Larson’s “Great ENERGY PROFIT BONANZA of 2015 and Beyond!”

by Travis Johnson, Stock Gumshoe | May 19, 2015 12:06 pm

Which "sleep at night" stocks does Energy Stock Alert think could soar in "mere months?"

We’ve seen a lot of commentary over the last six months about buying the energy downturn — mostly with quotes about “buying when there’s blood in the streets” and “hold your nose and buy” as the only potentially cheap stocks in the market have been beaten-down energy stocks. And maybe it’s a good idea, I don’t know — this all comes down to the question of whether oil and gas will remain low, fall lower, or bounce back up in some sustained way, and so far I’ve never come across anyone who can consistently tell us where oil will be a year into the future.

Predicting the future is a tricky business, particularly in a global market like oil where there are lots of different producer cost structures (very low cost in Saudi Arabia, very high cost offshore Brazil, etc.) and a variety of both political and economic incentives to explore, produce, sell and price the commodity. But, of course, seeing something fall sharply and upset the market, with bankruptcies and panic, gives value-minded investors an itchy finger — buying stuff that’s “too cheap” is what every investor wants to do.

Larson was also looking for volatile, high-opportunity stocks for Energy Stock Alert last year, that was when he teased Ship Finance (SFL) back in early September — and that has held up better than I would have expected during the oil crash, frankly, and better than many of the oil stocks in the downturn (I just checked back on my article about that teaser pitch[1], and it looks like he was also charging half as much for his newsletter back then).

So with that in mind, Mike Larson at Weiss Research is telling us that he sees a great “energy bonanza” starting this year — and he’d like you to sign up for his Energy Stock Alert ($1,197/year) to enjoy that bonanza with him.

And to get you excited enough to sign up and pony up your cash, he’s saying that he’s got a couple ideas that headline his “dirty half-dozen” energy stocks:

“Early investors in the 2015 energy comeback have the chance to make more money right now than at any time in the last 30 years….

“I saw this coming. I pinpointed the bottom to the day. And now what I see ahead is the biggest energy boom since 1986.

“The bargains are EVERYWHERE — and have the potential to double, triple, or even quadruple your money in mere months.

TWO energy investments you can get started with right away — investments that let you sleep at night, but that could soar in mere months …”

To further whet your appetite, he hints around about these two opportunities… so let’s check out the clues he provides and see if we can name them for you…

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“Company #1 — This company is a bruised foreign energy firm based in Europe. It has been making all the right moves lately — slashing $1.3 billion in expenses.

“Now, my work suggests it’s going to go shopping for cheaper, easier-to-develop reserves and production acreage right here in the U.S.! That will give its bottom line a huge boost as the recovery takes hold in 2015 and beyond.

“The stock is already on the move, up more than 30% from its March low. But I think this puppy could easily rise much more in the next couple of years.”

That’s not a huge amount of info for the Thinkolator to chew on, but we have a pretty high confidence answer: This is very likely the Norwegian giant Statoil (STO). They have indeed been cutting $1.3 billion a year in costs, and they’re reportedly boosting those cuts to $1.7 billion for next year[2] — and they have been expanding around the world for many years, first in areas where their offshore experience could add value but more recently in all kinds of oil fields, including US shale areas. They were up almost exactly 30% from their March 16 lows last week, but they’ve had a bad few days so now they’re up about 20% from that low.

Next?

“Company #2 — Another opportunity is an offshore drilling rig and ship operator that was left for dead last year. Its share price plunged so far, it was trading at the cheapest valuation since the depths of the Great Recession!

“But this is no fly-by-night operator. The company is backed by a billionaire with decades of experience in the oil shipping and production industry. He also owns almost a quarter of the shares outstanding, making him he’s extremely motivated to right the ship.

“The company recently slashed hundreds of millions of dollars in costs. It built up a war chest of funds to ride out the downturn. In fact, management is so confident in the future that the company’s CFO just said he plans to “come in and swipe the table” of distressed competitors!

“The stock is already on the move, carving out a nice rounded bottom on the charts. But I don’t think it’s anywhere near done!

“Just consider: In the wake of the Great Recession, this stock doubled then doubled again. As a matter of fact, from trough to peak, it surged a whopping 9-fold! That’s enough to turn every $10,000 invested into $90,000!”

Interestingly enough, we can be much more certain about this one — and it’s a stock we’ve spent quite a lot of time on over the past few years, Seadrill (SDRL). I no longer own SDRL shares, but I do have some SDRL LEAP options that I bought when I sold my shares last year — more or less as a way to keep exposure to the segment if it bounces back within a couple years, as some people expect, without having too much capital committed to what is still an extremely levered business with falling demand.

