Slaughter on the Stock Market

September 9th, 2008 by Potato

Well, today was a bit of a nasty day on the stock market. Oil stocks were hammered in particular, though financials didn’t escape without a haircut, either. Oil is coming down, and yes, I have officially been proven wrong in my prediction back when oil was $140 that it would pull back, but not below ~$120. However, I look at these oil stocks and think that the sell-off might be a little over-done. Oil is still above $100 a barrel, yet the oil company stocks have fallen to where they were when oil was less than $80/barrel. I don’t want to catch a falling knife, but my value senses are starting to tingle so I’m going to do some research, particularly into Husky (HSE), Petro-Canada (PCA), Opti-Canada (OPC), and Russel Metals (RUS). HSE and PCA are mature, integrated oil companies — they do everything from getting the oil out of the ground to refining it to selling gas at the pumps, so they get a bit of exposure to everything, though PCA has a much higher proportion of its business that is refining/retailing, which partly explains why it’s been underperforming lately. OPC is a pure oil sands play — they’re not even into full production yet, but their Long Lake project has been built using a new type of steam assisted gravity drainage which will hopefully cut the costs of getting oil from the tar sands by using less natural gas. They’ve gone down over 12% today alone, which might be overdone, unless there’s something I’m missing (though a few days ago it was reported that their Long Lake project wasn’t ramping up production at the expected rate). RUS isn’t an oil company per se, but they make steel that is used in the oil patch, and so tend to move around a bit with the perceived health of the oil and gas industry. They offer an attractive dividend; I bought in around $25 last year, and sold around $30 a few months ago. Today they’re back into the $25 range, and I’m wondering if I like them again at that price.

One more stock of note is Potash (POT). It’s way down over the last month, and has also been hit by another 7.5% today, down to $150. I find this stock almost defies value analysis, and is so volatile I really don’t want to touch it, as cheap as it may seem at the moment.

It looks like I’m going to spend some time tonight doing some research to see if any of these are values, in my opinion anyway, and start thinking about what to do from there. As I mentioned a while ago, I don’t actually have any cash left to invest, so any values would have to be compelling enough to get me to sell something else. Teranet’s had a few takeover offers and is up nicely on the news. I’d like to hold on to it through the bidding process to see where it can go, but at the same time it might be about as high as I can expect now, and it might be decent to lock those profits in and move on to another value… or, I could do some leveraging, and borrow money to invest in an attractive oil patch investment now, and repay the loan with Teranet once the buyout goes through (if one materializes).

Update: Well, Opti is a tough one to analyze since they’re in the early stages, it’s more a gut feeling than anything at this stage of their development. I’ll continue to watch, but being behind schedule isn’t giving me the warm and cuddlies with everything in the oil sector being down.

Petro-Canada is coming out as one of the best-looking bargains. It closed at $39.09, and my spreadsheets are telling me that $42 is the point to start looking at buying (including a small safety factor). Husky is close with $36 coming from my spreadsheets, vs $39.43 at the close; I’m a little more tempted to go for Husky at the moment because of their higher dividends and because they do more oil extraction, while Petro-Canada has more refining/retail business which can be a bit of a drag if/when oil prices spike again.

Russel metals did well for me once, and I don’t see too much that’s changed there, so I’d buy it again around $24 if it continues to be driven down.

Since I don’t have any cash I’m not going to jump the gun and won’t put in any bids tonight, but I’ll be keeping a close eye on the market in the morning!

Disclosure: I’m an amateur investor, and really only looked at how thick Security Analysis by Benjamin Graham was before reading Value Investing for Noobs [or something like that], and even then I’m doing it wrong. This is not advice, and listening to me can lose you money. Speak to a financial advisor, or better yet give all of your money to me. I’m building a rocket that will take it to the moon, where it will be safe, and where you will certainly never see it again.

One Response to “Slaughter on the Stock Market”

  1. Potato Says:

    Well, I put in a bid on HSE at $39.50 this morning, but it shot right past that. I didn’t feel like chasing it up into the low-40s, which might have been a mistake since it peaked up near $43, up 8.5%.