Whenever an industry hits the skids, there is value to be found. That is, unless the whole industry is going under. In that case value would take a while to surface. An active example is oil. There have been plenty of opportunities over the past two years to invest in oil and lose it all. While oil was attractive last summer when everyone thought it hit a bottom, the buy calls were short lived as oil continued to fall. At the same time we had commodities slowing down as an asset class. Now an August '16 crude futures contract is at $36.82 per barrel compared to a $93.11 closing price February 25, 2013. Brent Crude is at $34.26.
Bottoms are not always clear and present. With oil, it is quite likely that there has not been enough of a dent made in the global surplus supply to logically support acknowledging the fact we have hit a bottom. Inventories are very high. That aside, the oil industry is powered by talented professionals who plan and forecast, and even they misjudged the slowdown. That itself is a significant observation, and not one investors should take lightly.
Despite the carnage there will be equities (and bonds) worth buying. If you are dividend focused it will pay to do your research if you are going to buy new investments, as dividends are being slashed, cut back or stopped.
Kinder Morgan (N:KMI) is a name that has popped up since they crashed - despite the gloomy future of the industry that lies ahead - as a group that can start again and perhaps go on an M&A streak, picking up the soon to be cheap oil assets. Credit Suisse (VX:CSGN) and Stifel recently upgraded KMI to buy status, but some analysts forecast it staying around $17.50-$18.00 until Q1 2018.
They are also unlikely to go bankrupt. An estimated 40% of oil-related companies are entering bankruptcy protection. In mid-2015 many oil service groups extended additional credit to energy firms to pick up the slack in the industry and kick start growth. Now with global growth slowing down and a growing oil surplus, there is real exposure and losses that will need to be funded. The turnaround is just starting to be planned, and an entrance at this point would be premature. But it is time to build out a new watchlist for energy groups and avoid the urge to be dragged down the road while oil finds its bottom.