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Showing posts from 2020

Oil stocks look interesting

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One of the most interesting sectors for contrarian investors is oil. Oil stocks have crashed and oil price itself has not recovered in the last few weeks (although oil stocks are up 50% from bottom so some positive economic recovery is priced in). Current WTIC oil price is around $21. It should be noted that oil price is even lower than it was a few weeks ago even though OPEC, Russia, USA and others have agreed to reduce production. This goes to show how political oil is--hence unpredictable. But if you think oil is low, the unpredictability is not a big risk since upside near a bottom is higher than downside (in fact, there is probably higher chance of it going up due to political events; this is obviously not true if oil price was high or during normal price). Shown below is the WTIC futures curve from 1 month to 80 months: Source: ERCE, https://www.erce.energy/graph/ wti-futures-curve Futures are forecasting above us$35/bbl (WTIC) beyond 2 years. You can't bli

Thoughts on the stock market - March 2020

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Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say

I'm tweeting more now... Check my twitter feed also

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Now that we have entered a bear market, I'm following it more. I'm tweeting more nowadays. I'll still post long articles or investment evaluations here. For quick thoughts and articles I reference, follow my tweets at username @sivaram_v . QR code below.