Are oil prices holding this market back? My view is yes. But not so directly in that a certain level for oil prices correlates to a trading range in the S&P 500 Index.
In terms of sentiment, they do. And while the market knows about domestic supply issues, and with the Organization of the Petroleum Exporting Countries (OPEC)’s desire to maintain market share, non-accelerating prices for oil generally mean lackluster economic activity.
Are There Good Stocks Out There with Weaker Oil Prices?
So, are there good stocks to be found out there with oil prices at weaker levels?
There most certainly are. Just before oil prices were cut in half, countless domestic oil and natural gas producers were priced at a premium on the stock market. After all, why wouldn’t they be considering hundred-dollar oil translated into some serious bottom-line growth?
The perpetual problem with resource-based investing is the underlying commodity itself. Equity investors generally don’t bid resource stocks when commodity prices are flat or declining. It’s the third risk you have to take with this investment class.
You have to bet first on a property and its energy reserves; then on management’s ability to extract it profitably. If the prices for oil and natural gas aren’t going up, the business plan for even the most attractive of plays suddenly becomes increasingly difficult.
Two Junior Oil Stocks with Great Potential Over the Next 24 Months
The current environment is actually a very good time to be perusing the energy patch for investments. A lot of these stocks are down materially. And while their corporate outlooks have changed, they will quickly change for the better when oil heads higher. Here are a couple of examples of two junior oil stocks with potential.
Synergy Resources Corporation (NYSE/SYRG)
One firm that continues to outperform its peer group, both operationally and on the stock market, is Synergy Resources Corporation (NYSE/SYRG). While most domestic producers have declined substantially in value on the stock market, this position has been mostly flat for the last 12 months. Even with weaker oil and natural gas prices, this company is still growing. (See “Oil Prices: Where They’re Going and How to Profit From Them.”)
Most of Synergy’s leased assets are in the Denver-Julesburg Basin in Colorado, Wyoming, Kansas, and Nebraska. The company has some 309,000 net acres leased and has a proven track record of production and financial growth for investors.
Triangle Petroleum Corporation (NYSE/TPLM)
Another interesting name in the junior energy space is Triangle Petroleum Corporation (NYSE/TPLM), which operates in the well-known Williston Basin in North Dakota and Montana.
This leasehold independent has had its share price cut in half. It’s been trading around its current level since the beginning of year. It’s quite liquid and has a decent following.
It’s All About the Price of Oil
Naturally, the key to these micro-caps is the price of oil. While you can get a lot more value nowadays as an investor in this sector, you can’t expect near-term capital gains unless oil prices do so commensurately.
Rising oil prices generally denote improving economic conditions. Thus, they have a correlation to equity investor sentiment.
Oil isn’t particularly helping the stock market currently; it is more so helping consumers. If it were to start ticking higher in the fourth quarter, it would be just one signal of improving economic activity.