When to Jump In To Energy Stocks

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By Jacob Maslow

transformerAt this point in time, you might be chomping at the bit to get in to energy stocks. After all, energy stocks have been hammered really hard. Whether we are talking about a company that actually retails the oil, pulls the oil out of the ground, or services companies that do, energy companies are feeling the pain of a 50% decline in the price of oil.

The problem with jumping in to energy stocks right now is that you might jump in to a company that might go belly up. There is such a tremendous amount of pressure on many energy companies that some are in danger of going out of business. You might want to hold off into buying energy stocks.

It is a good idea to pay attention to them. However, you need to filter out companies that you don’t want to buy. You need to filter out companies with a lot of debt. You need to filter out companies that extract oil from fields that are almost tapped out. You need filter out companies with heavy production costs. The good news is that there are a lot of oil or energy-related companies that will still be left after you apply all these different filters. These are the companies that you should pay attention to.

It all boils down to timing. Wait as the prices keep falling. However, the trigger should be bankruptcy. Of course, I am not talking about the bankruptcy of the company that you want to invest in. I am talking about the bankruptcy of other companies. Understand that once news breaks that an energy company has gone belly up, this is going to put downward pressure on oil stocks across the board. Wait until more bankruptcies hit, and then start scooping up small batches of the top-notch energy companies you have been watching.

If you play this game properly, you should come out with a basket of highly valuable energy sector companies that can pop up once the energy sector stabilizes. Also, bankruptcies can help stabilize the energy sector. Currently, there are just too many players out there, and this tends to dilute investment flows. Once enough of these players get bought out or get out of business, this can lead to a more focused demand. That should put upward pressure on the stock of the remaining energy companies.

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