Here's a story we like. It's about maximum pessimism.
The gloomier it gets the more we like it. These for the most part are all good dividend paying companies with the exception of QEP.
We know that mid-term these days let alone long-term is an unwelcome theme on the Street.
QEP's trip to the equity woodshed is based on the expectation that natural gas prices will follow crude oil over the cliff and into the abyss. We welcome the idea.
In Hemingway's "The Sun Also Rises," one of the characters is asked how he went bankrupt to which he replies: "Two ways. Gradually, then suddenly."
Truth be told that's the path to wealth. It takes time and a wide margin for error. The lower these stocks get the less margin for risk is needed. They are undervalued and misunderstood. The cure for low prices of a commodity is low prices.
Forget the falling knife meme. Coupled with the dividends, a simple regression to the mean will return serious money over either of those most unwelcome Wall Street time frames.
A stock that should be on the list below is Helmerich Payne (HP), the Tulsa-based big oil rig firm. As sector prices decline like this consolidation usually kicks in and the strong get stronger at the expense of the marginally weaker.
Exclusive: Sell-side sours on U.S. energy stocks more than any sector
NEW YORK (Reuters) - As if plummeting oil prices were not giving energy companies enough to worry about in 2015, Wall Street has turned against the sector, with stock analysts slashing earnings estimates.
Despite a 23 percent drop in the S&P 1500 energy sector .SPCOME since the end of June 2014, stock prices still may not account for the drastically lowered forecasts for the sector's earnings, particularly if oil prices continue to slide.
Of the 10 S&P 1500 .SPSUP sectors, Thomson Reuters StarMine data ranks energy as having the worst analyst sentiment, using a model that lists equities by aggregating metrics that include changes in estimates for company earnings-per-share and revenue.
On Tuesday, energy was dead last, with its components averaging a ranking of 14 out of 100, down sharply from 26 a day earlier. One component, Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz), the No. 2 U.S. energy company, had a 1 in the Analyst Revision Score, meaning analysts have been more furiously lowering estimates for Chevron than for 99 percent of companies.
EPS estimates for Chevron's fourth quarter have dropped dramatically in the last month. Six different analysts have lowered earnings expectations by an average of 14.3 percent in that time, during which the stock price has actually risen by about 1 percent.
Six of the largest 10 energy companies, accounting for 33 percent of the sector's market capitalization, have a ranking of 9 or less in StarMine's Analyst Revision Score.
The outlook has continued to worsen as crude futures prices kept sliding to new 5-1/2 year lows. U.S. crude oil recently fell below $50 a barrel after trading above $100 for the most part between February and July of last year. [O/R]
"We believe it is more likely that oil goes to $20 before it goes to $80, and we think that oil prices are likely to remain low for a long time," Brian Reynolds, chief market strategist at Rosenblatt Securities in New York, wrote on Tuesday.
Marathon Oil (MRO.N: Quote, Profile, Research, Stock Buzz), Hollyfrontier (HFC.N: Quote, Profile, Research, Stock Buzz) and QEP Resources (QEP.N: Quote, Profile,Research, Stock Buzz) are among the other handful of energy companies with a 1 Analyst Revision Score.
On Tuesday, Bank of America/Merrill Lynch cut its rating on Chesapeake Energy (CHK.N: Quote, Profile, Research, Stock Buzz) and Laredo Petroleum (LPI.N: Quote, Profile,Research, Stock Buzz) to "underperform" and EOG Resources (EOG.N: Quote, Profile, Research, Stock Buzz), the seventh-largest energy company on the S&P 1500, was downgraded to neutral.
Expected earnings growth for the S&P 500 energy sector's .SPNY in the fourth quarter was at -19.8 percent, according to Thomson Reuters IBES data, down from a 6.4 percent growth expectation on October 1. The first quarter looks even worse - an expected decline of 32.2 percent..
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