Conventional wisdom will often tell you not to chase the best performing sector or mutual fund from the previous year. In 2015 the utilities were the best sector with a YTD gain better than 25%. With just a handful of sessions left in 2015 they are lower by 10% in 2015. The converse thought of buying some of the worst actors of the previous years may or may not hold some merit (Dogs of the Dow Theory). Looking at the energy sector which was the worst performer in ’14 declining 11%. Through Friday for ’15 it has dropped 25.2%, more than double its nearest competition with the materials off by 12.7% YTD. We have written about some of the better names recently but with the action of leaders like PXD slaughtered by 17% between last Wednesday-Friday one must tread carefully when looking for value.
Lets look at some of the carnage that took place this year, and some of these names may have survival issues going into 2016. BTE from our neighbor to the North, has fallen 87% from recent 52 week highs. Not long after meeting resistance at the round 20 number the week ending 5/8, it recorded an ugly 9 week losing streak between weeks ending 6/26-8/21, with 5 of those down more than double digits. SN is now 77% off its most recent 52 week highs, and like BTE trades in the very low single digits. WLL is now a member of the single digit club after falling more than 50% in the last 3 weeks. RICE is lower more than 40% over the last 3 weeks. Many of these names most likely are in debt troubles.
We hear plenty that consolidation is likely to emerge. If it is, it will more likely be among names more highly regarded in the energy patch, not the four mentioned in the previous paragraph. Remember hoping for a buyout is never a viable strategy and perhaps one can start building a watch list for names to enter into long term time horizons. Best of breed EOG may fit the bill. The round 70 handle has been a source of comfort on a weekly basis for the name. One could enter at 70.25 and stop out with a CLOSE below 67.50.