Some portion of the selling in energy and materials stocks is part of a window dressing effect. Either some managers really are doing this or some traders think that managers are doing this. Also some of the commodities are having the same issue and natural gas has also been hit by the unwind of Amaranth.
I have no idea how to quantify the effect and I am not an energy bull calling a bottom. I think that after going down in price almost every day, related assets will correct up a little as the next quarter starts. After that maybe more selling, I don't know.
All of the long term supply and demand issues that draw me to the sector are still in place. Shorter term there is more uncertainty, obviously. Energy has gone from more than a 10% weight in the S&P 500 to 8.9% as of Friday. I have not sold any energy since May so in a way the sector has reduced itself in portfolios I managed which is good but on the negative some of the names I own that did better than the sector on the way up are doing worse on the way down.
My conviction in the long term combined with never having gotten carried away with how much I owned leaves me standing pat for now.
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4 comments:
Roger,
I agree with you that it is hard to call the energy sector.
But what do you think about the Oil Services and Drillers? They have been getting the stuffing beatten out of them but it seems that even at 50 barrel of oil their business model is sound. Some drillers are trading at 6-7x '07 earnings... (of course one has to believe there won't be huge downward revisions and there won't be a global recession)
Any thoughts would be appreciated...
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I have only had one services stock through the last cuple of years but i sold it a year and a half ago.
I view them as quite volatile, relatively speaking. I get volatility from a refiner and an oil sands name instead.
Candidly I have no interest and so haven't studied them in the same way as the intergrated and what I mentioned above.
Did you see this? "Commodities as an Asset Class" by Stepehn Roach.
http://futures.fxstreet.com/Futures/content/101960/content.asp?menu=review
I thought he made some good points. Of course I don't know if his concern about commodities changing as an investment is true? Sounds a little quantum to me: if you look at it - it changes properties.
Russell
Thanks for your 2 cents.
I like a couple Canadian oil sands plays as well but I must say that the oil services and drillers are washed out.
IMHO they have a great chance for a 10-15% rally in the next 6-9 months. certainly worth a look at names such as SLB, BHI and ESV...
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