Welcome or not, the BP oil spill has put the spotlight on the oil industry. Although related exchange traded funds (ETFs) have not been hit too hard, a handful of stocks have, and as is always the case in a huge sell-off, investors should have a keen eye for undervalued assets.
According to Tony D’Altorio of Investment U, few people know that the oil exploration industry was in trouble even before the BP (NYSE: BP) oil spill. [BP Oil Spill Fallout.]
D’Altorio cites that back in 2008, drilling rig operation rates were nearly 85% in the Gulf of Mexico. By last summer, that number had dropped to 45%. In addition, the day rates for jackup rigs fell from $168,000 to merely $78,000.
Although the day rates recovered to around $115,000 and operation rates rose to near 63%, the BP oil spill blew up any signs of recovery. [Natural Gas ETFs Win in Oil Spill.]
However, D’Altorio thinks that the market may well have overreacted, providing a great opportunity for investors and other oil companies to scoop up dirt-cheap stocks.
To support his case, D’Altorio notes that two Norwegian oil service companies have already acted on depressed prices. Acergy and Subsea 7 engaged in an estimated $5.4 billion merger, while Noble Corporation acquired FDR Holdings for $2.16 billion in cash.
It is of note that Subsea 7 owned an impressive $5.3 billion backlog when it merged with Acergy, and FDR Holdings had a $3.2 billion backlog when it was acquired. This goes to show that perhaps these companies have been, as D’Altorio thinks, overly sold-off.
If indeed the oil services sector has been overly sold-off, then investors should keep a close watch on related exchange-traded funds (ETFs). By using ETFs, investors should be able to mitigate some of the risk of holding onto speculative stocks, while participating modestly in a potential upswing. [Long-Short Oil ETFs.]
To find ETFs above or below their 200-day moving average, you can put a few of our new tools to use. Our ETF Analyzer allows you to sort any ETF by 200-day. Our Alert tool lets you have price and trend alerts sent straight to your inbox so you never again miss a trading opportunity.
For more information on oil, visit our oil category.
- iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund (NYSEArca: IEO)
- iShares Dow Jones U.S. Oil Equipment & Services Index Fund (NYAR: IEZ)
- PowerShares Dynamic Oil Services (NYSEArca: PXJ)
- SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES)
Sumin Kim contributed to this article.