Weatherford Is Heading Even Lower; Two Other Oil Stocks to Buy Instead
It bears repeating: Successful long-term investing involves not just picking winners, but learning to avoid those dangerous stocks that can take a big bite out of your returns.
When a well-known company plunges, some investors are tempted to pick up the shares, reasoning that it must be due for a rebound. Sometimes you can make money this way, but you have to look hard at the fundamentals. In many cases, the company has not yet hit bottom.
A few readers have inquired about Weatherford International (WFT) - Get Report , which we put on this dangerous stocks list a while back. The warnings were correct: Weatherford fell more than 30% last week after a particularly abysmal earnings report.
Sorry, but it's too soon to say Weatherford has turned the corner. If you own any shares, you should sell before they fall even more.
Oil prices remain perhaps the most volatile factor in the complex global economic equation. After a huge drop, fuel prices had been trending upward for a while; you may have noticed the change at your local gas pump. But things took a bearish turn again on Thursday, thanks to a strengthening dollar and investors cashing in on recent gains.
Weatherford expects the industry downturn to continue to hurt its operations and shrink the average output in 2016, despite massive restructuring efforts. Its revenue plunged 43%. First-quarter international results were weak across the board, with lower-than-expected revenues and margins. The company is also carrying more debt than the industry average, which is hampering its efforts to reorganize.
Bernard Duroc-Danner, the company's CEO, said in the company's earnings report, "The brutality and length of this down cycle has challenged the entire industry. North America was very challenged, with the U.S. reaching its lowest rig count level in recorded history, and several international markets are experiencing severe seasonal downturns. We managed what we could control, to the fullest." Not much reason for optimism there.
If Weatherford is a stock to avoid, are there any in this field worth buying? Many are trying to cut costs to adapt to the low-energy-price environment. One company that has been notably successful is Occidental Petroleum (OXY) - Get Report .
The Houston-based company's operating costs fell 23% in the first quarter compared with the same quarter last year. But in the latest quarter, production climbed 11% from a year earlier to 590,000 barrels of oil equivalent a day. That is down just 1.2% from the prior quarter, even as prices were falling through the floor.
Occidental said it is continuing to reduce its exposure to the Middle East and North Africa region, including in Bahrain, Iraq and Yemen. Like Schlumberger (SLB) - Get Report , Occidental is well-diversified enough to withstand the sudden shocks that are common to the oil markets.
Occidental and Schlumberger are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells OXY or SLB? Learn more now.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
