Back in my days as a finance reporter, we had a big cork bulletin board that dominated one wall of the newsroom. We used it for posting only the most important information.
Usually, that meant our March Madness bracket picks and an outdated lunch menu for the Chinese restaurant down the street.
But my personal favorite pinned to that bulletin board was a Roy Lichtenstein-style cartoon of a well-dressed man slapping his forehead, with the bubble caption: “Oh no! I forgot to get rich!”
Is It A Good Time to Be a Stock Picker? Interview With Worm Capital
ValueWalk's Raul Panganiban interviews Eric Markowitz, Director of Research, and Dan Crowley, Director of Portfolio Management, at Worm Capital. In today’s episode they discuss their approach at Worm Capital and where they find opportunities. Q4 2020 hedge fund letters, conferences and more Interview with Worm Capital's Eric Markowitz and Dan Crowley
I say all this now because there’s just such an opportunity in front of us to do just that, right now. And of all companies, Exxon Mobil Corp. is showing us the way.
Early this month, Exxon Mobil sold $12 billion worth of bonds — its largest bond offering ever.
Why is that important to us? Because the company wants to use the money to go “elephant hunting” in the oil patch and buy up some of its bargain-priced competitors.
Keep in mind, the oil industry attracts plenty of swashbuckling bottom-calling behavior. Sometimes those calls work out (think billionaire T. Boone Pickens), and sometimes they don’t (think John Connally, the former Texas governor and Nixon-era Treasury secretary who bet everything on a 1980s rebound in oil prices and lost it all).
But when a big, global energy company like Exxon, with a corporate history reaching back more than a century, decides it’s time to “lever up,” it’s time to come out of the bunker and look for buying opportunities ourselves.
Betting on a Bottom?
That’s not a call to bet everything…
It’s not a call to buy Exxon Mobil stock. It’s not a call to start guessing at mergers-and-acquisitions targets.
And while oil prices are up nearly 50% in less than two months, surely there’s a downdraft or three still ahead to test the conviction of any bull. But with Exxon Mobil’s decision, the risk/reward of the oil trade has clearly shifted to the reward side of the equation.
Where should regular investors start? How about in Jeff Opdyke’s Total Wealth Insider portfolio? If you’re a subscriber, he has a handful of energy-sector stocks worthy of closer examination. Jeff just added another in this month’s newsletter edition. If you’re not a subscriber, there’s no better time to sign up.
Fishing in the Oil Pond
It’s worth noting that another sober-minded, long-term investment player — Warren Buffett’s Berkshire Hathaway — seems to love energy stocks these days. The holding company bought a big piece of Kinder Morgan, the pipeline company, in recent months. Berkshire now owns more than 16% of Phillips 66 after a slew of purchases starting in mid-2015 and extending into early 2016.
Yes, we’ll still be dealing with plenty of bad headlines in the quarters to come. The Wall Street Journal noted last week that the sector’s weakest players may have played their last card — so-called “distressed-debt exchanges” — to stave off corporate bankruptcy. Likewise, Moody’s recently said its “Liquidity Stress Index” for speculative-grade oil and gas industry bonds ticked into “worst-ever” territory.
Which is why Exxon Mobil’s bond offering is such a big deal.
The energy giant, led by CEO Rex Tillerson, has long carried a AAA bond rating. But it was willing to risk a revised outlook from Moody’s (from “stable” to “negative”) — the rating agency’s way of saying: “We’ve got our eyes on you” — in the course of loading up its acquisition war chest.
But then again, ratings agencies are like most investors — slow to acknowledge the warning signs at market tops, and quick to blare all the bad news at market bottoms. The takeaway? Don’t forget to get rich (or at least better off) by following the lead of the oil market’s biggest, most successful long-term players.
Editorial Director, The Sovereign Society
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