The prospects for energy stocks and Crude Oil prices remain unclear for the next six months as the United States works through its current liquidity problem and the potential second half of the 2023 recession.
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Oil prices have been bouncing from their lows of $63.76 per barrel and now trading above $73 per barrel. We could see further sharp illiquid spikes below that level as we did in March this year, especially during a recession. In this case, I believe not losing the crisis opportunity is essential for us.
Recession fear and risks of liquidity are here, but the chances this scenario is short-lived are high. With the SPR already drawn down to multi-decade lows and OPEC+ willing to cut production to defend this price level, it’s a decent risk/reward to assume that prices will pop back to the prior $74 and $80 levels.
Stocks never became particularly expensive even when oil was $120 in 2022, and thus have held up well even as Crude Oil has corrected back to sub-$80. Even at these middling oil price levels, many large-cap oil producers make good money and trade at low valuations, which makes them able to pay high dividend yields, buy back a lot of shares, and strengthen their balance sheets.
In my private section, we have already positioned ourselves in the sector as a defensive approach in very profitable companies with great valuations and high dividends and not speculating on opening and closing positions in the investing portfolio.
In the short term, we like to trade Crude Oil price swings up and down-side. However, based on the reasons above, I favour buying more than shorting it. The long-term bullish idea is also well supported by the technical view I have.
The price has bounced from its lows and it is creating a Double-bottom technical pattern. If it breaks and close above 73.00 levels, it would be a confirmation that bulls are decisive and move the price higher towards 82 and 83 levels next.
A clear example of a Crude Oil producer whose stock has held up well is CNQ. The stock price was rangebound for nearly two decades but has enjoyed a sizable breakout and consolidation, which is entirely supported by its fundamentals.
Canadian Natural Resources Chart looks stable in a tight weekly price range. If the price breaks below the forming range or 50.00 – 48.00 levels, we can see it correcting to 44.00 and 38.00 next. If the price holds the 51-52 zone as the key level of support then we will be interested to open a long position by knowing upcoming recession fear risks.
We can see a Bullsih gap on the daily chart in the middle of the range. The near-term zone to watch for “long” opportunities for us remains at around 50.00.
Some Interesting Key Metrics on CNQ:
- Adjusted (Operating)
- Earnings Growth Rate: 12.94%
- GDF….P/E=G 15.00x
- Normal P/E Ratio: 14.84
- Blended P/E: 8.24x
- EPS Yld: 12.14%
- Div Yld: 4.36%
CNQ now has a trailing twelve-month income that is higher than its net debt for the first time in its modern operating history, both due to an income surge and due to using that income surge to reduce existing debt:
- Net Total Lon-term Debt (Quarterly): 7.393B
- Net Income (TTM): 8.462B
They have also sharply increased their regular dividends and paid out a one-time special dividend amid their high cashflow
Their new capital allocation strategy emphasizes a strong balance sheet and aggressive shareholder returns. Whenever a net debt is $10-$15 billion, management plans to split incoming cash between paying dividends, buying back shares, and reducing net debt. Whenever a net debt is under $10 billion, management plans to allocate most incoming cash towards dividends and buying back shares.
We will discuss more about the Macro Situation Crude Oil charts and overal Energy sector on the XM Live Trading and Education sessions!
You can also take advantage of my Private Trading and Education Room here.
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