Seadrill is still the best offshore rig company, in my mind, but they’re by no means out of the woods — they’re the best company in an industry that’s at a terrible point in the supply/demand cycle right now, with rates not high enough to cover the costs of the newbuilding rigs that are being delivered, and they have enough debt to make investors twitchy whenever there’s bad news about either interest rates or rig demand.

That quote about the CFO’s plan to “swipe the table” of distressed assets is from a Bloomberg article from a couple months ago[3], and the tenor from that article is basically that the company is hunkering down and conserving cash so that later, maybe next year when rates are still low and companies get even more distressed, they’ll be able to buy up some cheap rigs. They’re not likely to make much money beyond what they need to cover financing in the next year or so, though cutting the dividend is letting them preserve a bit of capital flexibility — there’s still the shock in the market from some broken/canceled contracts from companies who are in a rush to cut expenses (as Statoil is — pretty much every offshore explorer and producer has been cutting costs), and recent rig rates are at prices that don’t necessarily cover financing and expenses for the rigs — or, at least, don’t give the rig owners a chance to “break even” after five years or so on newbuilding rigs (that’s the way Seadrill is accustomed to operating, at least conceptually — borrow heavily to build rigs, pay back that investment over five years, then it’s all gravy).

But they are also a company with a pretty deeply ingrained swashbuckler DNA — they were started at a low point for deepwater rigs, when no one was investing in building next generation offshore rigs and they stepped in to order rigs on spec because their founder, Norwegian billionaire John Fredriksen, saw demand growing in a few years. That’s how you make fortunes, buy big when things are cheap — but if you borrow a lot of money to do that, you also go through times, like Seadrill did in 2008 and 2009, when it looks like you’re on the verge of going out of business if your creditors knock on the door on the wrong day. Or, as with Fredriksen’s other recent large company, the tanker firm Frontline (FRO), you simply get to the end of the cycle and the market prices for your assets drop to the point where you can’t keep wringing out more cash from your ships by using financial engineering (sale/leasebacks, refinancings, etc.), mostly because those ships can’t handle higher embedded financing costs when rates stagnate.

That risk is part of the reason why Seadrill was appealing as a dividend payer — investors knew there was risk, but they paid out essentially all of their cash flow so cash dividends were high and growing to compensate for that risk. When they suspended the dividend not long after stating that they wouldn’t have to cut the dividend last year, I lost some confidence in management and sold my shares, but I do think they are likely to bounce back — just not necessarily quickly. I suspect it will be 2017 or 2018 before Seadrill is again a cash-flowing investor darling, but I think it probably will happen at some point just because cycles do turn. Low prices create underinvestment, but they also increase demand, which creates high prices, which creates overinvestment, which creates gluts, which creates low prices.

Other stuff can certainly mess with that general ebb and flow of the marketplace — hiccups with Chinese growth and demand, strategic moves from the Saudis or the Russians to try to manipulate prices, recessions… but in the end cycles keep turning. That doesn’t mean we’ll definitely go back to $100 oil in a few years, I’m not anywhere near bold or foolish enough to predict that. We’ve had a pretty wild six years of boom and bust in energy that might have people expecting an unusually fast snap-back in the markets, which could happen, but my tendency is to be a bit more cautious — I believe that oil demand will continue to rise slowly, the “easy” oil will continue to deplete, and we’ll continue to need to drill in difficult or inhospitable environments to find large new oil deposits. That works out well for Seadrill if they have indeed, as they indicate, been able to right the ship as they wait for the recovery in their markets — but risk is still certainly there for both Seadrill and Statoil, and if interest rates happen to spike up quickly in some kind of dramatic fashion I think things could get quite ugly for Seadrill given their aggressive balance sheet and recurring refinancing needs.

So that’s what Larson is touting, I’ve owned both of these stocks in the past and still own SDRL LEAP options, and like the management and strategy of both, but they’re both certainly “contrarian” investments right now — the kind that might make you quite a lot of money if you’re right about a turn in the market, but that sometimes also make you spend a lot of money on antacids. What do you think? Ready to jump back into the oil business with STO or SDRL? Think there are other, better opportunities in energy? Let us know with a comment below.


Endnotes:
  1. my article about that teaser pitch: http://www.stockgumshoe.com/reviews/energy-stock-alert/stocks-with-the-power-to-multiply-your-money-and-also-pay-you-9-dividend-yields/
  2. reportedly boosting those cuts to $1.7 billion for next year: http://www.wsj.com/articles/statoil-steps-up-cost-cuts-after-loss-1423208530
  3. Bloomberg article from a couple months ago: http://www.bloomberg.com/news/articles/2015-03-04/seadrill-braces-for-two-more-years-of-rig-pain-amid-crude-crash

Source URL: https://www.stockgumshoe.com/reviews/energy-stock-alert/larsons-great-energy-profit-bonanza-of-2015-and-beyond/


