The fortunes of the oil and gas sector have always been linked to the ebb and flow of the global economy. Fears over slowing economic growth and recession often send share prices across the sector lower, thereby creating an interesting opportunity for investors. As per Kavan Choksi investors can buy oil stocks at relatively low rates during times of recession and sell it at a much higher price as the economic situation becomes better and the oil prices invariably rise.
Kavan Choksi how Buying oil Shares During a Recession
The prices of stocks typically fall during a recession. While this is not great news for the investors, it does provide them with the chance to invest in the stocks of fundamentally robust companies at low prices as the stock market crashes. It is important to note that some of the biggest companies in the world are oil and gas producers, and a recession would be a good time to get their stocks at an affordable price. Basically, investors must focus on buying stocks of a company with good corporate governance and sound financials during a recession. Fortunately, there are many major oil and gas companies that they can make their choice from.
Broadly speaking, all investors should consider investing in the stock market during a recession as they are renowned for bouncing back over the long term. Moreover, a stock market crash usually comes before the recession. Basically, the stock markets crash first, and then a recession in the economy follows. Even though there are investors who wait for the stock market to bottom out before investing their money in stocks during the recession, this approach is not for everybody. It is not easy to predict a stock market bottom. Hence, to make smart investments during a recession, it is important to have the right strategy.
Investors need to select stocks of companies that have an impressive economic moat if they plan to enjoy high returns over the long term. Such businesses tend to have a range of competitive advantages, including a well-established brand name and an excellent distribution network. But more specifically, investors need to select companies whose stocks have high odds of climbing up in the future, such as oil stocks. After all, fossil fuels like oil and natural gas generally remain high as they are usually cheaper than other heating and transportation fuels.
Kavan Choksi underlines that oil and gas stocks can actually deliver considerable capital gains from attractive dividend income and share price appreciation during periods of high oil and gas prices. As the price of crude oil goes up, oil companies are able to generate a lot of revenue. This provides them with the funds to drill additional wells to boost oil and gas production, repurchase stock, repay debt and pay dividends, all of which can create value for shareholders. In many cases, the dividend payments in the oil and gas sector tend to be higher than average making it an attractive investment domain for investors seeking high dividend yields.