Why oil stocks are the place to be

Crude prices are holding up better than those of other commodities, but the industry's stocks are a bargain.

By Jim Cramer Oct 10, 2011 1:14PM
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When is oil going to crash already? Isn't that the most salient question out there?


The prices of oil stocks, whether of drillers, big oil companies or independents, suggest that there is going to be a collapse in oil that will be of cataclysmic proportions.


However, you have oil companies like ConocoPhillips (COP) yielding 4% despite its breakup plans. You have oil-service companies like Halliburton (HAL), which has a shortage of employees compared with the amount of business it has, trading where it was when oil was in a free fall going toward $30 in 2007.


You have companies like the newly public Complete Production Services (CPX) throwing in the towel and surrendering to Superior Energy Services (SPN), which vows to join the large servicing companies such as Schlumberger (SLB), Halliburton, Baker Hughes (BHI) and Weatherford (WFT). And you have companies like Daylight Energy, a high-quality Canadian stock, succumbing to a $2 billion deal from Chinese oil giant Sinopec (SHI).


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We are at a really odd juncture where Brent crude, the real benchmark for oil, has held up better than every commodity in the world, but the companies that own that commodity and sell it are trading as if that benchmark is false.


The problem with the market's judgment is simple: The recession in Europe has to be so, so serious as to disrupt the demand everywhere else in the world. But why would that be the case?


What looks good? How about Continental Resources (CLR), off 11% despite what could be an extremely robust quarter? How about EOG Resources (EOG), down 14% to $77 after having traded at $120?


Or the drilling services companies: Schlumberger down 21% and off from $95 to $65. Halliburton seems particularly cheap, down 13% and 22 points from its high, despite a recent check on the business that indicates no slowdown.


And talk about fighting the last war. National Oilwell Varco (NOV), the driller that got crushed the most in 2008, has been sliding for months. Hedge funds have been selling the shares. But this isn't 2008. The stock should be bought.


Yes, Lufkin (LUFK) blew up last week, and takeover target Complete was about to report a shortfall. Both companies attributed their weak earnings to one-time factors. Lufkin has become what I hate to call a serial disappointer -- because the previous quarter, too, had a "one-time" problem -- but the issues at Complete seem reasonable, including a shortage of parts and some flooding.


Unless oil collapses between now and earnings season, this is the group that seems most out of whack with the fundamentals. It's not making sense unless Brent goes to $85-$90.

I just don't think that's possible if it hasn't gone there by this point. Without another recession worldwide, these stocks seem like the place to be for the coming earnings season.


At the time of publication, Cramer was long Schlumberger, although positions can change at any time.


jim cramer 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.


13Comments
Oct 10, 2011 2:10PM
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Jimmy , I am still thinking about your 4% buy ,or sale comment you spoke of on mad money last week . How is that working Jimmy ?   .     You are such a motor mouth , Talk talk talk talk start working jimmy   stop being a bald pecock  
Oct 10, 2011 2:37PM
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dear msn,

please dump this guy and his useless diarreah of the mouth.he provides completely useless

opinions.show that you are smarter than cnbc and cut him first

 

 

Oct 10, 2011 3:05PM
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since he recommends oil stocks can we short them?

Oct 10, 2011 4:31PM
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Guess this means they're gonna screw the masses even more with high price gas. Now that CHristmas is around the corner they figure they better get in there and get some more.

 

Ya know, Hilter was a oportunist too.

Oct 10, 2011 7:03PM
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OK lets put this on record Cramer is saying to jump on oil stocks Oct.10,2011. I say just about everything beats oil.Why, because if these experts say buy oil, SELL NOW!
Oct 10, 2011 8:04PM
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tHIS IS THE SAME GUY THAT CONVINCED ME TO PURCHASE ENRON.
Oct 10, 2011 8:13PM
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Brent crude, the real benchmark for oil, has held up better than every commodity in the world, but the companies that own that commodity and sell it are trading as if that benchmark is false.

Brent crude prices are primarily established by trading in paper futures contracts. Thanks to Wall Street, the price of much of the worlds oil is dictated by the Brent index. But, maybe the investors who own companies which own and produce real oil know something that speculators trading paper Brent futures contracts don’t. That’s an argument I can believe in.

Oct 11, 2011 1:13AM
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Why can't Cramer ever recommend any investment that isn't at the peak of a bubble?  Oh that's right, because he's an idiot.
Oct 11, 2011 3:42AM
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Isn't this the guy who said to buy Lehman and Bear Sterns?
Oct 11, 2011 8:12AM
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this 40% traders tax on gas is not enough for the supergreeds on wall street thay will not be satisified until thay have every dime of americas money. no economic recovery is ever posible with 40 to 100% tax on gas it just cant happen. so as long as the speculators keep this tax in place you will here a 30 billion a month sucking sound of you earnings going to oil speculators.

i mean if you havent filled a gas tank latly then this is meaningless to you. but if you have then you already know why you did not spend on the economy this month. go figure it out rocket science.

Oct 11, 2011 8:18AM
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the stock market went up 330 points yesterday so what do the oil speculators do they raise oil 6 bucks. so in one day tommoro you will pay the increase at the pump for no reason except uncontroled greed. it has nothing to do with a free market supply demand nothing its all a pure greedball for by and of wall street. please protesters burn down wall street now before they **** up the entire world
Oct 11, 2011 8:28AM
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Cramer is trying to sucker everyone in on oil stocks to make it go up. He is just like the other wall street tycoons that make money off of the poor trying to make a dollar. I hope the protestors give them all they can handle. I would if I could be there.

Its time the wall streeters are shut down on the millions and millions of dollars they make in bonus and pay.The tycoons that run it are --------s!

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