I keep getting asked about buying energy stocks—"Because they're so cheap, Bob!"—but I'm very nervous about recommending them here. I do think that six months from now it's less likely that oil will be in the $30s than the $50s or $60s or even higher, but it seems to me the big stocks are still not cheap. Look at these 2015 P/Es:
Big Energy (2015 forward P/E)
- Anadarko 29
- Apache 24
- Occidental 20
- Exxon 19
- Schlumberger 16.6
Remember, the S&P 500 is trading at a little over 15 times forward earnings.
I do see some cheaper names among some, but not all, of the shale plays:
Oil Stocks (2015 forward P/E)
- Chesapeake 13.4
- Denbury 13.0
- Southwestern Energy 13.0
- Ultra Petroleum 7.5
My problem is this: Even with lower P/Es for some shale plays, I'm not sure that's the right way to look at it, that the value guys aren't chasing the wrong tiger by looking for low P/Es. That seems a far less useful metric than capital expenditures and production estimates (supply side), as well as the future price of oil and the state of global demand (demand side).
Read MoreChart shows oil rig count may have long way to fall
Let's start with capital expenditures. A lot of people have said that capital expenditures won't change in the near term, but nobody told Continental Resources that. Late yesterday they cut their 2015 capex budget dramatically. It's now $2.7 billion versus a previous estimate of $4.6 billion. That is a cut! First quarter 2015 rig count will go from 50 to 34.
Other companies have announced cuts as well.
My point: the supply side of the equation will adjust much more quickly than most people believe.
Read MoreBrent oil $90 to $100 in 12 to 18 months: Pickens
"Most people don't understand how capital intensive it is to maintain oil production levels," one oil stock trader told me recently. This is particularly true of shale plays, he notes, but also applies to Russia, Venezuela, and even Saudi Arabia. Saudi Arabia has said that it plans to spend $40 billion per year for the next several decades just to keep oil production flat and to double natural gas production.
Bottom line: I think anyone with a longer-term horizon (more than 6 months) should recognize how quickly the supply side could adjust. On this basis, many exploration and production stocks do seem attractive. Continental Resources is certainly positioning itself to do well when prices improve.
The one caveat is how you feel on the demand side. If there is indeed a broad global economic slowdown in 2015, then all bets are off. But that is not my baseline assumption.