My 2009 trading thesis on the integrated oil companies is clear:
Why Exxon is overvalued
A potential oil pair trade developing
Synopsis: as long as oil stays below $60 a barrel, companies like Exxon, Chevron and Conoco aren't breaking even on their current projects and are struggling to maintain their historical ROE & ROIC. Consequently, these oil players are substantially overvalued going forward. As an aside, OPEC says it needs oil actually closer to $75 to bring supply into the market.
Disagree with my thesis? Just look at Conoco Phillips' (COP) $34 billion writedown of its goodwill from its balance sheet (goodwill is the amount COP paid above the book value of its acquisition and is the firm's largest portion of intangible assets - basically anything that is not PPE).
Forgot to mention that COP will also lay off 1,300 employees (4% of its workforce). Now ask yourself: Does COP think oil will rise 100% in 2009?
Oh yeah, let's not forget that with Democrats coming into power corporate taxes for these oil companies will probably increase further impairing their fundamentals. Alternative energy initiatives are also coming down the pike sooner rather than later with the impending stimulus.
Not to worry though Cramer is buying Chevron and Conoco for his charitable trust (the one that was down more than 40% last year ;-)
If you want to short Exxon, Chevron and Conoco then grab some DUG. Because of the severe tracking error with these shity ETFs, make sure you buy the dips and sell the rips. The first rip of DUG I'll sell is when Exxon prints $70 (currently $78).
Why Exxon is overvalued
A potential oil pair trade developing
Synopsis: as long as oil stays below $60 a barrel, companies like Exxon, Chevron and Conoco aren't breaking even on their current projects and are struggling to maintain their historical ROE & ROIC. Consequently, these oil players are substantially overvalued going forward. As an aside, OPEC says it needs oil actually closer to $75 to bring supply into the market.
Disagree with my thesis? Just look at Conoco Phillips' (COP) $34 billion writedown of its goodwill from its balance sheet (goodwill is the amount COP paid above the book value of its acquisition and is the firm's largest portion of intangible assets - basically anything that is not PPE).
The company plans to reduce the value of its equity investment in Russia’s Lukoil by $7.3 billion, Houston-based ConocoPhillips said today in a statement. Other asset writedowns totaling $1.3 billion will be recorded.
The biggest writedown, a $25.4 billion impairment charge in the oil and gas business, amounts to 87 percent of all the goodwill the company had on its balance sheet as of Sept. 30, according to Bloomberg data (Almost all of COP's good will is gone...wow!). The company plans to report its actual fourth-quarter results Jan. 28.
ConocoPhillips said it will have a 2009 capital expenditure budget of $12.5 billion, 18 percent less than the $15.3 billion authorized for 2008.
ConocoPhillips also said today that the drop in commodity prices will affect its reporting of reserves. Some reserves, primarily in North America and Lukoil’s, will be removed from proved reserves based on prices at the end of the year.
Forgot to mention that COP will also lay off 1,300 employees (4% of its workforce). Now ask yourself: Does COP think oil will rise 100% in 2009?
Oh yeah, let's not forget that with Democrats coming into power corporate taxes for these oil companies will probably increase further impairing their fundamentals. Alternative energy initiatives are also coming down the pike sooner rather than later with the impending stimulus.
Not to worry though Cramer is buying Chevron and Conoco for his charitable trust (the one that was down more than 40% last year ;-)
If you want to short Exxon, Chevron and Conoco then grab some DUG. Because of the severe tracking error with these shity ETFs, make sure you buy the dips and sell the rips. The first rip of DUG I'll sell is when Exxon prints $70 (currently $78).
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