This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back, Value Investors. So we're heading into the end of the year and I'm starting to think about what are the value stocks right now. And I might have said the banks if we were recording this at the end of October, 2023, because they had taken another dive and some were hitting five-year lows as I've recounted here on this podcast because I did the bank stocks, values or traps.
We did that episode again. And we concluded a lot of them were looking kind of value-ish, even if some of the earnings were down slightly, they were starting to turn around, things were looking a little bit better and they're definitely cheap. So apparently we were the only ones who thought that because the market has come in big and they've been buying up the banks since those October lows again. Whether or not this will hold, we don't know.
I always think, oh, how much we're just going to get on the banks and then we get another sell off and they go lower still. So who knows? We'll keep an eye on the banks, but they're not quite as cheap now as they were in October. And when I talked about them on the other podcast, so I want to eliminate the banks of as the category of being the cheapest heading into 2024.
And I feel like the cheapest area has to be the industry slash sector that has been the underperformer for this year. We've had a big run in tech and the gross stocks. The QQQs are up 45% year to date and this sector is going the other way, unfortunately, but for us value investors, it means there is going to be value there. Why is this one group on the decline?
Is there some deals in there? What's going on with these stocks? Are they values or traps? So I'm talking as some of you might have figured out about energy.
Yes, we're going back to the oil and natural gas, the fossil fuel type of energy. I'm going to keep alternative energy until 2024 because I do want to cover that area as well and see if there's any deals going on in alternative because it's been a little rocky over in alternative as well. But this is oil and natural gas. Let's just recap kind of where we stand here at the end of 2023.
We saw big surge in prices in 2022 when the Ukraine war started. There was a lot of concerns about supply and so prices spiked to new multi-decade highs in 2022 in both natural gas and in oil. That slowly started to come down in the second half of the year when it became clear that everybody was panicking and it wasn't going to be as tight of a market as everybody thought. So prices came down, stocks started to come down, but they overall had a fairly good 2022 for the second year in the row, the best performing sector.
Then we started 2023, the stocks kept declining as oil kept declining. Oil went back under 100 and it kept going down from there. And so did the stocks. As you know, the stocks will trade mostly in line with oil unless it's a real gassy type of a company or a natural gas producer, solely producing natural gas and then it trades on the natural gas price.
Natural gas came way down as well because everybody thought that there would be a problem with natural gas in Europe due to the war, but that didn't happen. They had plenty of natural gas to supply for their winter and the price started to plunge on that side too. So it's not terrible. It's not plunging on oil side like we saw during COVID when the pandemic hit and prices went negative.
And nobody in the sector could make any money when that was happening. So we're not at that level. We have been as high as like the little bit over $80 in the recent months and we've been as low as around, I want to say 65 on WTI. And as you recall, or maybe you don't, energy companies, the producers, and these are the guys that are just going out there searching for the oil, putting the rig in, drilling it out and then selling it.
That's all they're doing. They don't own the service stations. They're not refining it. They're not doing anything else.
They're just producing it. Those companies were doing okay this year on the earnings side. Yes, earnings have come down quite considerably. In some cases, 50% or more off of 2022 highs because all those companies, the producers are unhedged.
And what does unhedged mean? It means they haven't bought the contracts that allow them to hedge the price of oil or natural gas, but mostly they hedge the oil and they haven't been buying it because they believe the oil price was going to go higher and stay higher. So they didn't need to place their bets on it going lower and some protection because that's what the hedge is. It costs the money to buy a hedge on the price.
So they've mostly been hedgeless for several years now since the pandemic. Low's kicked in and then the price of oil started recovering. They mostly are unhedged. I think I ran across one company recently that still had some hedges on and I was surprised.
Most of them are unhedged. There's risk in that because if the price drops considerably, it goes directly to earnings. The company will make less. But if you see the price rise back over 80, back over 90 or back 200, then you get all of that gain.
So that's something to keep in mind too. It is in play again because prices have come back down. They're back under 70 suddenly again. And that means earnings are going to be a little bit less at this level.
However, anything over say $50 a barrel means that the companies are profitable for the most part now. They're very good at production and very efficient now. And so anything above that, they are going to be making some money. Only over $60 it's looking pretty good.
So while it may seem terrible that WTI is back around 70 compared to where it was last year or even when it got up to about 85, that is still a very healthy level for most of the producers. And it just means on their dividends, if they're doing one, they'll have a standard dividend. A lot of them have a variable and the variable component is going to be a lot less because they're making less with oil at these lower prices. So keep all of these factors in mind.
