An article published by CNN Money wrote about the worst stocks of 2015. Chesapeake Energy, Southwest Energy, Consul energy, Macy’s, Michael Kors and Wynn Resorts were not kind to investors in 2015 but they could have been gold mines for traders as the worst stocks for investing can be the best trading.
An alarming number of big U.S. stocks lost half their value in 2015.
The stunning declines come despite the fact that the broader U.S. market ended the year not far from where it started.
But the worst stocks of 2015 include big-name companies like Macy’s, Michael Kors and gambling empire Wynn Resorts. The list of most hated stocks also features a ton of companies slammed by the crash in oil prices.
1) Chesapeake Energy, Southwestern Energy, Consul Energy: 2015 performance: -77% to -80%
Cheap oil and gas have crushed profits in the energy industry. Oil prices have been clobbered this year, collapsing below $34 a barrel this week for the first time since early 2009. Natural gas prices too recently dropped to 2002 levels.
Shares of Chesapeake Energy (CHK) have plummeted 80% so far this year, making it the worst S&P 500 performer through Monday.
The article goes on to describe the carnage in the energy sector since the price of oil fell off the cliff. What it does not say is how much money traders made who shorted these stocks or bought put options early in the game.
Energy Sector Recovery?
What goes down in the stock market can come back up as well. In the case of the energy sector prices will rise as demand increases and the current surplus diminished. The worst stocks for investing in 2015 as a group were the energy stocks and they had the potential to be the best for traders. In 2016 energy stocks could be good for investors as prices rise and still good for traders. Because timing is always an issue many traders will use options to trade stocks in this sector in order to contain their risk. When will oil prices rise, asks Seeking Alpha. Their answer is that prices will go up when Saudi Arabia feels the pain.
Many OPEC nations, including Saudi Arabia, the United Arab Emirates, Iraq and Iran, have extremely low marginal costs of production. So they can make a nice profit even if the prices fall well below today’s level. However, these countries require much higher prices in order to meet their budgetary commitments. As a result, I was convinced that they would not put up with low prices for long. I expected them to cut production and push the market price of oil back into the $60-80 per barrel range.
Saudi Arabia, however, settled on a surprising strategy. The Saudis decided to keep pumping oil at high levels, knowing that the prices would go much lower. The Saudis are betting that lower prices will drive higher-cost competitors, especially in the U.S., out of business. The thinking is that once much of the competition is gone, the Saudis will have a larger market share and greater control over prices.
The first target of the Saudis is U.S. production. Although fracking is much more expensive than pumping from wells in Saudi Arabia the cost is largely up front. So, current U.S. fracking operations will probably keep pumping to help pay for the capital that has already been invested. Eventually U.S. production will decline and prices will go up but it will be a matter of timing. To get the timing right, trading stock options may be more effective than trading energy stocks directly.
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