The title of this post might have caught your eye and had you thinking I'm an absolute idiot. No I don't think that oil, whether it be heating oil or gasoline, is cheap at all. I pay the current high prices of energy just like everyone else. I do wonder though, if the oil stocks have become a value at their current levels, given the recent quick rise in crude oil. Could this be an opportunity for the average investor?
Crude oil has now closed above $100 a barrel after consolidating some of its gains between the beginning of the year and a week or so ago. The commodity seems to be right back in the thick of its massive bullish run as the fundamentals of economics 101, strong demand and not enough supplies, continue to power the commodity's strength.
Why then have oil stocks not risen more of late? Let's take a look at some interesting examples of what I mean:
- ConocoPhillips (NYSE:COP) September 24th price- $89.18 Current price- $81.60
- National Oilwell Varco (NYSE:NOV) October 15th price- $79.28 Current Price- $65.72
- Valero Energy (NYSE:VLO) October 15th price- $73.77 Current Price- $61.44
Interestingly, in this same period of time, while energy stocks have cooled off some, crude oil has risen strongly. In all of the time periods listed above oil traded between $75 and $85 a barrel. So now that oil has added $20 per barrel or so, one would expect the stocks to be much higher, but that simply isn't the case. Many energy stocks sit 10% or more lower than they did when crude oil was trading at $80 a barrel. *Below is a look at a chart of crude oil from September, 2007 until now*
Why has this disconnect occurred? Maybe because investors are betting that the recent runup in oil can't be sustained. I believe this theory is untrue and that the fundamentals still look strong for the energy stocks and the commodities.
Even if you aren't a long-term bull in the energy space you have to see some values when you look in the energy sector and see the tiny multiples being put on some of these fast-growing energy companies.
While the pain at the pump is likely to get worse, investors might be able to help pay for that gasoline by profiting from energy stocks which appear to be undervalued.
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