Now remember the stocks will move with the price of oil and with it being back with WTI back under 70, the stocks have weakened again. But that's why I wanted to look at them because could this be another buying opportunity? We've seen this numerous times in the last three years as oil stocks came off their bottom and then the vaccine was announced. You got a big spurt, then you had Ukraine war, you got a big spurt again, some of the stocks busting out to multi-year highs, but they've really come back down and we could have a lot of cheapness here, but are they traps or are they values?
There was a traviness component to some of these this year just because earnings came down off those record highs. But it was, well, not records, but new records, some of them might have been records actually, but it was because of fundamental change in the business. So it's going to stabilize a bit here and we could, maybe, but we're going to have about to find out, see if it changes and we're going to see some earnings growth for next year. Now you may remember, and I'm not sure if I talked about it on this podcast, but Pioneer Natural Resources CEO Scott Sheffield, who is kind of like the Janie Diamond of the energy industry.
He's been around a long time. He's a founder of Pioneer. He will actually be leaving a CEO of Pioneer once ExxonMobil acquires it probably early next year. He will stay on the board, however, so he will be still involved in the industry.
But he's kind of the person who gives insights into what's going on in the industry. And he predicted $100 oil by the end of the year several months ago. And so when we got up to 85, I'm like, oh, maybe Scott Sheffield's prediction could come true, but we've reversed. We've gone back the other way.
We had kind of a so, so OPEC meeting where they did decide to hold on to both cuts in OPEC across the board, but also the voluntary cuts that the Saudis are doing on top of the regular cuts. They're going to continue to do those. And they basically have said they will continue to do them as long as necessary. Meanwhile, US producers are producing at record levels, which is really making those in OPEC angry because if they're drilling less.
So for instance, the Saudis were drilling 12 million barrels a day. Right now they're drilling 9 million barrels a day. So while the prices have remained fairly elevated, they still are making less money, right? Because their production is lower.
They're selling less, 3 million barrels less. So they don't want to do that for forever. But if they put more supply out on the market, then the oil prices are bound to go down. And I bring this up because, as I just mentioned, the US is at record levels of production.
They don't have, they're not in OPEC. They don't have OPEC production cuts that are mandated on them. They are at these new levels and production and efficiency are driving a lot of it. They're not even really spending that much more on actual CapEx to get this level of production.
So that's pretty impressive by the Americans. And again, it has to be kind of irking those in OPEC who have to abide by these cuts. Although some of them will probably be cheating. You didn't hear that here.
But they look over at the Americans and are like, what's wrong with you? We're trying to keep prices elevated and you're not helping. So there is this push and pull in the global oil market, the Americans versus everyone else. And everyone else is trying to keep the price as elevated as possible without flooding the market with a lot of access.
Now, why did Scott Sheffield get this wrong? He's in the industry. He is kind of the seer. He's been in it a long time.
Well, we're not quite at the end of the month yet. So we're not at the end of the year. So it's possible we could see $100. But that would be a massive surge of $30 a barrel here just in the next couple of weeks.
I don't really see that happening. But who knows? Will we go lower or will we kind of stabilize in the 70s or near 80s that remains to be seen? Those OPEC meeting and the announcement about continuing the cuts didn't really do anything to satisfy the oil market.
And it has continued to decline here. Some of that is just based on fears of weakness heading into 2024 for the global economy and that demand for oil will not be as big as everybody thought. And some of those worries are based on China and they're kind of lackluster reopened after the COVID lockdowns were ended and the zero COVID policy was ended. Everybody's kind of keeping an eye on that economy to see if they can see any kind of rebound that will increase oil demand over there heading into 2024.
So there's a lot of moving parts in energy. But let's take a look at a couple of the companies. I am actually going to include some big oils this time. I have excluded them in the past on this show.
But the big oils have started buying out a bunch of the producers recently. So if you don't own big oil, you're kind of going to be forced to because I didn't want to own big oil. And now I own Chevron and I soon will own Exxon because I do own Pioneer Natural Resources. And they are being bought out hopefully next year.
So I'm going to take a look at these big guys because this seems to be where the action is right now. So let's start with Exxon ticker XOM because I have been following this one a little more closely now that I may be shareholder if that acquisition of Pioneer goes through. There are some antitrust issues with it, but most people think they will be able to clear those and that it will be approved by the government to go through. So we'll see on that.
But meanwhile, we will kind of act like it is going to go through. And Exxon, interestingly enough, is hitting new one year lows here in December, 2023. So that made me start to think, you know, I start to pay attention to any group that's hitting one year or certainly multi-year lows like the banks were in October. Some of those were five year lows.
