Don't Listen to Wall Street

On April Fool’s Day, I suggested that you might you want to buy a few shares of a certain oil stock.

I thought I laid out a pretty compelling argument for why oil prices were likely to rally and why this particular stock was a good way to play a rebound for oil prices.

I even included a cool chart with color-coded numbers to point out the relevant action in the stock…

It was not my intention to make you look the fool for buying an oil stock in the midst of an oil price crash. But I do think the so-called “smart money” wants to fool you into avoiding oil stocks.

I don’t know how else to interpret the current narrative on oil. Citi says oil could fall to $20. Bank of America says $40 is likely. Goldman Sachs — the absolute best at talking out of both sides of its mouth — says oil will likely stay around $40 for the next few months, though there is some risk that $40 might be too low.

In other words, oil probably won’t rally — unless it does.

How’s that for covering your bases?

Seems to me Goldman and the rest of the Wall Street firms are telling you not to buy oil stocks right now. There’s no rush, prices won’t rally for a while — not as long as the storage tanks in Cushing are nearly full.

Umm… yeah. The thing is, these Wall Street investment banks (and that’s what they are, regardless of any Dodd-Frank name change BS) don’t make any money by telling you and me what stocks to buy or avoid.

We are the Muppets, as Goldman insiders like to refer to regular investors. We are the ones who are completely dependent on our Wall Street puppet masters for our investment ideas.

Goldman: “Don’t buy now!!”

Us: “Okay Wall Street overlord, we won’t!”

Goldman: “We’ve loaded up, gotten our best clients in, and prices have rallied +50% — you all should buy, too!”

Us: “Oh thank you for making sure the coast was clear for us! We will buy now, supporting prices while you take your profits.”

Anytime Wall Street firms all have the same advice, you owe it to yourself to at least wonder what they are telling their clients.

Buy Low, Sell High

Simple is good, and “buy low, sell high” may be the simplest and most powerful investment phrase ever uttered.

How do you get prices low? You say things like: “We have so much oil that we’re running out of storage,” and, “The Iran deal probably means a bunch of oil hitting the market will push prices lower,” and, “Saudi Arabia wants to bankrupt Bakken oil companies.”

Who wants to buy Bakken oil companies that are about to go bankrupt as free Iranian oil spills out of storage tanks in Oklahoma?

You’d have to be out of your tree to buy… Wait, what? Bakken oil stocks are up 50% off their lows? Huh. Whaddaya know.

Yeah, they are doing it again. And just wait — the Wall Street crew hasn’t even told us it’s time to buy… yet. But you know it’s coming at some point. 

Oil is Different

Oil is different than most assets. You can’t recycle it like other commodities. Oil gets burned up, and it’s gone.

What’s more, current fields are constantly depleting, which means new fields have to become productive at regular intervals. And there aren’t any more cheap oil fields to be discovered.

I know you know all this. But it’s important to remember, because it means oil prices can only stay low for a little while.

Now, getting back to my article from last week. It’s not enough to simply say, “Oh, prices are low, so I should buy.” You have to look for signs that buying is happening. That’s the only way to know if prices are low enough.

And as I showed you in my chart for Oasis Petroleum, people were (and are) buying the stock.

Oasis shares were trading between $14 and $15 last week. As of yesterday, they were breaking above $17. That’s as much as a 21% gain in a few days.

Now, I can’t tell you the stock will keep rallying from here. People will take profits. Same with oil prices: They could be lower tomorrow or next week.

But I can tell you that the narrative for oil is changing. The consistently negative coverage in the financial media is becoming more positive. It’s being reported that refiners will be soaking up much of the surplus production here in the U.S. So those storage tanks that were on the verge of spilling over won’t actually fill up.

And it will take a couple years before all that Iranian oil floods the market.

Keep your eyes open. If we see a nice dip for oil prices, it will probably make for a good entry point in Oasis Petroleum.

And watch for buying frenzy when Wall Street gets bullish. They’ve already bought low. The next move will be to sell high — and that will be higher than here.

Until next time,

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.