T. Boone Pickens

Many of you will recall that T. Boone Pickens and I know each other. In fact, three years ago he and I did a “fireside chat” on stage at Raymond James’ Summer Development Conference in front of a few thousand financial advisors. I actually met Boone years ago through ex-CNBC anchor Consuelo Mack. Consuelo became friends with T. Boone when she was working as a reporter in Dallas, but I digress. I bring up Boone this morning because tomorrow we are doing a conference call with BP Capital (Boone Pickens Capital). Details can be found in the post scriptum of this missive. We are doing this because we believe there is a huge disconnect between the price of crude oil and the current valuation levels of the energy stocks. As often stated in these reports, “The energy stocks are basically trading at the same valuation levels that they were when crude oil was trading at $26 per barrel. Now, however, crude oil changes hands at almost $66 per barrel.” Moreover, our Houston-based energy analysts think the price of crude is going higher. Also in that camp is Cornerstone Analytics’ Mike Rothman, who is considered one of the best energy analysts around and his daily letter is a must read. In a recent report he writes:

US inventories are continuing to decline at an impressive rate. During the first two weeks of March, US oil storages have decreased counter-seasonally by 11.5 million barrels; usually we see a build in March of about 6.6 million barrels. Keep in mind that these March declines are in addition to impressive January and February inventory numbers. More importantly, Mike doesn’t see the draws letting up anytime soon. [Given] tightening global supplies, and large producers like Venezuela continuing to falter, the oil bear argument is becoming harder and harder to swallow.

Also worth mentioning is that many oil company insiders are buying their own stock. From the Raymond James energy research universe of stocks that have Strong Buy ratings from our fundamental analysts, the founder and CEO of Parsley Energy (PE/$27.32/Strong Buy) recently bought $5 million of his company’s stock in his first ever open market purchase. For the record, the importance of an open market purchase is that the insider is voluntarily buying shares at the current market price. Continental Resources’ (CLR/$58.00/Strong Buy) founder and CEO, namely Harold Hamm, made an open market purchase of nearly $8 million worth of his company’s stock. Evidentially, these gentlemen believe the future looks pretty bright for their companies and our fundamental analysts agree.

Moving on to the stock market, last week was rough with both the S&P 500 (SPX/2588.26) and the D-J Industrial Average (INDU/23533.20) losing more than 5%; their largest weekly loss since January 2016. Reasons offered for the weekly decline included: Facebook’s Face-plant; a tad more hawkish Fed; tariffs; the Whitehouse shakeup; slowing manufacturing surveys; etc. In studying some individual stock charts, it is quite amazing how much damage was done to select stocks in such a short period of time. The weekly wilt saw the Industrials break below their February 8 closing low of 23860.46, but the SPX did not breach its February 8 closing of 2581.00, although it is close to doing so. In fact, ALL of the major indices we follow were in the red last week, as were ALL of the macro sectors. The only index we monitor that gained last week was the Goldman Sachs Commodity Index (+2.37%), which is consistent with our return to commodities theme. Along this line, gold and crude oil are attempting to break out to the upside in the charts.