US oil production appears to be bottoming, but investors seeking to profit in an environment where prices will likely range between $40 and $60 per barrel must pay attention to basin-specific trends as well as companies’ balance sheets and acreage quality.
After successive waves of indiscriminate selling and buying, the easy money has been made in the MLP space; going forward, investors must have a firm grasp on underlying fundamentals to achieve differentiated returns.
We remain bullish on exploration and production companies with franchise assets, low production costs, strong balance sheets and high-quality management teams; these names stand to take market share in an environment where energy prices struggle to break out of their trading range. But investors need to buy at the right price.
The Wealth Builders Portfolio’s sole representative from the energy sector has given up only 10 percent of its value despite a 70 percent collapse in oil prices. We revisit our outlook for oil prices and explain why we see more upside to come for our lone energy pick, though investors should stay disciplined a resist the urge to overpay.
Relentless selling and fears of painful distribution cuts have made holding MLPs a painful experience this year—and several headwinds could drive further downside in the near term. But indiscriminate selling creates opportunities for discriminating investors.
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