Two Cheap Oil Dogs

Written by GSCR Staff   
Friday, 09 January 2015 07:55

2015 has already been an interesting year in the markets.

The long term outlook, particularly in the U.S., appears to be bullish as how to price in the oil trade remains open for debate. In Monday’s Guide we alluded to a strategy that has been around for over 20 years with the Dogs of the Dow. The idea is to find the highest dividend yield Dow Jones stocks on the last trading day of the year and bet them for the following year. Today we take another voyage into the cheap oil trade with a Dogs of the Dow premise in the small cap space.

 

We used our screeners to find a couple of oil and gas related companies with very high dividend yield along with other good scores on important metrics. The table below illustrates two stocks that we believe could be in play as investors and traders look to buy cheap and go long on downtrodden oil stocks. Both CSI Compressco, LP (NASDAQ – CCLP - $13.40) and Cypress Energy Partners, LP (NYSE – NYSE - $13.36) are both down over 50% from previous 52-week highs, so both could definitely be targets on that basis alone.

 

Valuation Metrics for CCLP CELP

 

MM.01.09.15-cclp-celp

 

 

Obviously, the price of oil could keep going down and have a short-term negative impact on CCLP and CELP and other related stocks and calling a “bottom” now would be foolish. What is not foolish is understanding the macroeconomic factors in play here. Sustained low oil prices could ultimately stimulate economic growth and activity and consequently not have a negative impact on revenue for oil and gas companies even with relative bargain basement oil prices. The supply demand principle in action.

 

Whether or not you believe oil has hit a bottom may not be important here. If you look at CCLP and CELP from a Dogs of the Dow perspective alone, a rebound in these stocks is not only possible but probable. Throw in investor appetite to buy cheap oil and there is no reason why both these stocks cannot get back to the $20 level this year.

 

Have a great day!

 

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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