(Unfortunately I did not have the time to fully research this.)
Improvements in shale extraction technology and a glut of capital have basically destroyed oil and natural gas prices. While Exxon’s management is ok, the company cannot defy commodity prices. Its upstream assets aren’t worth that much anymore because they’re inherently leveraged to oil prices. But despite the dramatic decline in oil prices, Exxon’s share price remains high.
The put options are interesting to me since implied volatility is low (20-30%+) and the company is overvalued. The options are barely more expensive than SPY puts (in terms of implied volatility), except that oil prices fell by half and America’s GDP did not.
A back of the envelope calculation puts Exxon’s private market value at <$129B versus a market cap of $359B.
Lately, independent E&Ps have been beaten down due to lower commodity prices. Drilling stocks (e.g. NADL) have been beaten down due to US sanctions on Russia and lower oil prices. Some shipping stocks (e.g. DRYS, PANL) are beaten down. In these situations, I will not be greedy when others are fearful.
I find that ranking stocks is a useful analytical tool. Ranking stocks against each other helps me be more realistic about how good or how bad a stock is.
I have some extreme and unconventional viewpoints. Many “value investors” would have a list that would be the opposite of mine. Many of the stocks I have shorted have been mentioned on ValueInvestorsClub.com as longs or potential longs. Many of these people are quite intelligent and eloquent. In my opinion, the longs do not understand how they are being bamboozled and misled by stock promoters. I’ve written about this many times on this blog (e.g. “How would a sociopath fleece investors in oil and gas?” and “Beating Wall Street in oil and gas“).
While the independent E&P sector has seen a meltdown in share prices, I don’t see undervaluation. The problem is that many of the companies continue to be run by stock promoters and charlatans (more so in the small caps than the large caps). Until the management teams get better, I don’t think that the independent E&P space will be a good place to look for longs. My prediction is that there will be more pain to come when NGL prices collapse.
New positions I have initiated without doing thorough research. (I’m not kidding when I say that I haven’t done much research…)