Experts Are Dead Wrong On Oil — Here’s Why
It case you missed it, oil is the hottest commodity right now.
In fact crude prices have climbed over 50% higher off the mid-2017 lows. But curiously, energy stocks haven’t responded… at least not yet, but wait for it.
In a recent article I told you about a time-tested rule of thumb I find quite profitable in my own investing: Simply buy whatever is neglected, out of favor and, best of all, widely despised. It’s classic contrarian investing 101, and it’s proven profitable time and time again.
Right now, the Wall Street analysts hate utilities, which is why they’re at the top of my watch list. In fact, the two utility titans I recently mentioned — Consolidated Edison (NYSE: ED) and Southern Co. (NYSE: SO) — both surged higher over the past few days even while the Dow took another 600-point dive.
But there’s another sector that’s pretty unloved today, and I’m finding plenty of quality stocks in this space: energy!
Now let’s revisit my first paragraph: Oil prices are up more than 50% over the past 18 months, recently above $65 a barrel. And yet energy stocks as a group are still trading at the same valuation levels that they were back when crude was trading at $26 a barrel! What gives? Even better, fundamentals are improving in the oil patch.
U.S. crude oil inventories are declining at a rapid rate as oil exports skyrocket. In fact, oil in domestic storage dropped by 11.5 million barrels over the past two weeks. And this is happening at a time of year when we typically see a buildup in oil inventories.
Of course, the Wall Street geniuses aren’t buying it, as witnessed by this headline in Bloomberg: “Oil Heads for Longest Slide in Month as Fears of Glut Increase.”
What “glut” are they talking about?
You can see the dramatic rise in oil prices shown in the green line in the chart above. The blue bars meanwhile show the just as dramatic decline in U.S. crude inventories. Clearly, the big jump in price has been driven by declining supplies.
Sure, inventories have ticked higher since February, but America’s current stockpile of oil is still down more than 20% year over year. There’s a LONG way to go before we’re talking glut.
But while the Wall Street crowd is missing out as usual, I’ll tell you who is buying the cheap energy stock story: oil company insiders!
In fact, the founder and CEO of domestic driller Parsley Energy (NYSE: PE), Bryan Sheffield, just bought $5 million worth of PE shares on the open market.
And Continental Resources’ (NYSE: CLR) chief Harold Hamm just snapped up almost $8 million worth of undervalued shares.
Now, that’s putting your money where your mouth is. And my money is betting on energy sector insiders, not the wrong-way Wall Street analysts.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch