This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Big Oil: 'Sell in May and Go Away'

Stocks in this article: XOM CVX

NEW YORK ( TheStreet) -- This is a big week for big oil, with the three mega-cap oil companies, ExxonMobil (XOM - Get Report), Chevron (CVX - Get Report) and ConocoPhillips (COP) all set to report. It promises to be a very, very good quarter for the trio.

It will come as no surprise to anyone who's had to fill a tank of a car with gasoline recently that big oil is enjoying some very high crude and gas prices. It will also come as no surprise that big prices equate to some big profits for big oil. The market hasn't been surprised: As oil has risen over the past year, so have the stocks of the big integrated oil players.

We can see this close correlation in the relationship between oil and the SPDR Energy Select ETF (XLE): in the last 12 months, oil is up 46% with the XLE up a similar 42% (see chart below).

Even with the healthy rise in oil prices in the last several months, expectations for 2011 first-quarter profits are not at their most heady in history: Consensus profits for Exxon, for example, are for $9.8 billion for this quarter just past, while they earned $11.68 billion and a whopping $14.83 billion in the second and third quarters of 2008, respectively.

Where the big surprise will be is clearly on profits from downstream earnings, from the refining divisions of these three. Here, the disconnect between U.S.-priced crude oil, represented on the New York Mercantile Exchange as West Texas Intermediate, and virtually all other grades of oil that refineries use has meant a very, very healthy margin on refining of gasoline, heating oil and other liquids.

Downstream profits like these have not been seen for the big oil producers since 2006, and for the most part are going to be unexpected by the analysts and the street. While Exxon is looking for $2.01 a share of earnings and Chevron is expected to earn $2.98 a share, I expect those numbers to be significantly higher based on downstream surprises -- perhaps as much as 30 cents more a share.

You'll get a bump in stock price from these earning surprises, to be sure -- but oil is already so high, and these big oil stocks are as well -- so I wouldn't be recommending any new positions in these shares right now.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs