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Stocks [.SPX
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] are up, oil [US@CL.1
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] is down and Karen Finerman has some thoughts on how to trade that trend.
In a nutshell she believes the way to play oil is through equities rather than the commodity itself. The rationale is that the equities have been beaten down in tandem with the price of oil and are now too discounted considering their future earnings potential.
“If you look through the income statements of the oil services companies you see they have contracts years out that are locked in," explains Finerman. "I know there’s fear that some of those contracts won’t be good but it’s overdone.”
”Look at a company like Transocean [RIG
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],” she says. “80% of their business is locked in for next year. The stock is trading as if all that business is going to go away.”
Clearly, Finerman doesn’t think that’s likely. And as a result she thinks this stock is a value. “I’m long,” she tells Dylan Ratigan.
And you don’t have to be a stock picker for this trade. In fact, Finerman often says it’s a good idea to spread out your exposure to risk. In this case you can do that by getting long the Oil Services HLDRs [OIH
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] which is essentially a basket of oil services firms including Transocean, Schlumberger, Halliburton and more.
“When the market stabilizes investors will realize that even with the price of oil flat or down these equities have fundamental value and it seems likely the market will ultimately bid them higher.”
Hedge Your Bet
Like any good hedge fund manager Finerman also recommends hedging this bet. And she’s doing it by shorting the United States Oil Fund [USO
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].
Same Principle, Different Space
The same thesis could be true of dry bulk shippers but not yet. “I expect to see some bankruptcies there. After that happens I think there could be huge opportunity in the space.”
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