Remember Bank of America hitting five year lows. But these are just one year and they are coming off of last year, which was a good year. So it might be not as gloomy as you think, but still one year lows. So Exxon down 10.2% now year to date at those one year lows and PE's at 10.8.
And they do pay that dividend now yielding 3.8%. At the date that I am recording this on December 6, 2003, they did just announce an increase in the share buyback plan as long as the Pioneer deal goes through. And so that's gone up to 20 billion from, I think they had 17.3 or 17.9 somewhere in the 17 range, but it has gone up to 20 billion on the buyback. And you know, they are going to be generous to the shareholders who've been very patient for many years waiting to share in the recovery and energy.
So when it recovers, as it is right now, they are going to share with all of us. So we got that 3.8% dividend. They never stopped paying it even in the darkness of COVID. So we have that going on.
But what do the earnings look like? So earnings expected to be down, as I mentioned, all of the energy companies are at least on the producer side or even big oil expected to be lower because of the record high record, but high prices last year. So 2023 expected to decline 34.3% to 924. They made 14.06 in 2022.
But next year, expected to rebound up 9.2% to 10.09. So that's a positive. And that's what I mean about energy. We had the bad year this year where the price had come down.
But as long as you don't believe, we're going to see $50 in oil, that would be hard. You would need a big recession to see 40s or 50s. Some analysts are calling for that, not oil analysts, but strategists about the overall economy and global economy are seeing that big slowdown. I'm not in that camp that seems overly dark to me.
Even if we get a mild recession, I don't think we're going to see oil in the 40s, for sure. And even the 50s, I feel like, would be difficult. I mean, we would not stay down there very long. What are the analysts doing on Exxon right now?
One is lower in the last seven days, none are higher, but they're kind of mixed in what they're doing for this year. Next year, looking kind of the same one is lower in the last seven days for next year. And we'll see if any of that changes with the recent announcement of the buyback and other things that they talked about in terms of CAPX. They did increase CAPX a bit and some of their other, you know, just business info that they just released.
So I'm not really saying this one as a trap here, going into 2024, I kind of like it, on the rebound in the earnings. And again, it's trading at just 10.8 times. So that's pretty cheap on a PE basis. So that's Exxon Mobile ticker, XOM.
Then we did have Chevron, its competitor, CVX is that ticker. And they bought out one of my smaller production companies. And so they, I now own them in my personal portfolio. I haven't done anything since I acquired these shares earlier this year.
Looking at 2023, similar to Exxon expected to be down 29% to 1335 from 1883 next year, similar to Exxon, up 12.3% here in 2024 to 1499. So that's from 1335 to 1499. I'm liking that. So you can see the turnaround.
Everybody is still expecting these big oils to really see the turnaround. Now remember, big oil, which is both Exxon and Chevron includes service stations. So you're driving up to the gas station. They own that.
It can include the refineries. It can include chemical manufacturing, like Exxon, one of the largest chemical makers in the United States. So it has various different components to it. It's a little bit different.
And the business models are different on all of those than just producing and selling it. Also, both Exxon and Chevron International producers, they're not just US. And both of them are in the highly anticipated and looking at an area of growth in oil. And that is in Guyana and Suriname.
They're right next to each other down in Central America, next to Venezuela. And there's been a lot of drilling and prospecting in the offshore there. Exxon is in there with Hess, I believe. Chevron is trying to buy Hess right now.
And so they'll be in there. A couple other names are in the Suriname part, but both of these guys are in the Guyana area. So that's also key plus other parts of the world they do also have drilling going on. So that is Chevron.
Oh wait, how cheap is it? Pe of 10.7. And they are down this year as well, like Exxon was, but down a lot more, down 19.9%. So down almost 20% for this one.
And they pay that to be done as well. They've always paid more than Exxon in the recent years for some reason. And it's still holding up right now, but it's at 4.2% is there yield. And I'm looking just at the one year to see, yeah, they're at one year lows too as well right now, just like Exxon.
So the last year, you know, we've seen this big pullback, but that's why I consider it a buying opportunity. And it does not look like a trap either. So that's Chevron CVX. Then I wanted to look at a couple of the producers and some of my favorites are not being potted out.
So who am I going to cover? I decided to look at Diamondback that sticker, F-A-N-G, the original thing. And that makes sense. The Diamondback snake, right?
Thanks. It has things. So they are cheaper. P-E of just eight.
And they are paying a dividend, but I don't know if this is just the standard one or if this combines with the, you know, variable or if they're even paying a variable, I didn't dive deep into Diamondback to see what they're saying. So you need to go and check out their last earnings report and see what they're saying about either share buybacks and dividends in that whole area and see what is happening because I have a dividend yielding 2.2%, which is still not that bad, even if that's just the standard or even if it's combined. 2.2 isn't shabby and given how cheap it is. Your to date shares are down, I believe.
