CIMAREX ENERGY STOCK ANALYSIS: Mid continental and Permian Basin oil company
First of all, let's talk about some changes in my portfolio. I reduced my positions in $VLO and $PSX while and used all the profits to buy $PE . I'll continue to reduce my positions in these two companies and further add my positions in $PE and $CXO in the coming weeks/months. So why I'm doing this? I want to invest in pure-play upstream $oil and $natgas with exclusive operations in the Permian Basin, which is the richest oil region in the world currently. By 2025, The State of Texas will be producing more oil than Russia or Saudi Arabia. So there is a lot of opportunities there. That's why I'm investing in $PE and $CXO . I also have an investment in $APC but this is really an arbitrage play awaiting the acquisition of the company by $OXY . For the long-term, I'm the only two oil companies I want to have in my portfolio are $PE and $CXO . As far as $VLO and $PSX are concerned, they are wonderful companies and I believe that as oil prices keep increasing, the stock price will rise but they are downstream companies with lower profit margins and, therefore, will not profit much from the Texas oil boom in the long-term. In theory, I could have kept these two investments since, downstream oil companies are usually less affected by commodity prices but, in practice, the stock price of any oil company will just fluctuate with oil prices. So, to reduce my exposure to the oil market volatility, it is more reasonable to keep on 2 oil companies in my portfolio.
Today, we're looking at $XEC , another Permian Basin upstream company. This will be the last one, we will be looking at since I already found two wonderful companies to invest in but, nevertheless, there is something interesting I want you to note with this company. If you look at the amount of oil/gas that they are producing per year and their proved reserves, you'll see that they will run out of oil in 7 years. Of course, oil companies always find new resources, for example, by using fracking. But this one, doesn't seem to be investing much in exploration but rather more in production. Usually, what I'm looking for in an oil company is at least 10 years of proved reserve. For this reason, I don't think that for the time being, $XEC is a good investment, although they have a lower P/E than industry average.
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