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Jim Cramer has always been optimistic when it comes to the impact of low oil on the economy. But oil stocks? Forget it, he's not a bull.
At what point during oil's decline does it signal that oil has become too low for its own good?
The "Mad Money" host has seen a few bearish signs lingering in the oil patch that have caused him concern, and he's starting to think companies are in more trouble than they realize. Especially if oil drops below $40, which could easily happen.
"While I remain a bull on what lower oil can mean for our economy, there's just no way, yet, to be bullish on this group," he said.
What makes it so hard to analyze is that he sees denial by pretty much every oil company that could be in trouble.
For example, Southwestern Energy just averted a funding crisis by the skin of its teeth. In October, it bought $5.3 billion in properties from Chesapeake. As oil and gas prices have tumbled since then, so has the value of the properties.
Thus making it clear that Southwestern didn't get the good side of the deal, as its stock price plummeted from $32 to $23. The stock was at $48 back in April.
As a result, Southwestern is now offering 20 million shares in common stock and 20 million depository shares that can be exchanged into convertible preferred stock. This cured any cash flow issues for the company, but just barely.
Southwestern is not alone.
What concerns Cramer the most is that he thinks there are plenty more Southwestern situations out there. Lots of other companies should be out there raising more money, but they aren't the high quality business that Southwestern is.
"I believe that most of the oil companies that are in trouble now do not have that luxury. They won't be able to raise money that easily or they will have to give up a lot of their upside to those who lend it," Cramer said.
On Monday, Goldman Sachs revised its analysis of Schlumberger from a buy to a hold. Cramer was surprised, as he regards this company as the best of the best. Since July it has declined from $118 to $77. So, Cramer decided to do a little research and see what price oil was at the last time Schlumberger was priced at $77. Oil was priced at $100 a barrel back then. Whoa.
What does that mean? It means that there are just too many analysts out there who are still bullish on this company. That makes Cramer want to run far, far away from the stock.
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"That combination makes the stock way too dicey, and keep in mind this Schlumberger is the highest quality company in the whole oil service industry," he added.
Ultimately, there is plenty of pain in store if oil drops below $40. That means there will be companies scrapping for cash flow.
There is just no way for Cramer to be bullish on the oil patch, especially with all of the "Southwesterns" that could be lurking out there. These companies have bitten off more than they can chew.