Just when Wall Street “experts” thought energy markets were dead and buried, they’ve jumped back to life. And the only person I know who pinpointed the exact bottom is Money and Markets editor Mike Larson.
In this interview, he shows you how you can profit from the recovery. He tells you about five unstoppable forces that prove this profit bonanza is the real deal. And he names names, giving you two different ways to invest right now.
Mike, tell us what’s happening in the energy sector, why it’s happening and how you’re helping your readers profit right now.
Mike Larson: It’s very simple. The last time we saw an opportunity as promising as this one was in 1986 — almost 30 years ago.
That’s when the price of crude oil collapsed, just like it did last year. That’s when major energy stocks fell at huge double-digit rates, just like they did last year. And that’s when most experts said it would take years — even decades — to recover, just like they’ve been saying this year.
They were proven wrong back then and they’re being proven wrong again now.
Martin: First, show us how they were wrong three decades ago. Then show us why you think they’re wrong here in 2015.
Mike: After the energy markets collapsed back in 1986, within just two months, the price of oil rebounded by 76%. Within 15 months, it surged 133%. And within four years, it had soared by more than four times.
Martin: Wow. But what about the energy stocks?
Mike: Within the first 15 months after oil hit bottom, Occidental Petroleum surged from $23 to nearly $40 per share. Chevron jumped from $34 to nearly $65 per share.
Hess went through the roof — from $16.50 to nearly $42. That’s a 154% gain — enough to turn every $10,000 invested into more than $25,400.
Martin: From what I recall, only a small minority of smart investors had the courage to buy when everyone else was selling.
Mike: True. But those who did swoop down to pick up these oil-patch bargains of 1986 made some of the greatest fortunes of the 20th Century and 21st Century combined!
It’s when T. Boone Pickens and Carl Icahn made hundreds of millions of dollars. It’s when takeovers created billions in new fortunes.
Martin: And now, history is repeating itself.
Mike: You’re darn right it is! The price of oil has collapsed — exactly like it did back in 1986. It has hit bottom, just like it did back then. And AGAIN, just like back then, a small minority of investors are picking up the bargains.
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Martin: To my knowledge, Mike, you’re the only analyst who pinpointed the exact bottom.
Here’s the flash you sent out this year — on January 13. And here’s when energy stocks bottomed and turned sharply higher. ——>
And here’s a chart showing the exact bottom in energy stocks — January 14, exactly one day after you called it: ——>
Now, already, your picks are following the same pattern as those great profit-making stocks of 29 years ago. Can you give us some examples?
Mike: CNOOC, for example, has just jumped 18% since I recommended it in February. I also recommended Enerplus in January. It’s already surged 24%.
And Petrobras surged 53% from $6.39 to $9.78 since I urged investors to buy it in December of last year.
Martin: OK. I see how this oil-price cycle is following a chart pattern that’s very similar to the oil-price cycle of nearly 30 years ago. But why?
Mike: Because it’s also very similar in so many fundamental ways. Back then, the Saudis flooded the market with crude oil. Today, the Saudis are again flooding the market with crude oil.
Back then, they did it to punish cheating by fellow OPEC members — and to punish non-OPEC producers for trying to grab market share. Today, their agenda is very similar. They’re again trying to hurt non-OPEC producers, especially the United States — for trying to grab market share.
In both cases, the trigger for the decline was mostly political. And in both cases, as soon as that was done, the power of real supply and demand reasserted itself.
Martin: So the fundamental causes were very similar.
Mike: Yes. And the consequences are also similar. Two decades ago, overly indebted producers like Argo Petroleum, Crystal Oil and Global Marine went broke. Companies cut back their new drilling activity at an annualized rate of almost 83%. Panic swept through the sector!
Now, we’ve seen the same pattern. We’ve seen energy companies like Afren, Quicksilver Resources, Dune Energy and BPZ Resources default on their debts. And we’re seeing companies cutting back on their drilling activity in a big way — an annualized plunge of almost 70%. And, again we’ve seen panic sweep through the sector.
I’m conservative by nature. But in my opinion, these opportunities are too great to pass up. So since January, I’ve been finding one new amazing bargain after another and telling my readers to snap them up. Even if you don’t catch the exact bottom and even if you don’t pick exactly the right stocks, you can most likely do well. And if you know where to look, when to act, and how to buy smart, you can make an absolute killing.
Martin: Good. I know you’re going to give us two ways to invest in the energy markets and name names our readers can buy today. But first, some skeptics might ask you this: “What makes you think this is going to last?”
Mike: Because the forces driving this surge are not just technical lines on a chart. They are long-lasting, unstoppable fundamental forces that will continue to drive prices higher for years to come!
Martin: Can you give us a quick thumbnail of each?
Mike: Force #1 is the supply of oil. Sure, the decision by the Saudis to flood the market with crude helped drive supply much higher. But that was 2014. Now we are in 2015. Different animal entirely! Now, drilling activity is plunging rapidly — something we can see and prove with rig counts.
Take a look at this chart, which shows how many oil and gas rigs are at work drilling in the U.S.
See how the activity collapsed back in the 2000s? After that happened, the price of crude oil surged from around $33 to $115!
And now look. It’s happened again. In fact, we now have actually FEWER oil and gas rigs drilling for energy than we did at the depths of the Great Recession! That means present production capacity is down and future capacity will also be down.
Force #2. Capital expenditures have plunged and are continuing to plunge!
