Jeff Saut, “I’m One of These Peak Energy People”

By on August 26, 2011

Jeff Saut, chief investment strategist, Raymond James Financial, thinks the market is making a temporary bottom. He compared the current stock market weakness to declines that came out of nowhere in 1978 and 1979.

Saut is a believer in the bullish case for oil, in that peak oil production is likely behind us. He provided several names for profitable investment in the energy and railway sectors.

In energy Saut likes Energy Partners (EP) and Lin Energy (LINE). As for the rails, Saut prefers Norfolk Southern (NSC) and KSU (KSU).

3 Comments

  1. New Low Observer

    August 27, 2011 at 12:04 pm

    It seems ironic that a person as involved in the markets like Jeff Saut would side with a view that peak productions has passed; especially after having lived through the claims of peak oil in the early 1970’s. In a well written and succinct Forbes article titled “Oil and Politics” by Steve Hanke dated August 16, 2004, the matter is summarized with the following comments:

    ” In 1971 the world’s proven oil reserves were 612 billion barrels. Since then the world has produced 767 billion barrels. We should have run out of reserves five years ago [by 1999], but we didn’t. In fact, today’s proven reserves are 1,028 billion barrels, or 416 billion barrels more than in 1971.”

    Additionally, as a person who frequently comments on Dow Theory, Saut should know better than to recommend rail stocks (commodity shippers) and oil after a Dow Theory bear market indication. Charles H. Dow has often stated the fact that commodities will fall along with equities, which was graphically represented from March 2008 to November 2008. Oil declined (as represented by the Amex Oil Index ^XOI) 51% while gold declined (as represented by the Phila. Gold and Silver Index ^XAU) 65%.

    If we’re truly in a bear market as indicated by Dow Theory, which Saut claims to be an adherent of, then oil and rails should be considered when they have had substantial declines in price, ideally at 52-week lows.

  2. Clifton Portis

    August 28, 2011 at 2:59 pm

    From the video it appears Saut is non-committal to the bullish side because of his belief in Dow Theory.

    He appears to be playing the oils and rails for a 13% bounce.

  3. New Low Observer

    August 30, 2011 at 12:38 am

    Greetings Clifton Portis,

    You’re correct that Saut is non-committal on the bullish side, however he also indicates that we’re currently experiencing a bottoming process similiar to Oct 1978 and Oct 1979. This suggest that Saut expects that we’ve bottomed and that we’re at the start of a “…new bull leg…”

    It seems a bit premature to call a new bull leg, from a Dow Theory perspective, when the market has not been able to exceed Dow 14,164 or Dow 12,800. From a technical standpoint we have declining tops which isn’t constructive overall.

    We do appreciate Saut’s references to dividend paying stocks above all else. However, EP is 67% above the 1-year low and sports a p/e of 33. KSU is 65% above the 1-year low with a p/e of 24; with no dividend. An exceptional set of circumstance would have to transpire in order for these stocks to continue at the average annual trajectory of above 65% in the next year. It seems that reversion to the mean would ultimately take place. Charles Dow, in his law of action and reaction, indicates that the swing in the opposite direction should result in decline far below the mean before recovering.

    LINE is 33% above the 1-year low and has no earnings. This could be the shocker in terms of performance, in the coming year, since an improvement of earnings could catapult the stock price. However, from a value perspective based on Dow’s Theory, this stock would be ignored as an investment candidate.

    Finally, NSC seems the most compelling with the lowest p/e, p/b and healthy payout ratio of 36%. This suggest that NSC could experience a 50% decline in earnings and still maintain their current dividend policy. However, if history is any indication for the rail business, a dividend cut is bound to occur soon. The last dividend cut for NSC was in January of 2001.

    Obviously it is well worth tracking the performance of Saut remarks and recommendations in the coming year. As a students of Dow Theory, we are critically examining Saut rationale for making the comparison of ’78-’79 to today; it should be interesting.

    Regards.

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