How to Find Good Value in This Overbought Market
Here are two energy names that seem more than reasonably valued in an overbought market.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Last week’s market action reminded me of Roseanne Roseannadanna’s classic "Nevermind" skits on "Saturday Night Live" back in the 1980s, when the show was must-watch TV.
The VIX surged briefly to over 60 last Monday for the first time since the beginning of the COVID-19 pandemic, only to end the week barely above 20. The Japanese market had its biggest one-day loss since 1987, and the S&P 500 had its largest daily loss since late 2022 early in the trading week. However, by the end of the week, all the major indexes were sporting minor declines. At this moment, I don’t know if last week was a one-time volatility blip or the portends for more powerful moves in the weeks and months ahead.
Speaking of turmoil, there are several geopolitical hotspots to keep an eye on. Ukraine had its first major border excursion last week across the border into Kursk. It is the first time Russian territory has been occupied since World War II, and could well trigger the next wave of escalation in that conflict. Iran and Israel remain on a knife’s edge in the Middle East and the Gaza situation is getting no better. We also have the Houthis in Yemen continuing to disrupt Red Sea shipping, attacking tankers with drones and missiles.
Any of these regions should trigger the next round of volatility in the oil markets. It is also why the energy sector is one of the few areas of the overbought market where I am finding some reasonable values.
I plan to add to my stake in E&P concern HighPeak Energy HPK this week during any weakness in equities. The company delivered better-than-expected bottom-line results with its second quarter numbers last Monday. Management also boosted forward production guidance for FY2024 and lowered their projection of cost per barrel extraction costs.
I also added some exposure to my holdings in Occidental Petroleum Corporation OXY last week via covered call orders. It seems the energy giant is one of the few things Warren Buffett is still buying these days after raising a huge amount of cash in the second quarter by dumping huge stakes in Apple AAPL and Bank of America BAC on the market during the quarter. It is always good to have that sort of company.
As importantly, the company delivered a solid second quarter earnings beat last Wednesday. The production concern is making a big push to expand its presence in the Permian Basin and will increase production by roughly 5% in FY2024. Management is also focused on utilizing its free cash flow to cut debt and expand production before it launches an anticipated expansion of its cash distribution program. This should significantly boost its current dividend yield from the current 1.5%.
And those are two energy names I like as investors await the new trading week and hope to determine whether last week's spike in volatility was an isolated event.
At the time of publication, Jensen was long HPK and OXY.
