NEW YORK (The Deal) -- Earlier this month, RBC Capital Markets added three companies to its "energy best ideas list," a monthly compendium of its favorite stocks in the oil & gas and power & utilities sectors worldwide. And guess what? Not one of them is based in the U.S.
What does that say about investing in the U.S. oil and gas industry in an era of lower commodity prices? A lot, actually. It means it's becoming harder to find good energy stocks in the U.S. There are multiple reasons why.
Oil prices have been like a roller coaster, going from $100 to the low $40s to back up to $60, and no one seems to have a good grip on where they'll land. One analyst on a panel at Mayer Brown's energy conference in Houston on Wednesday thought oil would settle at around $40 to $50, while another thought they'd head back to around $80.
Despite oil prices trading at still low levels -- low enough to make some plays uneconomic -- valuations for U.S. oil and gas exploration and production stocks are still pretty dear. Simmons & Co. International analyst Pearce Hammond says 25% of the U.S. E&P stocks he covers are trading higher than last fall, when oil prices began to tumble.
"They're not frothy, but valuations are high," he said. And if you're a value investor looking for a bargain, there's always the risk a distressed name could become even more so -- or file for bankruptcy.