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I don't know if it was the Beverly Hill Billies marathon I watched last night or the beard oil I rubbed in this morning to give this manly mane of mine a little kiss of Chuck Norris majesty, but I've got oil on the brain today. Hash tag, beard game strong.
So does the rest of this market. Oil prices have plummeted since the Iran deal was announced. Its taken crude down from the $60 level to $44 bucks in a little over a month. We've taken out multi-year lows we hit in March and now crude is searching for a bottom like Stevie Wonder at a dance club.
The problem for equity markets isn't the price of crude itself but the liquidity risks that could ripple through credit markets as a result of its decline. Over 25% of high yield debt issuance is done by oil exploration and production companies. Many of these companies need oil to be much higher for them to be profitable and be able to pay their debt obligations. That's the real problem that's causing equity markets to drop.
It may be too soon to jump in on these major integrated oil stocks or the E and P's. Exxon Mobile (XOM – Analyst Report), BP (BP – Analyst Report) and Chevron (CVX – Analyst Report) are all still Zacks Rank #3 (Hold) stocks. If you look at a chart of either of these stocks, you'll see a downward death spiral rivaling Lindsay Lohan's career. Or her face. Either one.
On January 15th I wrote an investment idea named “Fill Up the Tank with These Energy Stocks” where I gave you THE way to make money in 2015. One stock idea was Tesoro at $68. Today, TSO is at $102.50. You're welcome. You're all welcome. But, the only time I look in my rearview mirror is when I want to look at the front end of a Camaro, a WRX or an Acura TL. Looking forward, try Alon USA Energy (ALJ – Snapshot Report) or CVR Refining (CVRR – Snapshot Report).
Both are Zacks Rank #1 (Strong Buy) stocks in the refining industry that ranks in the Top 20% of 265 industries we cover with our Zacks Industry Rank. If I had to pick one and stick with it, I'd pick Alon USA Energy. The chart bottomed out in mid-January a shade over $10. After leapfrogging the 21 day moving average in late January, there have only been a few days where it dipped below it.The most recent dip below carved out a bottom just below $18 in July. An oversold CCI at -100 saw bids rush back in and now ALJ is breaking out to a fresh 52-week high above $21.