  1. 12 |
    Avatar
    Jeff Lynch
    May 19 2015, 12:46:49 pm

    I actually dabbled in both of these symbols for about 2 months this year-both at the wrong times! SDRL is obviously more volatile than SCO; and, SCO is more volatile than some other choices but still a solid choice. The oil price trend had been bouncing around a bit when I was in so as was said here, you need to have some confidence in what the longer-term trend will be in either direction. jl

  2. Avatar
    Lukester
    May 19 2015, 12:57:51 pm

    The market forecaster I trust most is saying avoid conventional hydrocarbon energy resource companies all this year and next as they will all be flat on their backs. He’s going even further and saying that Petroleum shares have a weak underperforming future going right out to 2025. The big action will be in alternative energy as the move away from fossil fuels gathers pace (read: big rise in Uranium shares and electrification – and consistent weakness and bear market in petroleum sector). I have no clear personal opinion just relaying what I’ve read from this source for the last 2-3 years. He is quite bearish the entire conventional petroleum sector and was forecasting a huge drop in petroleum price consistently for many months *well prior to the big drop in oil recently*. Says money deployed into petroleum producers/explorers will be dead money for years to come. I was incredulous about his forecast as I’ve long believed in Peak Oil but I have learned in the last decade not to bet against his calls. Uranium on the other hand is forecast to rise in a super major bull market from here out to 2025.

    • 9941 |
      Avatar
      hendrixnuzzles
      May 19 2015, 11:37:12 pm

      Hi Lukester…for once, my timing was good when I exited big oil before the oil price meltdown. The Peak Oil forecasts were very plausible…but look at what has happened.

      I want to get a position in petroleum energy, preferably in a dividend stock from a company that can prosper with low crude prices. Not sure which way to go… or when, for that matter.

      At this point I am more inclined towards foreign producers, midstream guys, or distribution plays. Watching CEO, TOT, KMI, VLO, DVN but haven’t pulled the trigger on any of them. Don’t like any high cost options like DO or RIG unless I become convinced that high crude prices are returning.

      On the other hand I am bullish on uranium and natural gas. Long CCJ, UUUU, UEC, OGZPY.

  3. Avatar
    TimothyJ999
    May 19 2015, 01:04:25 pm

    SDRL, Transocean (RIG), and Diamond Offshore Drilling(DO) are all down about 5% today because of an unfavorable fleet status report released this morning by RIG. This knee-jerk reaction might have created a nice entry point–or it might be the start of a falling knife. SDRL broke through the bottom of an uptrend channel, so the chart looks pretty ugly.

  4. Avatar
    Rethink Retired
    May 19 2015, 01:17:27 pm

    Great work as always. I was just beginning to take a fresh look at SDRL again and have seen it recommended a couple times lately. Never followed STO but like the idea of using this downturn to load up on cheap assets for the next decade. Kind of like these stocks 😉

    • Avatar
      Reggie
      May 19 2015, 01:48:19 pm

      Larson has been calling it well over the last few months. I jumped into a Brazil ETF after he sent out an email stating he thought Brazil was oversold. Up 17% since March on that call. He’s on a streak. I’m rolling the dice, plus both are down sharp today so possibly good entry.

  5. Avatar
    Duncan Hume
    May 19 2015, 01:34:58 pm

    It is early days in the great battle between the Saudi’s and the Frackers. It seems unlikely that price falls in 1/2 in six months and then simply recovers to stability. Overshoot is probable, prices fall for the next 6 months.

  6. 18 |
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    alriner
    May 19 2015, 02:07:00 pm

    Although for the time being I’m not big on investing in offshore drilling companies, STO is one of the two oil companies I have on my aggressive watch list. I have other more well known oil companies on my conservative watch list. I started buying STO under $17 and stopped when it rose above that. Like BP and Shell, STO also has additional income from trading oil but BP & Shell are the biggest players in that game in Europe. As a bonus, STO currently pays a nice dividend. If we see another big dip in oil price (won’t surprise me) I’ll add to my oil company investment positions. Each to his own opinion but global demand for fossil fuels will still be around long after I’m gone. Maybe I’m guilty of having biased opinion being a retired oil & gas explorationist but I don’t think so.

  7. Avatar
    Lukester
    May 19 2015, 03:34:13 pm

    Statoil is an excellent company. An Agora publishing favorite over the past decade. Dr. Steve Sjuggerud had it in his portfolios, and has been a good contrarian over the years. However petroleum soaring in price from here to 2020 is not signed sealed and delivered as a thesis.

    • 11647 |
      Travis Johnson, Stock Gumshoe
      Travis Johnson, Stock Gumshoe
      May 19 2015, 06:03:53 pm

      Just longer-term options — LEAP options go beyond the traditional nine months or so into the future of typical option chains and extend out to the next two or three Januarys. I think mine are Jan 2017 call options at $10, though I’d have to double check.

