Jim Cramer, star of Mad Money on CNBC, threw down the gauntlet on oil stocks:
“I am not about making friends, I am about making money. And I don’t think I can help you make money in the oil and gas stocks anymore.”
He said he’d rather buy Tesla Inc. (Nasdaq: TSLA) than Exxon Mobil Corp. (NYSE: XOM).
“Just look at the chart,” he chortled … and he’s right, it’s ugly:
You know what? I’ll take that bet. Let’s do this, Jimmy.
You get Tesla and I’ll take Exxon. We’ll both put an imaginary $10,000 into our respective stocks.
From Cramer’s point of view, I’m a sucker. He knows crude oil is on the outs. Nobody wants it.
He lays out his argument in two points: sustainability and oversupply. And those are both valid concerns.
Climate issues are headline news today. Many folks point the finger at major oil companies as the source of the problem. There is a need to place blame. And there are many social activists painting oil companies as the new tobacco companies.
Cramer calls that “impact per share.” And he believes the new generation of investors will avoid oil and gas because of social impact.
His second point is one we’ve made before … supply and demand imbalance.
There’s too much oil supply for this market.
The oil price barely budged when:
- Terrorists targeted oil tankers in the Strait of Hormuz.
- Rockets damaged Saudi Arabia’s oil terminals.
- And the U.S. and Iran stood on the brink of war.
But a temporary supply glut doesn’t mean the end of oil.
You know what Exxon has, Mr. TV Stock Guy?
A long history of navigating cyclical markets. Cyclical means it goes up and down.
That’s the Story of Oil for Over 100 Years
Lower prices set the stage for higher prices. That’s because poorly run companies close up shop and output drops.
That turns the supply glut into a shortage.
But Exxon has posted positive free cash flow for nearly 35 years. In that time, the oil price went up and down hundreds of percent.
Imagine making money at $10 per barrel, only to see it go up to $40 per barrel. That’s a 300% gain!
Now imagine seeing it retreat from $40 per barrel down to $14 per barrel. That’s a 65% drawdown.
That’s the oil industry. It’s boom and bust.
It’s tough to keep the lights on for many companies, let alone keep making profits year after year after year.
But Exxon does just that. It weaponized market intelligence.
You see, the folks at Exxon Mobil understand cyclical markets. And they do it better than anyone else.
So, I’ll take Jim Cramer’s bet. He can have Tesla and I’ll take Exxon. Start date February 3, 2020. We’ll see how this works out.
My colleague John Ross just said that he sees Exxon rallying 35% by Independence Day.
I couldn’t agree more. But there is a way for you to accelerate your gains.
We developed a trading research service called Apex Profit Alert. It focuses on cyclical stocks like Exxon Mobil.
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Good investing,
Editor, Real Wealth Strategist