Beware: Energy Stocks Are Declining

Want to know what’s going to happen to the stock market?

Watch the energy stocks. They haven’t been going up in recent weeks. Instead, they’ve been going down. And, in some cases, pretty sharply (10% to 15%).

Compared to the rest of the market, that isn’t awful. But crude continues to hit record highs. Natural gas and the distillates are still rising.

It’s a bad, bad sign when the stocks that engage in the exploration of these products don’t follow suit. They will be posting tremendous quarterly numbers in three weeks yet investors aren’t seeing any value in the stocks.

While some of them have doubled or tripled in the last year, compared to earnings, they are trading at fairly cheap valuations.

Anadarko Petroleum (APC) is trading at 13.87 times trailing earnings (those earnings from the last 12 months.)

Stone Energy (SGY) is trading at 7.55 times earnings.

Plains Exploration (PXP) is at 21 times earnings.

Cimarex Energy (XEC) is trading at 12.52 times earnings.

Again, these are all trailing earnings. These companies are going to earn gobs of money in the second quarter and, so far, in the third. I don’t see a bubble in any of these stocks.

What does this mean for the greater market?

The bear is taking hold now. In true bear markets, even the high fliers fall back down to earth. There is nowhere to hide.

For the last year, investors could be in energy and the metals and get a decent return.

Those plays appear to be going away. Now what?

Stay tuned.