Energy stocks are getting hammered along with the rest of the market, but for a slightly different reason.
OPEC met with Russia last weekend, hoping to formalize an agreement to cut crude oil protection and raise prices. As the coronavirus from China spreads, oil prices keep falling, and the outbreak is certain to hurt the global economy.
Saudi Arabia had already agreed to drop production to manage reduced demand and keep prices stable.
But Russia was having none of it. Not only did it reject the production cuts but said it would pump more to make up for OPEC’s reduced supply. Apparently heated words were exchanged by the Russian oil minister and the next in line to the Saudi throne, Mohammad bin Salman.
Saudi Arabia then moved to start an all-out price war.
Oil prices fell, and then Covid-19 hit the U.S. Major economic activity became restricted to slow its spread. And oil prices dropped even more, as the market fell.
These energy stocks are all F-rated in my Portfolio Grader tool that I use to find Growth Investor plays. Avoid these seven companies like Covid-19.
Energy Stocks to Sell: Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is one of the world’s largest integrated oil companies. Usually that’s a good thing, since in troubled times it can cut back on say, exploration and production, and continue to focus on downstream marketing and retail sales.
But in a situation like this, there is no sector of the business that is doing well. And it’s too big to cut back across the board in any meaningful way quickly enough. That’s the trouble XOM stock is in now.
It’s exposed at every level and its global exposure makes it worse, not better. There is no place to turn.
XOM stock is off 47% year-to-date. And crude and natural gas prices continue to plummet. The upside is, it has a sizable 8.3% dividend that’s pretty safe. But there could be more than that in downside left.
BP (NYSE:BP) is off 42% in the past month. Remember this is one of the oil giants and has a $90 billion market capitalization. This is not a small company where its stock price rises and falls like the sun.
BP, like most of the other integrated oil majors, is in trouble because there’s nowhere to turn in this kind of market. And now the global economy is looking shaky.
And the fact is, if everyone is avoiding travel, shopping and public school, that directly and indirectly kills its business.
Granted the stock is providing a 11.6% dividend now. But this is far too soon to jump in to get that. There’s more downside left and that bottom hasn’t been found yet. Meanwhile, other stocks have much better prospects due to revolutionary technology.
ConocoPhillips (NYSE:COP) is a major global exploration and production (E&P) company with other integrated operations. It has a good share of natural gas in its portfolio as well.
But this is a very demand-based end of the business, and one of the most volatile. When energy prices were steady, it was ideal for COP since it could produce at a stable margin and create efficiencies to maximize those margins.
Also, the U.S. economy was expanding, so it could sell into the market and deliver good numbers every quarter.
Now, all that has changed. With decreasing demand, its access to and ability to supply energy products is not helping move the needle.
The stock is off 56% in the past year, and 52% in the past month. The downside momentum is still very strong. Don’t be tempted by its 6% dividend.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is another global E&P player. It also has some midstream and downstream operations, but its business is pulling energy out of the ground.
And that’s not a great business right now. As a matter of fact, it’s a terrible business right now.
The stock is off 82% in the past year and 70% in the past month. And you can be sure, it won’t be long until its massive 26.8% dividend gets cut. I’m all for bargain hunting if a company is actually a good buy, but don’t bottom fish this thing right now; it’s still a falling knife.
Carl Icahn announced this week that he is looking to pick up a 10% share of the company here. That may sound encouraging, but unless you have a very long time frame and as much capital to be wrong as Icahn does, your best bet is to avoid this one for a while.
PetroChina (NYSE:PTR) is one of Asia’s largest energy companies. But its $131 billion market cap hardly comes close to its global peers.
It’s one of two companies that supplies most of China with its energy needs and has created a fast-growing company that is building its global reputation by creating partnerships with larger majors.
Yet while its long-term future is bright, given the support of the Chinese government, its short-term fate is a little less certain. First the U.S.-China trade war, and now Covid-19. That’s a big one-two punch.
The stock is off 50% in the past year and it has just announced that it’s going to suspend shipments of liquified natural gas (LNG) imports for at least the next quarter. That was a deal it had with XOM and others. That’s not a good sign of the demand in China.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) is a decent-sized North American E&P company, with a $2.9 billion market cap.
While most energy companies are struggling here, this is a good example of how the upstream sector is being impacted. It’s usually the sector that’s most leveraged to supply and demand issues with oil and natural gas production. (The select few energy stocks that make my Growth Investor list right now are midstream and downstream companies).
DVN stock is off 67% in the past month and 74% in the past 12 months. This is a difficult trend and it’s not a place where you should walk in thinking the worst is over.
It’s possible there may be an overreaction to the potential for a global recession, but it’s not worth betting on right now.
This is a risky sector that shouldn’t be a risky investment, given all the oil and natural gas in the North American shale deposits where DVN works. Steer clear for now.
Cimarex Energy (XEC)
Cimarex Energy (NYSE:XEC) is another E&P that’s half the size (by market cap) of DVN. Yet its problems are just as big.
XEC operates in the Southwest shale regions, including the big daddy of them all, the Permian Basin. But it doesn’t matter how much oil and natural gas you can produce if there isn’t a market that wants it.
Shutting down wells or running them at half capacity is not what E&P companies want to do. But that is what has to be done. Some analysts are betting that this situation is overblown and are stepping in, but they’re in the very small minority.
The stock is off 62% in the past month and 78% in the past 12 months. This is another one to avoid in one of the hardest-hit sectors in the energy patch.
The bottom line, though, is that energy companies are in a terrible position right now. Besides $30 per barrel oil, you have to consider that in the United States the stocks are basically not sold in 33 blue states; they’re divesting due to environmental, social and corporate governance (ESG) investing philosophies.
Instead, the companies I’m particularly keen on now are facilitating the spread of ultra-fast internet worldwide — anywhere there’s a cell tower.
The 5G Buildout Is an Incredible Opportunity for Investors Right Now
Within two years, most cell phones will be 5G enabled and be able to wirelessly handle television streaming. With 5G, we’ll have cable modem speeds on any device; no need to plug in. That’s a big deal for rural areas … the very same areas that are also key to President Donald Trump’s reelection. So, by pushing 5G over the goal line, Trump will deliver a big win for his base — and strike a blow against Chinese rivals like Huawei Technologies.
But, in the big picture, 5G is about much more than trade wars and faster downloads. Because 5G is 100 times faster than 4G, it’ll allow your internet devices to work in real time. That advancement is a game changer for tech companies.
With the 5G infrastructure market set to grow at an annual rate of 67% over the next 10 years, the entire market will go from $780 million to nearly $48 billion. This buildout is where I see opportunity with 5G stocks now.
Cable companies can do their best to fight back with fiber optics … but they can’t compete with the convenience of a smartphone, once it’s got ultra-fast 5G. That’s how my 5G infrastructure play will capture more market share from the broadband cable companies.
The stock I’m targeting is enjoying an influx of big money on Wall Street, and it has strong fundamentals, too — making it an “A”-rated “Strong Buy” in my Portfolio Grader system.
When you do, you’ll see how to claim a free copy of my new stock report, The Netflix of 5G, which has full details on this company — and what makes it such a great investment.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In one recent feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.