When to Take Profit in O&G Producers, Again?

[ddc9255]

@resjudicata So midstream encompasses many different subsectors. I'd personally lean towards pure play refiners (PSX for instance). However, if you're looking for energy infrastructure/transfer/equipment, AMLP looks fine. I would likely stay away from pure play service companies like equipment maintenance, as that's very cyclical in nature and something that I don't have much insight into. But that's just my own preference.

 

[resjudicata]

@ddc9255 Much appreciated for the insights - I work for the sector but as IT so I actually don't know a lot of the nitty gritty or financials of the sector.

 

[zahlcindyma]

@a_aron1011 You are basically betting on the future price of oil... you should probably sell since you won't have an edge on Wall Street analysts.

You also should stop shorting because it is incredibly risky.

 

[ericbunic]

@a_aron1011

Mass-psychology wise, I continue to think we're in the very early innings of mass euphoria in O&G. There is little to no pumping of O&G in r/wallstreetbets or r/stocks.

I have no illusions when it comes to the perception of O&G - it is negative. It will continue to be negative going forward, even as oil rises. The rise will cause renewables to become more and more competitive vis a vis O&G, and this is where all the positive energy will flow. Most places on reddit will never pump O&G as this place is a gigantic hub for ESG minded people. It will be a small minority who outline an accurate case for profitability despite market headwinds which will continue to trash O&G as socially irresponsible.

 

[a_aron1011]

@ericbunic Perhaps O&G will never get to the mass euphoria stage (similar to big tobacco; but see counter-examples of the hype around vape startups). I certainly thought so during 2020 and 2021. But if people have taught me anything, it's that they like to chase gains. A couple more quarters of renewables getting punished more as their multiples continue to contract while oil equities still outperform and become the only safe haven for 1H2022? Big oils successfully relabeled themselves as ESG plays? Who knows what can happen.

Regardless, I will be long gone before that stage anyhow if oil stock price becomes too unmoored from valuation. But what stage of mass euphoria O&G is in informs whether I should take profit or not.

 

[ericbunic]

@a_aron1011

I will be long gone before that stage anyhow if oil stock price becomes too unmoored from valuation.

IMHO oil has a long way to go before valuations become unattractive. OXY after its 400% run is still well below where it was in 2018, and that wasn't even a time of high oil prices. Oil companies will continue to trade at low multiples but the earnings rise will make it worth it for investors willing to go against the societal grain on this one.