Thread by @travisdevitt

One thing I look for when buying stocks during a crisis is the ability for the underlying companies to survive drawn out periods of industry & economic weakness

This is especially true with cyclicals, energy, retail, financials, or anything with financial or operating leverage

Some of you asked what energy stocks I started buying (and yes I am adding some again today). Allow me to explain first:

Energy companies face a unique situation, with both long term demand questions because of a shift to renewables but also supply concerns due to the shale boom

On top of that, most energy companies took on large debt loads to acquire acreage and other assets during the boom period prior to 2015. So balance sheets don't look good generally in the industry

With the decline in oil & gas prices, servicing debt is even more challenging

The industry has a tough time rationalizing supply with demand to put a floor under prices because most producers need to keep production flowing to avoid financial ruin

It's a classic study in game theory 🎲

So why touch the sector at all?

The answer is that after an industry wide shakeout, the surviving producers can thrive with increased pricing & margins. That means returns should follow

There tends to be some correlation benefit of energy in a portfolio as well

Both the profit pool and valuation multiples have undergone contraction, but there will be an expansion in both once again at some point. Perhaps it will echo what happened from 2001 to 2008

It may still be years away BUT

Personally I want to begin accumulating long term holdings as sentiment and valuation hit low points. I'll probably be early but I recognize that and am comfortable with that. I give myself room to add position size over time. Position sizing is key 🗝

So which energy companies do I think can survive long term?

I haven't yet spent the time to dig into the majors like $XOM or $CVX, perhaps those fit the bill

But I'm particularly interested in companies like $DVN and $EOG

Both $DVN and $EOG have low net debt ratios, good operational performance, low cost production bases, strong management teams who understand capital allocation, oil focused assets, and CapEx discipline

Meanwhile their share prices are hitting 5 year lows

Consolidation and bankruptcies need to happen in the industry, and right now it looks like that's on the horizon

Headlines, energy prices, and stock prices will probably be ugly. I hope to use those to my advantage

These stocks can still go down a lot further!

That's it for now. I'm a mentor in an investor community (premium sub) where I share my positions, research, and education on stocks. Check that out if you want to go deeper with me: skillincubator.com/course-pages/w…

And hit me up here if you have thoughts / comments on this thread🙌