Since the slide in oil prices began, I’ve made some arguments to the effect that we will see a bounce back in oil prices. Given that conviction, I am slowly building up an exposure to energy sector. For direct exposure, I have a relatively modest exposure to late 2016 and early 2017 crude oil futures. They’re much more volatile in their interim movements, but the upside is more significant. As of today I’m sitting on about 8% in about two to three weeks.
To give more balanced risk exposure, I also started picking up small amounts of ExxonMobil stocks monthly. The company has a high geographic spread and is integrated, so while it’s E&P activities may suffer, it’s global downstream activities will gain from lower input prices and transport costs, and because it has a huge asset base, lots of them already in production and conventional, I simply don’t see a scenario where they’re not making money even in a low oil price environment. And if oil heads back up to $70 and above, it’s even better.
The same argument goes for Chevron, which I’m not buying yet, but I expect to. Chevron stock is selling for slightly cheaper than Exxon on an earnings basis, but they do have some dodgy assets in Argentina and the deepwater Gulf of Mexico that will cost entirely too much to make money from, so I can see why anyone would be a tad reluctant. Still, it is Chevron. They’ll be fine.
My last preferred oil stock is Valero Energy Corporation. They’re one of the few energy companies playing this current market right. They have a lot of refining going for them, which is great because they buy crude oil, refine it and then sell the gasoline, diesel and all directly to consumers at markups and to distributors on volume. When crude oil is your raw material, and it’s going down in price, then of course, you’re in a good place. I’m currently gathering information to do a full valuation on them, but I love everything I’ve seen so far. It looks attractively valued and they look like they’re headed in the right direction.
The last stock on my buy list at the moment is Diageo. This one I’m going to wait until maybe the end of the year before picking up, mostly because their valuation is a bit much at the moment. However, I am already investing in Brown-Forman who make JackDaniels’, Canadian Mist and Finlandia among others. Diageo owns Guinness, Ciroc, Johnnie Walker, JB, Bailey’s and Smirnoff, among others. Adding them to my portfolio is a sure fire way to ensure that no matter what you love drinking, Orijin included, in any waterhole or bar from New York, to London to Lagos, some of it will hit either of those two. There’s a third alcholic beverage company I’m considering but it’s too early to make a decision on.
So there you have it. I’m going to save aggressively, and try to build positions in these guys as the weeks/months unfold. We’ll see how they play out by year end.
If you want to buy any of them, please do your due diligence. This is not an investment recommendation, my needs/strategies and risk appetite may not match yours.
Share your thoughts in my comments, and hit me up on twitter @eldivyn.