Big oil has lost big money for investors.
In the past year, as crude prices have fallen more than 55 percent, the nine biggest Western oil companies have shed a combined $400 billion in market cap, according to data pulled by FactSet. But despite the staggering decline, one expert sees rare opportunity in the space.
"It's important to remember that going back over the last 20 years in the equity market, whenever you have a secular change such as technology in 2000, financials in 2007 and 2008 and now energy, it takes about two years for a real capitulation washout," Larry McDonald said Wednesday on CNBC's "Power Lunch." Energy stocks have been steadily declining since June 2014.
But according to McDonald, while the bottoming process plays out over the next year or so, there are "fantastic opportunities" for short-term rallies. "If you look back in all of those sectors you had rallies of 10 to 30 percent only to fail and make new lows," added the head of U.S. macro strategies group at Societe Generale. Most recently, crude oil rallied 47 percent from its March low to its May high, only to fall back to new lows.
In addition to the potential for pop-up rallies, McDonald said energy stocks could be a place for yield hunters. "Something that could hold them up is the 30-year treasury which is trading around 2.8 percent while oil names like Exxon and Conoco have a dividend yield of anywhere from 3.8 percent to 6 percent," he said. "At some point the bond equality of the dividends will start to support some these equities."
Looking at Exxon Mobil specifically, Gordon noted that in addition to losing an "amazing amount" of its market cap, the stock is extremely weak. "We broke support at the $85 market and its formed resistance," said the founder of TradingAnalysis.com. For Gordon, the next level of support comes in around $75 a share. Exxon closed Wednesday at $78.79.
"Any move up to $82 to $83 should be viewed as a sellable point," he added. "Ultimately I think we break lower along with crude oil."
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