Let's see. No, they're up a bit. Up about 6% here here to date. So they're not as weak as some of the big oils.
And I'm liking that. But what about the estimates on this one? Because this is our first pure play into what's going on with the producer. So they don't have chemicals and the service stations are refining.
And this year expected to be down 21.6% to 1884 from 24.02. Next year, we're seeing rebound here too. Up 15% to 21.68. So I'm now seeing the pattern that most of the analysts probably believe that, you know, energy prices are going to stabilize and or maybe move a bit higher for next year.
And that's going to improve the earnings here on some of these. We also may see an increase in CapEx. And so more production means you're getting more out of the ground and you're selling more and that means higher earnings depending on the price, of course. So that could also be in play here, but again, need to check in with the recent earnings report and see what they're doing with CapEx and production.
A lot of these companies are going to start giving their outlooks for 2024. Sometimes they do it outside of the earnings report as we saw with Exxon giving its update. And so be sure just to keep a tracker on some of these tickers and make sure you watch their news feeds and see what is happening. But that is a fang diamondback energy with the rebound in the shares.
That looks like a value to me. No trap there either. Another one that's a little bit smaller than Diamondback. Diamondback's one of the big Permian drillers is Manador.
Manador resources, MTDR. I currently own it in the insider trader. I've owned it off and on over the last three years in the insider trader because insiders are extremely active at this one. They've been buying on many of the dips over the years.
And then this one, I think they were buying again in the spring of this year as these shares really came down off of last year's highs. So a bunch of insiders being buying in there again. But they kind of got a little quiet here because we did get a rally in the shares off the worst. But now they're weakening again.
Some wondering if the manador insiders aren't like deciding whether or not they might dive in here again. The shares didn't go to pretty nice new lows in the beginning of October. Then they rallied a bit, but it looks like it wants to be testing those October lows again. None of those are as bad as what we saw last spring in both March when somebody insider spot and then May we had a real big lows down there.
And so we're not even close to that. But the shares remain cheap. PE is just about eight, seven point nine five, but almost eight there. And these shares are now down about nine percent year to date.
So that's why they're cheap and getting cheaper. Dividend yielding one point four percent, not as big a dividend on Mattador. And I'm not sure if they pay. I don't remember if they pay a variable.
I think they just pay a base, but I could be wrong on that one. But some of these decide smaller dividend, but we'll buy back shares if we have excess cash on top of the dividend. And so that's what they're doing. What do those earnings look like much similar to some of the others?
So down 33 percent this year to seven, oh four from 10, 53, not a surprise. But next year, look at this up 33.3 percent. So big surge expected for next year to nine, 38 from the seven, oh four for this year. So that's what you got to like as an investor.
You want to see it turn around. It's very difficult with commodities always because we're at the mercy of the oil and natural gas markets here. But a lot of people who know this industry are looking bullish. There are seven estimates up in the last 60 days.
One is up in the last 30 days for Mattador for both this year and next. And none of these are lower. So the analysts a little bit more clear on Mattador than on some of the other energy stocks that good times are coming next year. And it's looking better than what they thought.
So the two pessimistic things are looking better. So the one thing that is about you and not a trap either for Mattador resources ticker. MTDR, as in Mary, Tia's in Tom, Dia's in David, R.S. in Robert.
And then I did want to do one services. So I've been kind of sticking with slumber J. I don't know why we still call it slumber J though, but I just like the name like doesn't everyone it sounds cool slumber J. But it is now known as SLB because they do consider themselves to be a bit more of a tech company than oil services.
But technology is now driving oil services becoming much more productive, you know, using digital and computers to really increase efficiency in this business. And we are seeing or at least we were going into 2023 a big rebound in earnings on the services side because they don't move with the price to oil, but they will move when all the producers and big oil decides, hey, we need to drill more like the Americans are doing right now. And so it's not at Middle East as well, even though they pull back on production, Middle East drilling has increased. So that's a good thing for company like slumber J, which is global.
So they are having, you know, some good places, some bad. Maybe there's not as much production in certain parts of the US right now. And but it's made up for it in other parts of the world. So 2023 earnings, expect to be up 36%.
But we knew that from prior podcasts because things were looking good into this year. So that would be 297 versus 218 last year for a higher, but six are lower in the last 60 days for SLB slumber J. But next year is key because we're heading into 2024 now. And 2024 is looking good too up 22% to 362.
