Is it Finally Time to Buy Oil Stocks?

The rally in oil is not enough... Badiali called it... Is it finally time to buy oil stocks?... More big news for Stansberry Resource Report subscribers...

The flood of energy-company bankruptcies is showing no signs of slowing.

In fact, it has been accelerating, despite the rebound in oil prices to $45 a barrel this year. As Bloomberg reported this morning...

Since the start of 2015, 130 North American oil and gas producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined.

This week's bankruptcies could soon be followed by several more... At least four more oil and gas companies are nearing default on another $8 billion in debt, including Breitburn Energy Partners (BBEP), SandRidge Energy (SDOC), W&T Offshore (WTI), and Canadian-listed Connacher Oil and Gas (CLC.TO). The reasons cited by Bloomberg will sound familiar to regular Digest readers...

Bankruptcies have accelerated as cash-starved companies find it almost impossible to raise capital. Energy companies have been virtually shut out of the high-yield bond markets, banks are cutting credit lines, and asset sales have slowed.

Both Porter and Stansberry Resource Report editor Matt Badiali have been warning folks of these defaults and bankruptcies for more than a year now.

Matt in particular has been closely tracking these problems in his paid Stansberry Resource Report monthly advisory, as well as our free Growth Stock Wire daily e-letter.

For example, last May, when oil prices had rebounded back above $60 a barrel, Matt warned readers that most oil companies were just beginning to feel the pain of lower energy prices. As he wrote in the May 8 Growth Stock Wire...

While oil prices fell a lot [in 2014], prices started out relatively high [above $100 a barrel]. That's why the average price of West Texas Intermediate ("WTI") crude oil in the fourth quarter of 2014 was $72.95 per barrel.

But this year, oil prices have started out low... and stayed low. The average WTI crude oil price over the first three months of 2015 was $48.62 per barrel. That's a 33% fall.

The fall has devastated oil and gas producers' bottom lines in the first quarter.

Most important, Matt noted that even big companies were now beginning to struggle. At the time, more than 60% of large independent oil and gas producers (those with market caps of more than $1 billion) reported operating losses for the first quarter of 2015.

In total, these companies' operating losses had increased by a massive $18.1 billion.

But Matt noticed that the majority of the decline – a huge 93% – came from just four of the biggest companies in the group. Chesapeake Energy (CHK), Apache (APA), Devon Energy (DVN), and Anadarko Petroleum (APC) reported a total decline of $16.9 billion in operating income. He explained why this was so important...

These are big oil and gas producers. For example, Chesapeake's market cap is the lowest of the group. And it's nearly $10 billion...

In short, when big names like Chesapeake are facing problems like these, it's time to be cautious on the sector. The falling oil price that exposed problems at the end of 2014 has made things worse in the first quarter of 2015. And even "cheap" oil and gas stocks can fall lower on more bad news.

As you can see in the chart below, Matt's timing was nearly perfect...

But that's just one of several notable calls Matt has made...

Last July, after Sabine Oil and Gas made headlines as the seventh and biggest energy company to file bankruptcy to date, Matt warned Growth Stock Wire readers this trend was "just the beginning," and there were many, many more to come. An additional 126 oil and gas companies have filed for bankruptcy since then.

In August, he singled out a handful of particularly troubled companies that were "destined to fail" before this cycle ended. Three of those mentioned already have – Magnum Hunter (December), Goodrich Petroleum (April), and Penn Virginia (this week).

In February, Matt called the tentative Saudi Arabia/Russia oil deal "worthless," citing the fact that it hinged on Iran agreeing to cut its production. While CNN's talking heads were discussing the deal, Matt told readers to ignore it. As he wrote in the February 17 Growth Stock Wire...

The problem is, the one country that could massively increase oil production – Iran – hasn't agreed to the deal yet. The deal is contingent on Iran's agreement. And if you know anything about Iran and Saudi Arabia's relationship, you know this deal is already in doubt.

Saudi Arabia and Iran's relationship is terrible, and Iran isn't about to agree to restrict oil production right now after 35 years of sanctions.

As Digest readers know, the deal fell apart two months later.

In March, Matt warned that BP Prudhoe Bay Royalty Trust (BPT) was in trouble after the company announced a 65% drop in its economic oil reserves. Shares are down 24% in less than eight weeks since his essay, and Matt says others could suffer a similar fate.

And as we mentioned just this week in the May 9 Digest, Matt also predicted the recent collapse in shares of major oil refiners... helping readers avoid double-digit losses this year.

But he hasn't been entirely bearish on the sector...

In January, Matt noted the crash in oil prices had created a "graveyard" of inactive oil-drilling rigs... and said that auctioneers like Ritchie Bros. Auctioneers (RBA) should benefit from the sale of used equipment in the oil patch. Four months later, shares are up 46%.

In the March 9 Growth Stock Wire, Matt suggested buying oil and gas pipelines – specifically, Energy Transfer Partners (ETP). He explained that the uncertainty surrounding pipeline companies' "distributions" – their version of dividend payments – led investors to sell their shares. As of yesterday's close, readers who took his advice are up more than 25%.

And most important, Matt has consistently reminded readers that all this turmoil in the energy sector will ultimately be a good thing... These bankruptcies are removing expensive, excess supplies from the market, and setting the stage for a real recovery to come.

