Wednesday, August 31, 2011
I agree with Jeff Clark: Oil stocks are ready for a rebound.
Last week, Jeff noted how stocks in the oil and gas sector suffered a giant selloff in August. Some of the best companies in the industry fell 25%-40% in just weeks. Now... after being badly "stretched" to the downside, they're due for a rally.
As you might know, Jeff generates many of his trading ideas with a "technical" approach. He reads a lot of charts... and studies various overbought/oversold indicators to find opportunities. As a resource stock analyst, I take a more "fundamental" approach. I look for cheap assets and great "picks and shovels" plays.
When a good "technical" setup meets a good "fundamental" setup, you often have a great trading opportunity. And I think that's what we're looking at with a couple leaders in the oil industry...
There are few companies as stable as Canadian Oil Sands (COS on the Toronto Exchange).
This company's major asset is a 36.75% stake in Syncrude, the largest producer of Canadian oil sands. The Canadian oil sands are an enormous deposit of bitumen – oil trapped in sand – in the Athabasca Basin of Alberta. It's safe politically. (Canada is not Libya, for example.) And there is a super-highway of pipes ready to take the oil to market in the U.S., the world's largest consumer.
The recent selloff in oil stocks sent shares of Canadian Oil Sands down 33%, making its assets incredibly cheap. With its Syncrude stake, Canadian Oil Sands owns 1.8 billion barrels of oil reserves. Its market cap is just $11 billion... That means we can buy its oil for just $6.16 per barrel. (The industry average is over $24 per barrel.)
Because of its location and its assets, this is the safest oil company on the planet. The decline in its share price was an overreaction by the market. If oil stocks rally, I expect Canadian Oil Sands to be among the biggest winners.
The second oil stock to consider here is CGG Veritas (CGV) ,which doesn't actually own any oil. It's the world leader in "seismic acquisition."
That's a fancy name for using sound waves to "see" the rocks under the sea floor. Offshore is one of the last places to find true elephants – giant conventional oilfields. So this tool is vital for companies like ExxonMobil, Chevron, Shell, British Petroleum, Anadarko Petroleum, and any global oil producer or explorer.
CGG Veritas has the best equipment, the best ships, and the best crews in the industry... period. And right now, we can buy those assets for less than it would cost to replace them.
Since 2007, the company has sold at an average of 2.4 times book value. (Book value is a rough approximation of replacement value.) But like Canadian Oil Sands, CGG Veritas got smacked by the oil stock selloff. Shares are down 37% since the end of July. That's left the company trading for less than book value – super cheap.
CGG Veritas is a vital cog in the oil exploration system, and shares are oversold... This is a huge opportunity.
If you're interested in taking Jeff's advice to buy oil stock shares for a rebound, consider Canadian Oil Sands and CGG Veritas. They're among the best in the industry... and both have great potential to rally in the next few months.
Last week, Jeff Clark showed Growth Stock Wire readers that oil stocks had flashed a buy signal.
"In each of the three previous cases," he wrote, "the AMEX oil index was 15%-20% higher within two months of the signal… I expect we'll see something similar this time." Get the full story here: The Only Gold You Should Buy Today.
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