So that's pretty bullish because again, 2023 is 297. So big gain there also double to gains on the sale side, both for this year and next year. And one estimate higher in the last 60 days for 24 and nine are lower. So they did have to adjust down a little bit.
I have a feeling SLB probably gave some guidance or some outlook for next year that is a little bit not quite as bullish. So they're being a little more conservative. So they came down a little bit on the numbers there. So maybe about 12 cents from 90 days ago for 24, but still pretty bullish there.
Stock isn't as cheap as it used to be down P of 17. But this one does pay a dividend. It's yielding 2%. But the service side was never all that big on the dividends because services, obviously they're not producing the oil.
So they're not getting the extra benefit of the rise there. And so they don't have this massive inflexed and free cash flow the same way. And so the dividends a little bit lower, but they have been more generous now that we're back into this more bullish period on even the services side. So services a little bit different than the production side, but when you enter into a bold type of cycle in energy, both will rise, but just a little bit different on the day to day and what is going to be the catalyst.
Now, slumber day starts really interesting. So it bottomed to you last spring in both March and then had another bottom in like May June period. It had a huge rally. Everybody thinking that was over, but it's really pulled back again.
It is down 1.5% year to date now. After kind of a wild ride, you would have had a strong stomach to kind of stay and hold on because in the last three months, shares are down 17.7%. You can see why I wanted to look at these stocks because suddenly, hey, these are looking attractive again. So I'm liking that as a value investor.
I don't like it so much if I own it because I'm, you know, it gets a little bit. You start to feel some anxiety when especially in energy, we've seen big gains and then we've seen big sell-offs over the last now, almost four years time period, but with WTI still maintaining well above that $60 level and mostly even above the 70. Then, you know, some of these it's taking out some of the risk in some of them, but not all because they are un-hudged. So SLB with that 17P isn't as cheap.
Like I said, as it used to be. I'm wondering now, Halliburton is one of its competitors. It's a little bit cheaper. I'm looking at it ticker, HAL 11.8 times.
It shares has sold off too and are looking kind of attractive here as well, just based on, you know, what's happening also with the detailed estimates and what it looks like for next year. So up 42% this year, up 13% next year on the earnings. So that looks very similar to slumber Shay. And then we had Baker Hughes, which I own in the insider trader.
We've owned this for a number of months now, but I've kind of just kept holding on because the underlying business is so good on the services side. So they're expecting to see earnings up 76% this year. And I'm having that tone in my voice because dang, that's crushing it from 89 cents to $1.57. No wonder the insiders were buying.
They're like, what? You're nuts. We're doing well. And then up another 30% next year up to $2.05 from $1.57.
But these shares week two, but not as weak as some of the others because I still do own it in the insider trader. So it has come down off of its highs like the others, but three months, it's down 13.5. So not as bad as SLB. And Halberton is down to, let me just look quickly, see what that one is doing.
Oh, about the same as Baker. So down right around 13.5% over this three months as well. So, yeah, it's none of these are value traps, certainly not on the services side. That's why I'm reluctant to get out of my trade in Baker Hughes, even on this recent weakness.
We've seen this before. We've seen it go, you know, up. We've seen it come back down. We saw those lows in March and in May again, like kind of a double bottom back then.
We saw a big rally. Now we're on the backside of that again. But if you have a strong stomach and you're looking for some value, I do think that 2024, we can see a rebound in the energy industry based on what I'm seeing right now with earnings rebounding. But also because they're cheap.
They have gotten out of favor once again. I mean, when you see Exxon hitting one year lows, that is definitely out of favor. So this is a time. This is a time when you can be looking around.
I have added even just this week, I'm recording this podcast the week of the fourth, December fourth here. I did add in my own personal portfolio to my pioneer position, which is in the value investor. And it's just too cheap. And Exxon is going to be buying it out at a higher price.
So I don't see any downside to that. And I'm getting a dividend over there while I'm waiting for the deal to go through. So keep a watch list on energy because this is where we value investors will shine is when we feel the most uncomfortable, right? And I'm starting to feel some uncomfortableness with some of these.
And that's a good thing because I'm getting them cheap. You can too. But keep them on your watch list. And we'll see what happens to start 2024 and what happens here at the end of 2023.
I don't expect Scott Sheffield's call to be correct, but who knows in the world of commodities. So be sure to subscribe so you don't miss a single value investor. I have a couple interesting shows coming up as we are into the end of the year here. And when we start 2024, I'll have some shows that I always run.
Remember, I always run the classic value stock screen to start 2024. I started every year and we kind of see what are the cheap stocks to start the year and what should we be buying. So I don't know if energy is going to be in any of that screen, but we'll see. So be sure to subscribe.
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