We’re buying 100 shares of Coterra Energy (CTRA) at roughly $26.47 each. Following Friday’s trade, the Charitable Trust will own 1,500 shares of CTRA, increasing its weighting in the portfolio to 1.37% from 1.28%. Oil-related stocks were getting hit hard Friday, but we’re viewing the group’s decline with an opportunistic lens. The cause of the moves is the sharp drop in the price per-barrel of West Texas Intermediate crude , the American oil benchmark. WTI dipped below $80 on concerns about global economic activity. One data point feeding into recession concerns in the United States is the prolonged inversion of the yield curve. Earlier Friday, in bond trade parlance, the 10-year/2-year spread was the most negative its been since May 2000. In other words, the 10-year yield has not been this much lower than the 2-year yield in more than 22 years. Investors and traders often focus on yield curve inversions as many believe it signals a recession is in the cards sometime in the future. Normally, longer-dated Treasury yields are higher than shorter-dated ones. A decline in economic activity has the potential to send commodity prices lower, but one storyline we remained focused on is when the Biden Administration will switch from being sellers of barrels from the Strategic Petroleum Reserve to being buyers. After consistently releasing barrels for the greater part of this year to help the economy combat energy inflation, the administration said last month it intends to repurchase crude oil to replenish the SPR when prices are at or below $67 to $72 per barrel. While these are levels still below current prices, we think energy prices should be able to stabilize because the market knows there’s a big buyer out there. Plus, OPEC has shown that it wants to limit its downside, cutting production targets when prices slump. Lastly, we think the demand picture will improve as China gets more serious about reopening its economy and relaxing its rolling Covid restrictions. The energy stock we’re adding to Friday afternoon is Cottera , which is about half oil and half natural gas. Shares of the exploration and production (E & P) company have been in a slump ever since the company reported its third-quarter results and provided a disappointing update on its proved reserves. Although this news on Nov. 3 raised questions about the long-term value of Coterra’s assets, we pushed back on this notion the next day , explaining that this revision was more related to a specific accounting rule. Due to management’s expectation that this update will not materially change cash flow expectations over the next several years, we upgraded our CTRA to a 1 rating on Nov. 4 and added to our position. Looking back, we were a little too quick to upgrade and buy, but the only difference we see between then and now is a lower stock price, which in turn makes Coterra’s dividend yield even more attractive. With shares yielding a healthy 10.25% on Friday when annualizing the recently announced dividend, we continue to like shares, and that’s why we’re adding to our position on this recent weakness. (Jim Cramer’s Charitable Trust is long CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Oil sinks on recession fears, but we’re using the decline to add to a high-yielding energy stock
Traders work on the floor of the New York Stock Exchange (NYSE) on November 11, 2022 in New York City.
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