a 30%
discount to Exxon
and Chevron… that
makes no sense to me
at all… I like to
buy this stock
whenever it drops
below $50... like it
today in a very
painful way… but it
does give you a 4%
yield right now.
Now, if you are
looking for
something with an
even bigger dividend
that will give you
more income… a stock
that is paying you
practically a
fortune just to sit
there and own it…
well then the oil
and gas play for you
is BP… formally
British Petroleum…
best dividend in the
sector… 7.8%
yielder… management
has endorsed the
dividend… and given
BP’s cash flow and
the strength of it’s
balance sheet… I am
not worried that
they will slice it…
like Conoco, BP has
a prestige if not a
mosaic of diverse
business… and it is
trying to become
more diversified….
about 60% of BP’s
production is tied
to oil… but last
year the company
bought… boy is this
topical.. assets
from Chesapeake
Energy… on the
cheek… to get more
natural gas exposure
and to benefit from
the large
opportunity for
growth in all these
fast growing shell
plays… that we used
to love so much when
that gas was more
expensive… the
companies Woodford
Shale investment
should help double
it’s production in
the mid-continent
region… Woodford not
to be confused with
the incontinent
region… or the
terrific Bourbon of
the same name… much
too good for the
cheap linoleum
floor… how about the
Fayetteville Shale,
BP will now have a
25% interest in
Chesapeake‘s
properties… owning
135,000 net acres…
giving it the
ability to
participate in 25%
of any additional
Fayetteville leases
Chesapeake acquires
in the future… maybe
the best way to play
Chesapeake… wow…
this could hurt… is
thru BP… BP is also
a bit of a
turnaround story… as
management as been
focusing on
improving the
companies
profitability by
reducing costs… they
report next week…
Tuesday, February
3rd… and we… the
royal we… expect to
see 6% production
growth above the
groups average… BP
trades at a 10%
discount to Shale
and Toutale… the two
other big European
based integrated
oils… it should
catch up as it grows
production… delivers
higher margins… and
keeps up that juicy
dividend.
Bottom line…
The Bottom Line!:
This group is coming
down… Exxon is going
to be bad… for oil
and natural gas… we
want big integrated
names with big
dividends, unlike
Exxon… that means we
like Conoco… that
means we like BP…
which is why I own
it for the trust.
If you’re looking to
buy oil and natural
gas stocks, I think
you should consider
ConocoPhillips (COP*)
&
BP plc (BP*)...
[verbatim recap]
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Jim went on after
this segment to take
questions from
callers, and
responded with his
comments...
``````````````````````````````````````````````````````````````````````````````````` Q:
My question is about Frontier Oil
Corp. (FTO),
which I own. With
crude oil, this
should be music to
the U.S. refineries,
instead they are in
discord. What is
your opinion?
Jim:
Well, you know… I
don’t… I am not sure
that your play is
the right way to
play it… I have been
urging people to not
be so specific as to
focus on one end of
the business.. so in
other words, I don’t
want pure refining,
that’s your play
Frontier… I don’t
want pure
exploration or
production, that is
what got us in
trouble with natural
gas… I want the
whole panoply… that
way I am cushioned…
Tony, you are not
cushioned… you are
rolling the dice…no
dice rolling on this
show… I think you
are taking on too
much risk… I am a
seller… not a buyer
of Frontier.
``````````````````````````````````````````````````````````````````````````````````` Q:
With the logic that
the oil isn’t going
to stay down
forever, or the
event of another
pullback into the
$30’s. How do I get
into a position that
most reflects the
cost per barrel? I
have been looking at
an ETF like United States Oil ETF (USO),
or is there a more
direct play?
Jim:
I am not going with
USO because then you
have the good and
the bad… you want
cost per barrel…
cost per BTU… cost
per BCF… you want Equitable Resources Inc.
(EQT)…
that is the low cost
producer… now, that
is not all that I
care about… but
those who really
look at cost per…
you have got EQT,
you have got it on
the cheek… the
company is on the
way down to $35..
and that has got the
lowest… okay… so if
you want to go with
just pure low cost…
EQT is my play… I
like more of a
dividend… but he is
a low cost guy… he
gets a low cost
producer.
If you are looking
to buy oil and gas…
I want you to
consider ConocoPhillips (COP*)…
and I want you to
consider BP plc (BP*)…
and I want you to
consider Aubrey
McClellan, who is
from Chesapeake… and
will be right with
us.
