By year’s end and into 2017, we expect the world will face an undersupply of oil and tighter inventory with little to no spare capacity. This in turn should drive oil prices higher. Our best estimate is that the price of oil ends the year close to $70. With a 90% correlation between the oil service index and the price of oil, we believe, under this scenario, energy stocks will outperform many sectors of the market in 2016 and even more so in 2017.
Over the past nine months, the decline in the price of oil, as well as the decline in the stock prices of many energy and energy-related service companies, has caused a great deal of uncertainty for investors. The big fear among many investors today is that the U.S. energy industry will experience a repeat of the 1986 oil crash, which lasted a decade in North America. We believe it is the fear of this “repeat” that has brought many energy company valuations down to levels we have not seen since that time.
Know Your Rules of Thumb, a personal interview with Arnold Van Den Berg
Learn more about Arnold's presentation from the Value Investor Conference.
CM has been featured in the Spring 2014 issue of Graham & Doddsville, an investment newsletter from the students of Columbia Business School.
We believe that in order to achieve attractive investment returns, we must stick to our investment discipline and only buy when the security or commodity is at the right price.