I was chatting this morning with one of the other analysts (who shall remain nameless) here at Wyatt Research, and he was razzing me for talking about some of the many blue chip companies that now pay dividends larger than the 10 year US Treasury.
"Why are you wasting your time looking at those boring companies? How are you possibly going to get rich collecting a 3% dividend?"
His solution? Brilliant in its simplicity:
"If you want to buy some boring stocks paying low dividends, just buy a bunch of oil companies."
Wow. I’ve never heard an investing strategy boiled down into its essence so dynamically.
Suffice to say, that this other analyst and I don’t always see exactly eye to eye on our investment theses.
And while I think it’s somewhat cynical in its delivery, you could do a lot worse than to follow this advice right now.
So… buy a bunch of oil stocks? Yes.
Yesterday I recommended buying Exxon-Mobil (NYSE: XOM). The company sells for less than 10 times earnings and pays a 2.6% dividend.
I also like the oil services company Schlumberger (NYSE: SLB) which pays a modest 1.4% dividend.
It’s the world’s largest services company, and it has great upside to increasing oil prices.
Yes, I know oil prices have stagnated over the summer. Many analysts expected the summer driving season to have the usual effect of boosting oil prices. Many analysts thought the war in Libya would have a similar effect. Some of us thought we’d see oil prices strongly sustained above $100 a barrel and beyond by now.
I admit, I was one of these analysts. That’s the danger of making predictions with a time frame. I still think I’ll be vindicated, but the time frame certainly isn’t likely to bend to my will.
But when oil prices rise, we won’t care that the time frame was off by a few months. We’ll be happy that we were able to pick up some of these world class oil companies at decent valuations.
Right now, the price is right. The time will come when these prices will be vindicated as right. I don’t know when that time might be, but I’d definitely say in the next two years.
That’s of little solace to people who bought last month, or earlier this summer, who are now sitting on small losses.
But if we flipped our investment thesis everytime the short term trend went against us, we’d go broke.
I suggest buying Exxon under 10 times earnings. That gives you a measure of cushion should the short term trend continue to go against us.
I recommend pickup up shares of Schlumberger under 20 times earnings. That’s not historically cheap in a Graham-Dodd sense, but it’s relatively cheap to most of its competitors – AND it’s the largest company in its sector.
Listen, I know my advice might seem somewhat blase. But no one cares about oil. It’s cheaper than it was last year, and the supply-demand story is even more bullish for the long term. Let’s not over think this trend.
P.S My colleague Andy is inviting you to join him next Tuesday for an exciting event all about how he juices the market for income every month. As I’ve been telling you, I fully intend to take advantage of Andy’s expertise to help pad my brokerage account. This upcoming Tuesday, Andy will be revealing all to a small group of Wyatt Research readers. I hope you’ll sign up soon because I think you’ll find extraordinary value in what he has to say.