True value investors are renowned for seeking out opportunities amongst the most unloved and disliked sectors of the market.
Right now it's hard to go past the energy sector which is home to oil and gas companies which in no uncertain terms have been absolutely smashed.
Consider these stats over the past 12 months:
- Oil Search Limited (ASX: OSH) – down 18%
- Woodside Petroleum Limited (ASX: WPL) – down 30%
- Origin Energy Ltd (ASX: ORG) – down 54%
- Santos Ltd (ASX: STO) – down 67%
So is it now time to buy these beaten up leading energy stocks?
The problem faced by investors analysing this sector is that the variables which must be considered have changed dramatically from a year ago and forecasting the future is nigh on impossible.
While one year ago the oil price appeared to be predictably trading above US$100 a barrel, today it's hard to know if it is headed to US$20 or not!
Equally as difficult to grasp are the global supply and demand dynamics which encompass macroeconomic factors such as a shrinking growth rate for the Chinese economy as well as structural shifts in the energy sector from new sources such as ballooning LNG production and renewables.
Even stepping outside of the production companies and looking for alternative ways to position your portfolio to benefit from the oil price slide is difficult.
For example, MMA Offshore Ltd (ASX: MRM) has fallen a whopping 75% in the past year but even at these ultra-low levels it's not clear that the stock is undervalued with data collated by Morningstar forecasting a decline in dividends this year as the company attempts to digest a company-transforming acquisition.
Buy, Hold or Sell
A sector-wide decline such as that which is currently being experienced by energy stocks is almost certain to create selective investment opportunities. Arguably however, those opportunities are not widespread with much of the price decline reflecting a reduction in value.