After the rally of the past few months, many folks are wondering if the worst is finally over and a new bull market in oil and gas has begun... or if there's more turmoil to come. Matt shared his latest thoughts on the situation in a private note this morning...

Oil stocks in general are in for another six months or so of pain. But we are finally seeing a separation in the market now, with the stronger companies getting some love and the weaker ones going out of business.

Regarding the majors, I still think Shell (RDS) is suspect. ExxonMobil (XOM) has had a good run, but I don't regret avoiding it. It raised its quarterly dividend from $0.73 to $0.75... All is well, right? I don't think so. Its credit rating got dinged, and its debt is up $10 billion in the past year. (That's a 40% jump.) The risk versus reward in buying Exxon in January was far too high for me.

Many in the market are getting bullish, but we aren't ready to buy. Production in Texas is still falling. I want to see what this second quarter brings before we consider jumping in. Remember, we don't need to buy at the exact bottom. We can be patient. Our plan is to buy only the strongest companies... those that will have the cash to gobble up cheap assets and grow really quickly. I believe the biggest gains are still ahead of us.

That's not the only news we have to share from Matt today...

For the second time in less than a month, one of Matt's gold-stock recommendations is soaring on news of a buyout offer.

In the April 26 Digest, we told you Stansberry Resource Report holding Reservoir Minerals (RMC.V) rallied nearly 30% on news that copper producer Nevsun Resources (NSU) had agreed to buy the small developer. Matt's subscribers are up more than 100% in just eight months.

Yesterday, it happened again...

On Thursday, giant gold firm Goldcorp (GG) agreed to buy junior miner – and Stansberry Resource Report portfolio holding – Kaminak Gold (KAM.V) for C$520 million in Goldcorp shares.

Kaminak jumped 26% on the news... giving Matt's subscribers a remarkable 238% return in about eight months as of yesterday's close. But Matt doesn't recommend selling shares just yet. He explained the situation in a special update to Stansberry Resource Report subscribers today, and agreed to share a portion with Digest readers below...

Kaminak is one of the junior developers we recommended in September... We told you about the company's Coffee gold project in Yukon, Canada. I visited the project back in 2010. The sheer size of the project is impressive. At 35 square miles, the land package is 1.5 times the size of Manhattan.

In April, we explained that Kaminak produced a bankable feasibility study, or "BFS," in 2015. (This is an advanced study required by lenders to fund the building of a mine at a mineral deposit.) According to the BFS, the proposed mine at Coffee would produce about 1.9 million ounces of gold over 10 years at a cost of just $550 per ounce.

At the time, shares traded for C$1.19... We concluded that Kaminak was worth at least twice its value. Goldcorp thought so, too...

The C$520 million deal values Kaminak at C$2.62 per share. That's a 32% premium to Wednesday's closing price.

But because of the way the deal is structured, Matt believes subscribers could see even bigger gains before the deal finally closes...

This is an all-stock deal. Goldcorp is buying all of Kaminak's shares for a per-share price of 0.10896 Goldcorp shares. The transaction is expected to close by August 15. If the deal goes through, Kaminak shareholders would end up with about 11% of one Goldcorp share for every share of Kaminak in their portfolio.

We don't want to end up holding Goldcorp shares. We want to take profits. But... we're not going to sell yet...

The transaction is based on the value of Goldcorp's shares. Another bump in the gold price or good news from Goldcorp could push the deal's value above C$2.62 per share.

So while we could cash out our position in Kaminak now, I don't think we have seen the end of this story yet.

Matt's Stansberry Resource Report portfolio is now showing double-digit gains or better on an astounding 12 of 15 gold-stock recommendations. Naturally, many of these recommendations are currently a "hold" right now.

But if you missed the recent rally in gold stocks, or you're simply looking to put new money in the sector today, you're in luck. Matt says he still has two top gold-stock recommendations trading well below his maximum buy prices... including one that he believes could become the next great royalty stock like Franco-Nevada (FNV), Royal Gold (RGLD), and Silver Wheaton (SLW).

You can get instant access to Matt's full portfolio of recommendations with a risk-free trial to Stansberry Resource Report. Click here for the details. (This does not lead to a long promotional video.)

New 52-week highs (as of 5/12/16): Kaminak Gold (KAM.V), Medtronic (MDT), Altria (MO), Annaly Capital Management (NLY), Pretium Resources (PVG), Regions Financial – Series B (RF-PB), and AT&T (T).

In today's mailbag, several subscribers share how they have benefited from Doc Eifrig's advice. What's on your mind? Send your notes to feedback@stansberryresearch.com.

"Before the 80's crash I had three small CDs. I felt they were useless and decided to try some stocks. Had a little experience prior to this in stocks when husband was alive. Listened to Doc and followed his advice... buy good solid stocks, plan to hold 'em, set stops to be 'secure', and don't fret the ups and downs of the market. All good rules that seemed sensible. Even found a nice stock that has almost tripled. (TMO) As I am 87 years young I think Doc is great. Especially like his health and medical advice." – Paid-up subscriber Kay Coriell

"[Doc] is, without question, the person I pay the most attention to when it comes to financial acumen... He provides health discussions that you often do not read about in the average publication as well. It is like getting two for the price on one, if you will." – Paid-up subscriber Larry F.

"[Doc is the] best in the business by far. I'm glad that I came to know him from my association with Stansberry Research." – Paid-up subscriber Dr. A.A.

Regards,

Justin Brill
Baltimore, Maryland
May 13, 2016