Martin: You’re talking about what companies spend on exploration and production facilities.
Mike: Exactly! The majors are doing it. The minors are doing it. Everyone’s cutting their budgets to the bone.
Martin: So that also cuts down the supply of oil.
Mike: Right. It means more future production is going the way of the dodo bird.
Martin: I’ve seen some of that budget-cutting in the news.
Mike: Some?! Are you kidding? It’s everywhere in the industry.
All told, I’ve seen more than $50 billion in spending plans thrown out the window — just for this year, just in the U.S., and just announced in the last few months.
Martin: But that’s all about future production. What about right now? What’s causing the profit bonanza in energy stocks we’re witnessing today? And regarding the energy investments you’re going to name here today, why buy at this early phase? Why not wait for these future forecasts to pan out?
Mike: Because this is not just about the future. We know that current production is also peaking! Just look at what the Energy Information Administration — the EIA — is now saying. It just reported a multi-million barrel drop in inventories — the biggest in eight months!
Martin: Those are the first two forces — rig counts down sharply and expenditures being cut left and right.
Mike: Right. The third force is gasoline supplies in this country.
Most people don’t realize this. But there has actually been a sharp drop in U.S. gasoline supplies. That means gasoline refiners are going to have to ramp up their production very soon. And they’re going to have to ramp up their purchase of crude oil to make that gas, especially for the summer driving season.
Force #4 is the big surprise: Much higher global demand for energy.
Martin: Give us hard evidence of that.
Mike: I don’t have to. Because the International Energy Agency (IEA) already has. They advise every major oil consuming nation on the planet. So if the so-called experts on CNBC were right, the IEA would be lowering their forecast for global oil demand, right?
Mike: Well, they just did precisely the opposite. They just RAISED their forecast for global oil demand.
Martin: For 2016?
Mike: No. For right now — for 2015! Their forecast, which is the most objective forecast available, is that global demand for oil is going to rise — by 1.1 million barrels per day — this year! That rise is 57% larger than last year’s rise of 700,000 billion barrels per day.
The fifth and overarching force, though, is that history is on your side. Like I said, the last time we had an energy sector implosion akin to this one — in the mid-’80s — it proved to be the biggest buying opportunity in history!
We didn’t just get a minor bounce that ended in the blink of an eye. We didn’t just get a half-year rally that soon fizzled out.
Martin: The initial bounce was just the first phase of a massive bull market.
Mike: Exactly. Let me say that again. What you saw then and what you’re seeing right now, is just the first phase. And like we said at the outset, after the first phase, big-cap names like Exxon and Chevron can roughly double in the next year and a half. Plus smaller bargain-basement names can triple and quadruple, just like they did in the late 1980s.
Martin: I know. Unfortunately, many investors don’t buy until it’s very late in the game.
Mike: But I’m not in the “most-investors” crowd. Nor are most of our readers.
Martin: I’m an investor. I’m intrigued by this opportunity. What should I do?
Mike: It depends on your individual situation. So let me give you a couple of different ways you can invest in the energy markets.
Mike: First, let’s say you’re investing long-term money. The simplest way to get your feet wet is with the largest broad based exchange-traded funds — ETFs — that specialize in the energy sector.
Martin: Name a couple.
Mike: The Energy Select Sector SPDR Fund is the granddaddy of them all, with $15 billion in assets. It holds 43 well-known stocks like Exxon Mobil and Chevron.
Or you can “drill down” with ETFs like the iShares U.S. Oil Equipment & Services ETF. It owns the services firms that help drillers bring oil out of the ground, including names like Schlumberger and National Oilwell Varco.
Just remember: It’s always prudent to buy after minor setbacks.
Martin: But you can’t expect these very broad, big-cap kinds of investments to give you the spectacular gains you were talking about.
Mike: No. But this is a once-in-three-decades kind of market. So they should still do very well. But yes, for the bigger gains, you need to do more homework.
That’s the second and truly most exciting way you can take advantage of this opportunity. You need to find the energy companies you don’t hear about every day … but that could hand you large, triple-digit gains in a short period of time.
Martin: For example?
Mike: For example, I’m looking at an energy firm based in Europe. It has done all the right things. It has shed more than 1,000 jobs and has slashed $1.3 billion in expenses.
Everything is telling me this company is going to have cheaper, easier-to-develop reserves and production acreage right here in the U.S.! That will give its bottom line a huge boost.
The stock is already on the move, up more than 30% from its March low. But that’s just the beginning.
Another amazing opportunity is an offshore drilling rig and ship operator that’s been trading at the cheapest valuation since the depths of the Great Recession. But this company is backed by a billionaire with decades of experience in the oil shipping and production industry.
The company has built up a war chest of funds for big bargains. Management is so confident in the future that the company’s CFO just said he plans to “come in and swipe the table” of distressed competitors!
In the wake of the Great Recession, this stock tripled and tripled again. From trough to peak, it surged a whopping 9-fold! That’s enough to turn every $10,000 invested into $90,000!
The main point I wanted to make today is that this is a huge opportunity.
You saw how the last time around stocks like Occidental Petroleum, Chevron, and Hess rocketed higher by as much as 154%. Now, I believe that history is repeating itself. We’re already seeing many stocks skyrocket right at this moment, even as we speak.
The time is right. The stocks are right.
Martin: And I think you’ve proven conclusively you’re the right person to lead the way.
Mike: Thank you for saying that. And thank you, our readers for joining us today.