The one thing you can’t count on is the state of gold, silver, and oil prices. Commodities are inherently unreliable over the long term as investments. Their pricing is volatile, unpredictable, subject to the herd mentality, and highly cyclical.
Point being; resource investing is a high-risk, speculative endeavor, and predicting where commodity prices are going to be in a year’s time is just guesswork.
Oil Prices in a World Awash with Supply
Everything is a cycle. This is especially the case in financial markets where capital moves so easily. Trends come and go with securities and commodities. As a result, industries and individual businesses go in and out of market favor.
Gold and silver prices are holding up modestly well. But the business case for mining companies continues to be in decline. It’s only going to get worse for the industry when the interest rate cycle changes.
In terms of equity market opportunity, I would be more focused on the energy sector and related industries. There’s value in many oil stocks now and better opportunity for a turnaround in oil prices. The market has spoken in regard to which companies it likes. Here are some of them:
Kinder Morgan, Inc. (NYSE/KMI)
I’ll start off with an investment-grade large-cap for the rest of this decade. No surprise, it’s Kinder Morgan, Inc. (NYSE/KMI); with its solid pipeline and storage business, and a robust 4.5% yield.
This energy stock is doing much better than its peer group. The stock is at a high with oil and natural gas prices in correction. It’s an existing winner with strong potential for meaningful dividend increases in the next five years.
Synergy Resource Corporation (NYSE/SYRG)
Another existing winner with a proven track record of wealth creation for stockholders is Synergy Resource Corporation (NYSE/SYRG). The stock has been in consolidation over the last 12 months without being in decline like other junior producers.
Sure, the company’s earnings have been affected by lower oil prices. But this is still a growth story. Top-line growth is expected to continue to be robust going forward. This is a stock ripe for a takeover/consolidation.
The Greenbrier Companies, Inc. (NYSE/GBX)
The Greenbrier Companies, Inc. (NYSE/GBX) is a great sideways play on burgeoning domestic oil production. This Oregon-based micro-cap is a railroad freight car manufacturer. Moving oil by freight car is a growth industry, especially with new legislation requiring safety upgrades to existing fleets.
GBX is not expensively priced on the stock market and even pays a small dividend. (See “Oil Price Weakness: 5 Stock Market Picks to Watch for Value.”)
The stock has been recovering since the beginning of the year, and Wall Street earnings estimates have been ticking higher.
Opportunities in Oil for Investment, Takeovers, and Turnaround
At a lot of energy companies I follow, capital expenditures are on the chopping block. That means that production is going to be coming down at WTI $60.00 oil.
While there are always opportunities in downtrodden sectors of the stock market, resource investing has its own unique set of investment risks. At the end of the day, what matters most is the price of the underlying commodity.
The supply and demand cycle takes time to play itself out; and the tap is still flowing in the Middle East. There is, however, much better value among domestic oil plays now. Few go around in the rest of the equity market.
Oil and natural gas prices may stay low well into 2016. But for speculative investors, it’s a worthy sector to watch in the current environment.