top of page
  • Writer's pictureIshfaaq Peerally


I told you that the best way to profit from low oil prices $OIL is to invest in oil stocks with a good balance sheet and at at a bargain price. The first oil stock in my portfolio is Concho Resources $CXO . I first bought this stock about a year ago. Oil prices were about $45-$50 a barrel and I was betting on higher oil prices after the trade war was over. Obviously this didn't happen and I lost money buying too high. I was also betting on the Permian Basin, the richest oil region in the world after some great investors such as Carl Icahn and Warren Buffett showed interest. I had two oil companies in my portfolio then, Phillips 66 and Valero Energy but I sold as they were downstream companies. I studied all the upstream oil companies in the Permian Basin and I invested in Concho Resources. My mistake was really in not understanding the demand and supply of the oil market before making an investment. Even if it was a mistake, Concho Resources is a great company and today is a great time to invest in Concho Resources. Concho Resources had a positive free cash flow last quarter and intend to have a positive free cash flow this year. How are they doing that? They lowered production and are selling oil at higher prices with the derivative contracts that they own. They have also considerably lowered their production cost. Last year, they sold some of their most expensive assets and used the cash to repay all their debts due before 2025, buyback some shares and pay dividends. How can they afford all of that? Well, they don't have any debt to be paid before 2025. The second oil stock in my portfolio is Parsley Energy $PE . This is a smaller company. Why did I buy two oil stocks? It is to limit the risk. Oil is volatile. It is better to diversify the risk among two companies rather than just one. I was right to do that. In August 2019, one a single day Concho Resources stock price fell by 25% because of bad earnings. My losses were limited since I also invested in Parsley Energy instead of focusing on only one company. Parsley Energy is smaller and, therefore, riskier but with bigger potential rewards. Parsley Energy took the bold decision to stop new fracking and new drilling. That's a good decision since just like Concho Resources, they don't have any debt to repay before 2025. Right now, it makes no sense to produce a lot of oil if you're going to lose money. It is better to produce oil when oil prices go higher. There's no guarantee that oil prices will go to $70 a barrel and we're going to make a lot of money on these two investments but it is more likely that oil prices reach that price before 2025 than in 2020. That's why I am still holding on these two companies. Will I buy more? I have enough exposure to oil and I'm not going to buy more any time soon. I took the opportunity to invest this year when oil prices crashed. But for the time being, I'm just holding. We can afford to have 5 more years of low oil prices without any worries. I'm not looking at other oil companies expect those which might go bankrupt or are already bankrupt such as Whiting Petroleum and Chesapeake Energy as deep value stocks. I'm also looking at the oil tanker stocks but there's no guarantee that I'll invest. Watch the full video on YouTube and Subscribe: Here's my last analysis of Parsley Energy on my research partnership: Join my private investing group on Facebook for more:

9 views0 comments


bottom of page