We are very near to the bottom in the price of oil again, if we haven’t already hit it.
Today, I was looking at the price of oil and its previous crashes and where the slide-off in oil halted.
For instance, back in April 2011, the price of oil was around $115 a barrel. But by that August it had crashed down into the $75 to $76 area.
Then it recovered to just over $110 per barrel by February 2012. But then it proceeded to crash down to around $77 a barrel in June.
During this last go-around, oil has pulled back from just over $100 a barrel in September to the $84s in October. If we haven’t seen the bottom in oil already, I believe we’ll see it at no lower than $80 per barrel. Could it go to $78 or so for a very brief period? It could. But I believe that anywhere in that region we’ll see the floor if we haven’t seen it already.
As I’m writing, oil is trading around $87 per barrel. So its downside is likely only $7 to $9 per barrel from here. Yet its next big push higher should have no problem hitting $103 per barrel, which is $16 per barrel higher from where we’re at right now.
Therefore, oil presents a great risk-to-reward proposition right now.
But here’s another reason why I feel that oil is at or near its floor again.
I was looking at a chart of the world’s gross domestic product (GDP), which shows the size of the global economy. Today, the global economy stands at over $70 trillion. But its pace of growth is steep overall.
For instance, from 1960 through around 2003 the global GDP went from just over $1 trillion to around $35 trillion. But it went from $35 trillion to over $70 trillion in just nine short years (from 2003 to 2012). That’s amazing!
So you can see why I feel like oil is the place to be. Economic growth only comes at the rate that energy can power it. And one of our biggest forms of energy that we’ve got in the world is oil.
Therefore, buying an oil stock that has a fat dividend with it looks promising.
There are some oil stocks out there right now with 4 percent to 5 percent dividend yields and that trade at only eight times their earnings. These are huge companies that have billions of dollars in market cap and that make billions of dollars each year in earnings and have billions of dollars in cash on their books.
So if you want to make a bet on the world and its growth, then look no further than huge oil companies that trade at earnings multiples that are almost half of what the Standard & Poor’s 500 trades at and that have over double the dividend yield.
Buy a few of them and hold onto them for five to 10 years and you won’t regret it.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.
© 2013 Moneynews. All rights reserved.