Smart investors know that there’s a lot more to investing than just buying good stocks. Knowing when to sell stocks and understanding which ones to avoid outright are essential for long-term success.
And those principles might be more important now than they’ve been in quite a while.
Following are the 10 weakest large caps in the market today according to my Portfolio Grader. These stocks — Hess (HES), Occidental Petroleum (OXY), Continental Resources (CLR), Baker Hughes (BHI), Royal Dutch Shell (RDS.A), Marathon (MRO), ConocoPhillips (COP), Tenaris (TS), PetroChina (PTR) and Anadarko (APC) — all hail from the same industry.
But what’s most surprising is that there are few companies in the sector that are doing even marginally well. And that says something. After a year of low oil prices and restructuring, this industry is still trying to find a leg up.
That is not a bullish sign.
Let’s take a look at why these massive companies are still not able to find their footing.
Stocks to Sell: Hess (HES)
Hess (HES) is an international exploration and production (E&P) firm. It’s in the “upstream” sector of the market primarily. And the upstream has been hurt the most by the massive production output by OPEC.
Many upstream firms have shut down exploration at this point since the cost of exploration outweighs the money made by sell the product.
Recent news that prices will remain low for the next year at least certainly don’t help prospects.
This is no time to bottom fish. Sell HES stock.
Stocks to Sell: Occidental Petroleum (OXY)
Occidental Petroleum (OXY) is an international E&P firm that also operates a “midstream” business.
The midstream operations are basically pipelines for oil, natural gas and natural gas liquids — derivatives of natural gas. Once the gas is refined, it yields other properties that can be sold.
Sure, OXY’s midstream business allows it to kick off a 4.5% dividend yield. However, with the stock off 18% year-to-date, it’s not much of a temptation, unless you expect the fortunes for OXY to turn around.
At this point, we don’t. There are much better picks.
Stocks to Sell: Continental Resources (CLR)
Continental Resources (CLR) is completely focused on the U.S. E&P sector. It’s always going to be one of the most volatile ways to play the energy sector, even in good times.
The goal of OPEC has been to squeeze out companies like CLR in the U.S. market. Saudi Arabia can produce oil cheaper than CLR because it has established wells and production.
CLR is using more expensive methods to get oil and has a higher price point on each barrel it delivers. This expense is what’s hammering U.S. upstream players at this point.
With CLR stock off 25% year-to-date, don’t expect a comeback any time soon.
Stocks to Sell: Baker Hughes (BHI)
Baker Hughes (BHI) was supposed to have been woven into oilfield services giant Halliburton (HAL) by this point in time.
HAL launched a $35 billion acquisition of BHI last year but has hit significant snags all along the way to closing the deal. The U.S. Justice Department is raising a number of anti-trust flags, and European regulators are also having problems with the deal.
On top of those troubles, BHI is being dumped by hedge funds now, which is never a good sign. Some of the reason appears to be sector rotation out of the energy patch and into small caps, but regardless, it’s not good.
A merger that’s in limbo and a very slow business book don’t spell “turnaround.”
Stocks to Sell: Royal Dutch Shell (RDS.A)
Royal Dutch Shell (RDS.A) has not had a good year.
Sure it’s off 33% year to date, but that performance only tells part of the story.
Most recently, Shell had to write a $6 billion loss for its ill-fated Arctic drilling operation in Alaska. It looks like the company is trying to wrap up operations in New Zealand to save some money. And while its British Gas merger has been greenlit, it will now be the world’s largest distributor of liquified natural gas (LNG) at a time when LNG is trading at multi-year lows.
Its upstream operations aren’t doing well, which isn’t surprising and so it will look downstream to retail operations to turn their investors’ frown upside down. But don’t count on that or RDS.A stock’s 8% dividend.
Stocks to Sell: Marathon (MRO)
Marathon (MRO) is a major international E&P player in the oil and natural gas markets.
As a result, it has been majorly hammered in recent quarters. MRO stock is off nearly 50% year-to-date.
Part of the problem is, MRO operates in some of the world’s hotspots — like Libya and northern Iraq — which make managing those wells a continuing problem even if oil becomes more expensive. Actually, as the value of the wells go up, the more difficult it will be for MRO to manage them.
Add to that Marathon’s industrial metals mining operations in Egypt and you have a perfect scenario of diversification gone horribly wrong.
Stocks to Sell: ConocoPhillips (COP)
There are two things to say in ConocoPhillips’ (COP) favor.
First, it holds a lot of natural gas, which is certainly a better commodity to manage than oil right now, although not by much.
Second, its energy operations in the U.S. are basically in long-established fields in Alaska. That means it isn’t pumping to finance operations like some of the E&P going on in newer shale fields in the Lower 48.
But that said, it’s still primarily an internationally exposed upstream firm. And that is a bad sector to be in, no matter what your size.
Yes, COP has an attractive 6.2% dividend, but when the stock is off 30% year-to-date, that 6% doesn’t really take the sting out of that bite.
Stocks to Sell: Tenaris (TS)
What’s worse than being in the upstream oil business as a E&P firm? Being in the upstream oil business as a supplier to E&P firms.
Tenaris (TS) is off 20% year to date, and its 5% dividend is hardly a selling point. Its only advantage is that Tenaris isn’t one of the major players in the sector, so while it’s getting hurt by the overall downturn in drilling, it’s not doing as badly as some of the bigger players where investors had higher expectations.
That’s cold comfort, certainly. As long as the global economy barely registers a pulse and OPEC continues to flood the market with crude at bargain prices, TS stock and the rest of the E&P sector are to be avoided.
Stocks to Sell: PetroChina (PTR)
PetroChina (PTR) is suffering from the double whammy of hailing from a great economic engine that has a busted transmission and focusing on an industry that is going through a major restructuring.
Like the U.S., drilling in China is more expensive than buying crude from Saudi Arabia. And that’s what the Chinese are doing — stockpiling cheap reserves. But, at this point, PTR isn’t the government’s main concern.
In its favor, PTR is diversified through the upstream, midstream and downstream sectors, so it isn’t completely out of the game. Its downstream operations will help keep it alive for now, but “alive” is hardly comforting for investors.
A reinvigorated China will be the leading indicator for a reviving PTR.
Stocks to Sell: Anadarko (APC)
Anadarko (APC) can’t catch a break — and it’s making a bad situation even worse.
Last month, APC half-heartedly tried to take over competitor Apache (APA).
Analysts couldn’t understand why, since the businesses didn’t match up. Most figured APC was just trying to keep APA out of the clutches of a better matched suitor for the time being.
Regardless, that kind of move showed more desperation than initiative.
Then, in early December, one of its natural gas plants in Texas had to close after a plant explosion. Lost productivity in the face of low productivity is not a good thing.
The beleaguered APC stock lost 10% in November alone after that sad attempt at a deal failed. APC is off 40% in 2015, and things aren’t looking good moving forward.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