  8. Avatar
    Quincy Adams
    May 19 2015, 05:22:33 pm

    Of all the expressions describing the oil and gas industry lately, “profit bonanza” would seem to top the list of most ridiculous ones. But, I suppose one would need to go out on a limb in order to sell advice at $1,000 plus. I bought SDRL some time back for the dividend (hold the laughter, please) and still hold a little of it in hopes of recouping some of my loss. I’ve since invested in SDLP, which does pay a dividend from rigs operating under existing contracts. It is not a good long term investment, as many of their contracts will have to be renewed in the next couple of years and the rates almost certainly will be substantially lower. I’ve had some success hedging falling oil prices with SCO, the inverse ETF. It’s quite volatile and one must pay close attention to the oil price futures in order to make any money from it…definitely not a buy-and-hold, but it helps take the sting out of oil price swoons. Long-term investors should heed the words of ExxonMobil’s CEO Rex Tillerson, who has said $60/bbl oil will be the norm for some time to come. Coincidentally, there is a recent Bank of America study that says at $60 oil, XOM is the only USA producing company that makes money.

  9. Avatar
    chuck
    May 19 2015, 11:04:40 pm

    Like Travis, I also owned both SDR?L and STO plus DO basically for the dividend. Got out of all three when the stock price just got too far out of wack from what I paid. Still own XOM, CVX, COP, and TOT, plus some refiners. While I believe in the continued big world-wide use of oil, it will be a while before the alternatives can get off the subsidiarity kick to majorly make in roads into the world’s oil appetite — too much sunk cost and too profitable even at $60 oil. (my two cents) The one good thing about the great oil price drop is that I got to buy SLB at what I believe is a decent price

  10. Avatar
    ANTHONY PUTNAM
    May 19 2015, 11:05:25 pm

    BOUGHT SDRL AND RIG IN APRIL FOR 10 AND 15 . SDRL 15 IS UP 50% AND RIG 20
    IS UP 35%. WHO KNOWS MAYBE I CAUGHT BOTH AT THE BOTTOM. HELD RIG PREVIOUSLY AND SOLD AT 140. WOULD LOVE TO SEE A REPLAY OF THAT SCENARIO.
    TENPINTONY

  11. Avatar
    D
    May 20 2015, 05:28:36 pm

    The intermediate technicals look good for the next few months, as oil rallies. Larson is proposing that oil will rally up to about 80 mid-year, and I agree with him. He doesn’t say, but I suspect he thinks oil will drop after that. It will probably stabilize around 60, but my suspicion is that another oil crash is coming late in the year.

    But please, please pay close attention to technicals before you buy any of these shares — learn about Elliott waves and other technical principles. Outside the privileged companies that are buying back their shares, there are growing liquidity problems in the stock market — institutions are net sellers, and there’s not much retail participation, and so often not much bid. You’re a small boat negotiating a channel with big boys and girls driving their giant ships. Don’t fight their wakes — ride them, with care.

    • 9941 |
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      hendrixnuzzles
      May 20 2015, 06:31:54 pm

      Let’s face it…no one knows if oil is going up or down, or when. Anyone know of ANYONE who made a timely call on the recent collapse ? Of all the analysts and pundits, how many called that one ?

  12. Myron Martin
    Myron Martin
    May 25 2015, 01:01:25 pm

    Of the majors STATOIL is pretty well at the top of my list, but when to pull the trigger is still a big question mark. What I am searching for are strong juniors priced below $5. that have good long term reserves at low well costs. Will report soon.

  13. Avatar
    Allen B
    May 26 2015, 04:18:49 am

    I lost so much money on Larson back in the day that I hope the rest of you Gumshoers do better with his latest prediction. Someone’s picks always seem to be a crap-shoot.

  14. Avatar
    fedwatcher
    May 30 2015, 02:45:40 am

    Of all the idiots at Weiss, Larson ranks as one of the most clueless. Larry Edelson is the sharpest as he parrots what he reads on Martin Armstrong’s site and adds a twist (but still does not get it). As for Weiss, his bug-out location is in Argentina, not Chile, not Peru, not Panama, not Singapore, but Argentina!

  15. Avatar
    RandyC
    Jun 24 2015, 05:41:42 pm

    Weiss is the eternal pessimist and one would think that he calls them right 90% of the time. For example several years ago it was all about Silver and if you went long on silver you’ve lost your shirt at this point. Yet if you keep reading his services you would actually believe that he called the uptick (briefly) and made good $$ in silver. Nothing could be further from the truth. The sky is falling always seems to be his deal and eventually the sky will fall (part way anyhow) and he will be right. But in the meantime if you follow his logic the opportunity cost of listening to his advice is way too costly. Took me a while to figure it out.

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