Who will be next to levitate? Perhaps the oils? This group's actually done pretty much nothing this year.
You've got high-quality stocks like Schlumberger SLB only up 7% and National Oilwell Varco NOV down 4.5%. Exxon's XOM only up 2% and Conoco Phillips COP is up just 4% and BP BP , even after that great quarter is up only a similar amount. And every time the futures are down people bang the stocks down, even as that's proven to be a sucker's bet if you look at how the individual stocks are trading because, in reality, Brent's still higher than $100 and that's the only benchmark that matters.
How long can this underperformance last if the dollar stays weak -- still lots of hedge funds doing that trade -- and natural gas doesn't go back to below $3.50, the level where profits start getting crimped? How long can it last if we keep getting a bounce in oil at the $93 level here and $102 over there, even as today it is a tad weaker, on news that the Saudis are upping their production?
The group's more bifurcated than it used to be because of the activism component. For example, I think that Hess HES could still be very much in play as it tries to defend itself against Elliott Management in the May 16 board proxy vote. Elliott has truly traced out some of the problems Hess has and I have to admit I am dumbstruck at how poorly Hess has been run. I think the company's worth a great deal more than it is selling for.
It's the same with Occidental OXY . I know there are those who are circling OXY, but the main thing is that it is ripe for the kinds of split-ups we have seen that sever refining and marketing from production. Plus, it has a fabulous chemical division. Of course two months ago you couldn't give this one away after the company said that production wasn't coming through, but that's all been forgiven after the last earnings report and I think the break-up could be an event worth holding out for.
In the meantime, you can just own some slower growers like Conoco, with those fabulous nat gas holdings, or Chevron CVX , with terrific Gulf of Mexico properties. Risk takers can plow into BP with calls. What a terrific quarter it had and if it weren't for the Macondo lawsuit I think this one would have gone right to $50.
Two others make sense to me: Ensco ESV , with that newly-fattened dividend, and Linn Energy LINE , which is acquiring Berry Pete and will have some terrific properties out West, where oil and gas are scarce.
After all we have seen happening these days, the group just seems right for rotation and appreciation. Only Exxon seems, at least to me, an unlikely candidate for price appreciation, but if the whole group moves, of course, it will move, too. Oh, and don't forget to look at my videos with Dan Dicker on Wednesday, including some on other plays in the Gulf of Mexico as well as Noble's NE prospects in the Middle East.