"Street Critique"-With Hilary Kramer, Personal Finance Editor, AOL
Wednesday, January 10, 2007PAUL KANGAS: Tonight's "street critique guest says that while the big decline in oil prices may feel like a buying opportunity for energy stocks, she thinks it may be a buying opportunity of a different kind. She's Hilary Kramer, market strategist and personal finance editor at AOL and Hilary, great to see you again.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thanks Paul.
KANGAS: The steep drop in oil prices seems to be good for the economy, but not so great for the stock market up to this point. What kind of buying opportunities are you seeing?
KRAMER: The buying opportunity in energy now is the consolidation that will take place. We have seen such a run-up for the past 18 months in energy stocks companies like Hess (HES) are out there and are going to be plays for the bigger oil companies that finally can come in and buy these smaller companies.
KANGAS: So a lot of takeover targets out there.
KRAMER: Absolutely, as well as in the oil service companies, companies like BJ, the other oil service and extraction companies like Lonestar (LSS). All of them have become so cheap and are so nicely cash flow positive that their consolidation for big oil companies and also those private equity companies that are looking for cash cows.
KANGAS: As an energy group taking it as a whole, what would signal to you that the bottom has arrived?
KRAMER: When we finally have to hit a bottom -- what we have right now is volatility and as long as we have volatility, we aren't going to have a bottom. Remember, what's happened is that a lot of large funds, a lot of fast, fast money has taken big bets in energy. So we're going to keep seeing swings, but as soon as the weather gets cold, we are going to see oil go right back up to $60 a barrel.
KANGAS: Well, a number of traders in the futures pits feel that a cold snap up north even now, is so late, it won't have that much of a positive effect on prices for oil.
KRAMER: Oh, I think it will because you're going to have the bottom fishers that are going to come back in and they're going to start buying. Remember, the market has a very, very short memory. OK, so as soon as -- oh, this is cheap. Oil prices are going up. They're going to run these stocks back up. Again 2007 is going to be the year of consolidation, but it's also going to be the year of volatility.
KANGAS: You've mentioned a number of takeover targets, but of the big consolidated oils which are your favorite?
KRAMER: I like ExxonMobil still to this day, although, I will say, it's richly priced. No one should think that the pullback in price is some big buying opportunity. If you take a look at ExxonMobil over five years this is just a small blip. But it's a great stock for the portfolio. The ones that are a little more charged up are going to be companies like ConocoPhilips and BP, which is half the market cap of ExxonMobil so it has some upside going. And of course the other ones that are large are companies like Petrochina (PTR) which will probably list on the Shanghai exchange, its own hometown, and therefore, we're going to see, again, some upside because we're looking for some stock price increase.
KANGAS: Hilary, do own any of the stocks or have other disclosure to make?
KRAMER: Not these.
KANGAS: I want to thank you for being with us once again and I look forward to your next visit on January 24. My guest, Hilary Kramer of AOL.
