After one of the longest, weirdest, and most exhausting election seasons in our history, we are only six days away from (finally) choosing a new president. As importantly, 34 Senate seats and all 435 House seats are up for grabs.
Investors are justifiably nervous about the outcome. Yesterday’s selloff was probably a symptom of that unease. Betting markets currently predict Hillary Clinton has a 70-75 percent chance of winning. I suspect her odds are much better. Four years ago Obama’s five million vote victory was fueled by a 56 to 44 percent majority of female voters and an even greater 74 to 26 percent majority of Hispanic voters. I am 99 percent certain Trump will do worse with both groups. Ever since he announced his candidacy Republican leaders (and media talking heads) have known that women and Hispanics would be his Achilles heel and yet, shockingly, he has made no effort to improve his appeal to these voters. Either he is delusional about his chances or simply refuses to learn the daunting math required for a Republican to win the general election.
The Donald’s only hope is the fact middle-of-the-road voters seem to dislike Hillary almost as much as they dislike him.
Last February, I wrote a thought exercise of sorts for CNBC.com weighing the stocks of the number one and two companies by market cap at the time, Apple and Exxon.
Apple, as you may recall, had just turned in one of the greatest quarters in history, annihilating estimates with record smashing iPhone sales. Its stock had shot up to $128/share, and just about everyone expected it to climb higher. Pundits were breathlessly debating how soon Apple would become the world’s first trillion-dollar company. Exxon’s stock, by contrast, was $88/share and not many people were touting it as a buy. Oil prices had crashed to $50/barrel, from over $100 less than a year earlier, and a recovery was seen as unlikely.
Despite these factors, I wrote that if I could buy only one stock between the two and hold it for the long term, Exxon was a better choice than Apple. A quarter later, as both companies prepared to release earnings again, I reiterated my preference for the energy giant.
In theory, Wall Street analysts are paid to predict the future earnings of the companies they cover and use those predictions as the basis for their stock recommendations. In reality, this is not always how the game works. Often, analysts seem to forget that earnings and earnings growth have always been the mother’s milk of stock prices over the long term. Instead, they focus on short term price fluctuations, lowering ratings when a company’s stock drops, even as its earnings estimates rise.
Make no mistake, as I’ve repeatedly warned, most stocks making the 52-week low list are there for good reason. The large majority of them are heading lower, and many will cease to exist. Conversely, most stocks making 52-week highs are likely headed higher. However, profitable exceptions to these rules do exist. With a little digging, investors can exploit the imbalance between the Street’s short-term perception of a company, as reflected in its stock price, and its long-term prospects, as reflected by its earnings outlook.
Ever since oil cratered to $26/barrel on February 11th, prices have steadily inched higher. West Texas Intermediate has now climbed into the $40/barrel range. Not surprisingly, energy stocks have kept pace, with many service companies and independent producers hitting year-to-date highs. Unfortunately for some energy firms, however, this recovery will probably be too little, too late.
After a rough start to the new year, a lot of investors might be tempted to buy into “fallen angel” companies at or near all-time lows. They’re not hard to find. In the tech sector, GoPro and Fitbit, two profitable and recently public companies, have taken major hits. GoPro is down 90 percent from its all-time high. Fitbit has lost two-thirds of its peak value. Another sector where investors might be looking to buy low is energy, where scores of service and exploration companies are down 90 percent or more. Established names like Denbury Resources, Forbes Energy, Gastar Exploration, Basic Energy, Bill Barrett, and Ultra Petroleum, among others, have all been creamed, and could seem like bargains.
A few months ago I traveled to Houston and wrote about the increasingly upbeat mood I encountered at the energy companies I visited there. I came away from that trip thinking that well-managed service and exploration firms might be attractive investments. Many had declined 40-60 percent in response to oil’s decline from $104 last summer to the low-$40s by late fall. As oil prices rose past $60 this spring, I suspected these stocks could eventually rally.
Two weeks ago, I flew to my old stomping grounds in Houston and visited seven energy companies in three days. The mood around town and in corporate offices was far more upbeat than my last few trips down there, and not just because the Rockets were in the midst of pulling off one of the biggest comebacks in NBA playoffs history.
Despite what you might have heard, the oil business is rebounding.
[note: an earlier version of this post originally appeared on my Yahoo! Finance page.]
A few months ago, Apple (AAPL) posted one of the greatest quarterly beats in the history of capitalism and its market cap–already the world’s largest–officially doubled the size of the next closest company, a little energy outfit you might have heard of called Exxon (XOM). Nonetheless, I wrote a piece for CNBC.com at the time saying that if I had to choose between the two stocks to buy and hold for the next twenty years, I would pick up my iPad, log into my brokerage account and order a whole bunch of XOM.
With both companies releasing earnings this week, it seems like a good time to revisit that call. Apple annihilated analysts’ expectations again on Monday. Exxon also beat, but its profits were off by almost 50 percent and its stock has been the second worst performer in the Dow, down 5 percent since New Year’s Day and over 13 percent in the last 12 months. The oil giant has even ceded the number two spot in market cap to Microsoft for the time being.
So, have I changed my mind? Do I now think AAPL is a better buy than XOM? The short answer is: no. The long answer is: absolutely not.
[note: this post originally appeared on my Yahoo! Finance contributor page.]
Last week, I spent three days in New York City at the annual IPAA (Independent Petroleum Association of America) Conference. Like most people, I’ve been leery of energy stocks in recent months. But I left the conference with a different mentality.
As unlikely as it seems, it might be time to go bargain hunting in the oil patch.