A Hot Oil Stock

My Volkswagen Story

The Market Today

A Hot Oil Stock

Most people have a Volkswagen story. Here’s mine.

When I was a teenager our family had a 1956 Beetle, bought used.

The windshield was flat, the taillights were tiny, and there was no gas gauge; when you ran out of fuel, you flipped a little lever with your foot that opened the reserve fuel tank—which, of course, was under the hood.

Also, there were holes in the rusted-out floor, so you had to be careful when driving through puddles.

But the Beetle did its job well, and when it went to that great auto graveyard in the sky (or is it in Pennsylvania?), we held a small ceremony.

VW funeral

 
That’s my father, my sisters (left and right) and a friend.

Yeah, I know—it’s not much of a story.

Anyway, today, there’s a lot of talk about “fixing” the 11 million Volkswagen diesel cars that contain chips that cheat on emissions tests.

But most people don’t explain what they mean by fix.

The ideal would be tweaking the software so it could meet emissions standards while maintaining the performance that the buyers liked when they originally bought the cars.

Unfortunately, that’s not possible. That’s why VW cheated.

So any fix that makes the cars legal will reduce the cars’ performance, while increasing fuel efficiency somewhat.

The question is, how many owners are going to be happy about that trade-off?

And for those who aren’t, what kind of legal mechanisms will be used to force the fix on them?

One thing is sure; it won’t be cheap, and it won’t be pretty.

Of course, neither is the stock’s chart.

vlkay
 

Many investors at this point are wondering if Volkswagen’s stock is a bargain. My advice: it’s way too soon, and the story is too obvious. Wait a while, while taking an occasional peek at it.

The Market Today

With the bottoms of August and September behind us—and fear rekindled among numerous investors—is it possible that the market will continue to motor higher from here, possibly all the way to year-end?

Yes, it is possible.

But more likely—in part because it’s getting late in the year—is that any advance will be led by some fairly narrow groups of stocks, possibly featuring two distinct categories of stocks.

One of these categories will be the high-quality growth stocks that institutions love, like Netflix (NFLX), Nike (NKE) and Progressive (PGR). If you’ve got those winners in your portfolio at the end of the year, you look smart—even if you didn’t get on board until late in the year. And those stocks are okay if you’re looking to hit singles and doubles. But because they’re already well known and respected, there will be no home runs made by investors in these stocks.

The other advancing category will be stocks that are bouncing off their September bottoms, stocks that were oversold and are now being bought up by bargain-hunters. Chief among these—you won’t be surprised to learn—might be energy stocks. As a group, they were hit first, and they were hit hardest, with many quality stocks down 50% or more.

But they also bottomed first, and in recent weeks, the strength from the leaders of the group has been impressive. After all, with low oil prices putting an end to all kinds of unprofitable drilling operations, eventually supply will shrink and prices will rise. That’s how the energy business has always worked, and I see no signs that it’s going to change.

So what to buy?

A Hot Oil Stock

Here’s one.

oil stock

This is a fairly young energy stock.

It came public in January 2013, peaked at 28 in early 2014, and is now on its third attempt to break through that resistance level.

The stock was recommended in yesterday’s issue of Cabot Top Ten Trader, complete with recommended purchase range and stops as well.

If you’d like to know the name of the stock, as well as get regular updates on it and all the stocks recommended by Cabot Top Ten Trader, click here.
 

Yours in pursuit of wisdom and wealth,

Tim signature

Tim Lutts

Cabot President, Chief Analyst of Cabot Stock of the Month

Comments