The holiday season is almost upon us, and our thoughts are turning to planning trips, buying presents, and dealing with the dreaded in-laws.
But before you get swept up in the frenzy, there’s one investment move you should make to ease the Yuletide strain on your wallet.
You see, despite the current slump, energy prices are still going to rise this winter.
In fact, one stock is already dropping down to Black Friday prices, but it’s sure to climb again.
The time to buy is now…
The Company to Watch
More than a year and a half ago, I recommended buying shares of Basic Energy Services (NYSE:BAS) at around $13 per share.
In the subsequent months, the shares more than doubled.
Then, in March of this year, I wrote that the shares were trading higher than they should be, and that natural gas wouldn’t be able to hold at the over $6 per thousand cubic feet (mcf) level reached last winter.
Basic has since corrected along with the rest of the energy sector.
The company lost more than 50% of its value and is trading back down in the $13 to $14 level. Accordingly, natural gas is back around $3 per mcf.
But the opportunity to profit off of Basic is far from over.
At current levels, Basic presents a very interesting speculation. It has overcorrected, and business is much better today than it was a year ago.
A Gift Everyone Wants
In its latest release, Basic echoed what Halliburton Company (NYSE:HAL) and Schlumberger NV (NYSE:SLB) have been saying recently: Oil and oil-related businesses aren’t retreating in the face of lower prices – not yet anyway…
Basic hasn’t seen a drop in bookings for its oil and gas services through the first quarter of 2015.
Couple that with the recent acquisitions in the energy space by Encana Corporation (NYSE:ECA) and the sale of major assets by Chesapeake Energy Corporation (NYSE:CHK) and you might just have a very interesting scenario developing.
Crude Oil prices are continuing to trend downwards and might hit $70 per barrel. But, energy shares have stopped their correction for now and are falling less. Some are even rising in the face of the most recent decline last week.
This might indicate that both energy and energy shares are nearing a bottom…
With cold weather approaching and continued global stimulus, energy prices should rebound this winter.
Get the Best Deal
If the rebound sticks – assuming China begins to increase imports, the eurozone stimulus takes hold, and the Organization of the Petroleum Exporting Countries comes to its senses – then we could see a rally in energy prices in the first half of 2015.
Most energy shares are down, and the majors are down less than smaller companies… but their upside is probably 20% to 40% from current levels.
Basic, on the other hand, has a much bigger upside due to its leverage in the industry and its much smaller market capitalization and share float.
In other words, if the sector moves higher, Basic should outperform.
Oil and Natural Gas prices over the next few months are anyone’s guess. But if you want to get in during this decline, then you should definitely consider stocks that are about to hit a sweet low spot, like Basic, to boost your returns.
Ideally, the $10 to $12 level would be a great entry point. It’s around this level that insiders were buying shares before the rally to the mid to upper $20s.
And “the chase” continues,
BY Karim Rahemtulla