Gavekal Capital: "Beware the Use of the Word 'TOO'." -- Clay Allen

Tuesday, September 16, 2014

"Beware the Use of the Word 'TOO'." -- Clay Allen

As we noted earlier today, the Energy sector has certainly been the stand-out worst performer in Europe so far this month (and quarter, and year!):

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Though the group may have reached oversold territory, we can hear the voice of a long-time mentor whispering, "there is no such thing as TOO cheap."

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Energy constituents spend the least on R&D and Advertising as a percent of sales, resulting in one of the lowest stocks of Intellectual Property of any sector:

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European Energy companies have the lowest margins and nearly non-existent free cash flow:

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Earnings estimates seem to reflect these fundamental shortcomings fairly well:

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Finally, among the 24 constituents of the MSCI Europe Energy sector, we can find just ONE chart in our point-and-figure methodology that looks even remotely hopeful:

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The rest look something like this:

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It could be some time yet before this particular group offers many promising investment opportunities.