Oil dropped to its lowest level in 18 years today. This is really unfortunate if one’s whole portfolio is in oil, like your’s truly. However, these low prices must be temporary. The steep drop in demand is certainly temporary as most of the world’s population is placed under quarantine. Integrated oil and gas companies like Royal Dutch Shell, Chevron, and Exxon will benefit from this drop in price as highly leveraged players like Occidental are forced out of the market.
Another sector for further study is well capitalized refiners. Well managed companies like Valero, that depend on the price of WTI (West Texas Intermediate), are extremely underpriced. Companies that have ample cash and plenty of credit on hand should be bought at this steep discount.
Another opportunity for investors is in Solar Panel manufacturers. The steep drop in oil prices has changed the economics of energy, putting green energy in a very precarious position. Given the pull-back in P/E multiples, green energy, like solar panel manufacturers, has reached an attractive price.
While many people are focused on the general stock market, energy is priced very attractively. Given this huge temporary decline in oil consumption, these equities are sure to rebound in a matter of months as demand increases again. The world runs on oil, as soon as the world starts again, oil stocks will run too.