Thursday, January 29, 2015

Smart Talk On Oil Stocks

I'm getting bored with saying "It's Too Early" to mess with oil stocks but if you must have exposure...
From Barron's Stocks to watch:

Chevron & ExxonMobil: Time For Plan B?
Citigroup’s Alastair Syme and team worry that big-oil companies like Chevron (CVX), ExxonMobil (XOM), and ConocoPhillips (COP) might betting too much on a return to higher oil prices. They explain:
Until now the industry’s Plan A to restoring profitability has been to rely on a return to higher oil prices. The industry now looks to be adopting a variant – Plan A-star – which emphasises some capex cuts and cost-control but still with a fundamental view that higher oil prices will come to the rescue. We think investor’s interests will only be achieved if the industry commits to full self-help action – a Plan B – where the underlying principle is that oil prices may not recover any time soon…
Within this context we think the equity market’s focus on Big Oil dividend yield as a valuation tool is an unhealthy obsession. The truth is that dividend cover for the group remains poor (the marginal income investor – the bond investor – we think continues to shy away due to the lack of security) and cutting capex will not pay dividends forever. Getting return-on-equity back above cost-of-equity is paramount. If spot oil prices persist then we think the group needs to push through a minimum of 20% cost-reduction in the E&P business to achieve this....MORE