The news is in, and cheap oil will be around for longer than most people expected. While this is bad news for energy-related companies, it is great news for the investors who buy these three stocks.
It has been quite apparent that pundits who expected at the beginning of 2015 that oil would start to rebound by the second half of the year are going to be proved wrong, and wrong for much longer than they projected near the end of 2014. To be fair, there were events that came to fruition that would have been hard to factor in six months ago.
Both domestic and global growth estimates have come down significantly since the first of the year curtailing demand for energy. The u.s. economy was expected to see 3.5% GDP growth in 2015 according to the IMF and other economic forecasters six months ago; but now it looks more like it will come in the same two percent growth levels we have been stuck in throughout the six years of what is easily the weakest post-war recovery on record. Consensus forecasts for global growth have also come down.
A nuclear deal with Iran will also bring significant new supply onto the market when the agreement is finalized and global sanctions are finally lifted. In addition, even though rig counts have fallen by more than half from their peak; U.S. production levels are still at record levels. The fallout from plunging oil prices is just starting to be really start to felt across our economy.
On the downside, massive layoffs in the oil patch are one key reason wage growth in the second quarter came in at the lowest levels in over two decades. It takes a lot of clerks at Target or baristas at Starbucks to make up for each high paying rig worker that gets a pink slip. The plunge in crude since last summer has also crushed the stocks of the exploration and production companies especially the small and mid-cap concerns in the industry. Many of these have already had to cut back on their capital expenditures severely, myriad firms have also had to restructure their debt and some have declared bankruptcy.
