Long-Term Energy Bet
01/26/2015 12:01 am EST
The collapse in crude oil along with the energy stocks has created opportunities and MoneyShow's Jim Jubak thinks one stock is the best bet for the long-term.
Okay, let's talk about Schlumberger (SLB), the big giant leader of the sector oil services company that as almost everything in this sector, the energy sector has done, it's taken a hit during the fall in energy prices. It has gone down from like $110, $113, to like $80, so it hasn't fallen as much as oil but it's still down and the question for you here is this is a long-term hold.
This is one of the best managed companies, best position companies. It's got a huge technology lead in its field. All of those things you can say for it, for Schlumberger, are things that make you say, yes, I'd love to own this and, recently, the company went out and spent $1.7 billion. This is in a crunch time in the sector.
They went out and spent $1.7 billion to buy about 46% of a Russian oil drilling and services company. This is a long-term investment. Basically, it says, at some point, the sanctions on the Russian oil industry will go away, Russia is sitting on huge reserves of oil, these will need to be developed, and we're basically going to invest and giving us a leading market position in the Russian industry. The deal is interesting because it allows Schlumberger to purchase more stocks and move to a majority position but within three years, so they're playing a long game. The question is…can you.
I don't think there's any real possibility for oil moving up very, very strongly before the middle of 2015, a good likelihood that it will rally through the end of 2015, but then companies like Goldman are saying, well, we're looking for a kind of setback in early 2016, so are you patient enough to play the game that Schlumberger seems to be patient with and I think that carries through for pretty much looking at all of the best companies in this sector.
You're looking at a long time to get to a good condition for this sector, to get oil back to something like say $70 or $80 a barrel, not even the $100 or $110 that all of the people are sort of counting on, so do you invest now and then hold on or do you try to wait until oil has done…whatever?
I think this is going to be a very difficult market to time in terms of oil prices. I think if we get some kind of recovery in the last half of 2015, it's going to suck a lot of people in, and then, if we get a sort of setback in early 2016, those people are going to sell so there's going to be a lot of volatility. The question is, do you want to play that?
Again, I think it's one of these things where it's as important to know yourself as it is to know the stock. If you're one of these people who can buy it and hold it through that stuff that you know is coming, great. If you're one of those people who has just enough to make a watch list and go, okay, I don't want to buy it now, I want to buy it either later in 2015, I want to buy it early in 2016 if there's a setback. It depends, really, on who you are.
We know that Schlumberger is a good company. The question is, does what is happening fit with you and your character as an investor?