From Cheap to Really, Really Cheap

12/24/2014 12:01 am EST


Jim Jubak

Founder and Editor,

MoneyShow's Jim Jubak looks at the new stage for oil, where oil company spinoffs are sitting around without any buyers around and what investors are waiting for.

Well, Virginia, there really is a commodity besides oil and that was our focus before the whole thing sort of blew up. We are looking at things like iron ore and gold and copper and wondering where's the demand and how much is Chinese growth going to do that. That's all still going on and in fact has continued to go on. It's continued to follow that same trend with following demand and falling prices in most of these commodities, even as oil has taken the spotlight. One of the things we're seeing is kind of a new stage of that, which is that for a while it looked like companies were going to try to sort of shuffle assets, they're going to deal with the fall in iron ore prices or coal prices or whatever by spinning off assets and selling them off and sort of concentrating their core so they have lower capital spending requirements, they would keep their best businesses, spin off the others to the public. What's happened is that commodity prices have gotten so low that those spinoffs are sitting there and unable to be sold, so for example, BHP Billiton (BHP), which was going to split in two companies, one called South 32, if I remember correctly, was going to have all the non-core assets. Well, now BHP is rethinking that and going well you know if we put all these things together are we going to get enough price to make it worth our while, are we going to be selling assets at a low.

You've seen gold companies, such as Jumana, try to take its more expensive to develop Brazilian assets and put them into another entity. Again, in some markets they would just do that and then sell it off. The problem right now is they can create the entity but there are no buyers. I think that anybody who might be a buyer in this market but goes for oil too, for oil assets that might be spun off, is sitting there going okay, yeah this is low but it's not low enough. I think things are going lower, so what I'm going to do is sit here until I see these assets go from cheap to really, really, really cheap before I bid.

If you're looking for a sign of a turnaround in this market, one of the things to look for is to look at the fate of these spinoffs. At the point where we see companies not just announcing a spinoff or a new unit, but actually selling them, actually finding a buyer for them, I think then you can say, okay, low has gotten to be low enough, I think we've hit a bottom, and we can talk about starting to recover from there, but until you see asset sales actually going forward with buyers, I don't think we can talk about a bottom yet.

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