WASHINGTON, Dec. 7, 2015 – Stocks are experiencing a worse than usual case of the Monday blues today, with all major averages trending down hard. Selling is pretty much across the boards with stocks taking it in the ear as the current double whammy of Saudi oil intransigence and Fed interest rate determination combine to slaughter the bulls.
Given that it’s Dec. 7 today, a great many portfolios, including the Maven’s, are beginning to feel a bit like the U.S. must have felt back in 1941 on that game-changing Day of Infamy.
Bulls had almost revived that Santa Claus Rally last week, but today’s smackdown is courtesy of the Saudi sheiks. As last week’s OPEC confab demonstrated, the Saudis are determined to destroy U.S. shale oil extraction in order to preserve their own market share. That’s bad for marginal U.S. frackers but is even worse for the Russians, the Iranians and (in particular) the Venezuelans, all of whom are almost entirely dependent on oil revenue for hard currency.
As a result of all this turmoil in the oil patch, any company remotely involved in the extraction, transportation and refining of oil has been unceremoniously jettisoned from the squared circle by the Arabian peninsula’s Iron Sheiks. Oil itself provides the inspiration as West Texas Intermediate (WTI) has thoroughly broken the $40 price barrier for the second time this year, hitting an all-time post-2009 low of $37 and change this morning and threatening to sink further.
The trauma in the oil patch has hit the rest of the market, pummeling nearly every stock in sight. Beleaguered utilities have finally caught a bid today, but stocks look pretty sick across the boards.
Today’s trading tips
One of our advisory services was interested in double and triple short oil ETFs this morning and so were we. But those volatile puppies blasted out the starting gate so fast that we decided, reluctantly, to take a pass. When the action in a given sector is as violent as it is today, we’ve learned not to chase it, lest the new short reverse on us the next morning, which has in fact happened several times in 2015
What we are liking more and more right now are the financials. Some of them are looking attractive as the gradual rise in interest rates now appears to be a virtual certainty. As we’ve indicated in other columns, we’re already in KeyCorp (symbol: KEY) and New York Community Bank (NYCB), both of which are involved in promising acquisitions at the moment. We also continue to look at Huntington (HBAN) and BB&T (BBT).
Although they’re getting hit today, we remain holders of refiners Marathon Petroleum (MPC) and Valero (VLO). If you think about it, refiners are going to end up selling more and more product if oil prices keep sinking or even remain where they are right now.
MPC and VLO are pretty good bets for an additional reason: They’re closer to cheaper and cheaper shale oil, which is priced in conjunction with WTI rather than the international benchmark, Brent crude. As long as WTI remains notably cheaper than Brent—which it will be for some time, we believe—products from these refiners will retain a price advantage with regard to the end products they produce.
Ditto our longtime favorite, Calumet (CLMT). Unlike MPC and VLO, CLMT is operated as a master limited partnership (MLP) and thus pays out most of its income via its generous dividend, currently in excess of 11 percent. But the stock has been under a lot of pressure since mid-November for a variety of speculative reasons, mainly stemming from the possibility that CLMT might cut its dividend a bit in 2016, at least for a quarter or two.
We think that speculation is unfounded. But the boys are taking this stock down anyway, so what can you do. For us, the extra-added attraction of CLMT is that, unlike many refiners, the company also produces a number of oil by-products in volume, most notably large amounts of asphalt.
Since Congress has finally legislated a five-year highway/infrastructure upgrade package, 2016 should see a lot of asphalt rolling down the interstates, and CLMT is geared toward capturing its fair share of that business—something that should offset any short-term issues. Hence, we continue to hold, even as we get a bit nervous about those highly aggressive short sellers who are hitting oils and refiners again and again with extraordinary viciousness.
We’ll stop here for now, noting that any kind of investment in the oil patch these days will put an investor in a treacherous situation. We’re gambling a bit here, and the end of this particular play has yet to be written.