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  • Writer's pictureIshfaaq Peerally


On the first of August, Concho Resources $CXO lost 25% of its value. On the same day, another stock in my portfolio, Parsley Energy $PE lost around 9%. I've been buying both of these companies recently and they both have something in common, they are upstream oil and gas companies $OIL $NATGAS with exclusive operations in the Permian Basin.

These two companies were around 10% of my total investments, therefore, it was not as bad as you may think but still losing money is never fun. The day itself was a bad day for the market $SPX500 after President Trump tweeted that he will impose new tariffs on Chinese goods. What does all of this mean for Concho Reources? For the Permian Basin? For the oil industry? and what should you do in the situation when one of your stocks crashes?

For me, actually, this is a good thing since when the price of any company falls, the risk is lower. The oil industry is a very risky industry since oil prices are very volatile. There have been days when Concho Resources gained 4% only to lose 3% on the following day. With this massive fall in prices, the risks on the investment are lower. The reason behind this fall in the stock price is because the company's profits year-over-year fell by 25%. Coincidentally, the stock price also fell by 25%. But I believe that there will be further and further fall in prices in the coming weeks. What should I do? PANIC? Sell everything? ABSOLUTELY NOT. The main reason for the fall in profits is the recent fall in oil prices. Oil prices were expected to rise but this didn't happen. That doesn't mean that oil prices will keep falling. Oil prices will rise in the coming years. There is no doubt about that. It doesn't have to rise much. Even if the prices rises to about $70/barrel, Concho Resources and Parsley Energy will be making a lot of money. There is the possibility of making 50% on that company in the coming years or even 100% or even much more than that. From 2009 to 2011, Concho Resources gained over 500%. Yes! 500% in two years. It is still possible. Upstream oil companies are always like this. They make a lot of money when oil prices rise and they can lose money when in falls. But in the case of Concho Resources, they are cutting productions so that they can maintain the free cash flow at around the same level and buy back their own stocks at a discount. This is actually wonderful news.

Concho Resources and Parsley Energy remain growth companies. As an intelligent investor, I see this fall in prices as an opportunity to invest more. I'm waiting to see what happens to the stock price of both companies in the coming weeks, but eventually I'm going to buy more. Stock investing is a long-term game. I didn't want to invest much into these companies because of the risks involved but now since the risks are less, it is possible to take this opportunity to invest more.

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