Don’t second guess the oil price is one piece of investment advice given by AJ Bell’s Investment Director Russ Mould. Oil and gas majors BP (LON:BP. and Royal Dutch Shell (LON:RDSA) certainly couldn’t, with both posting losses this week attributed to the lower commodity prices. Shell, the larger of the bellwether stocks, had the ignominy of reporting its worst loss in a decade.
Mould’s investment advice follows the commonsensical fundamental rules of checking that companies operate in stable regimes where threats of sudden tax hikes or coups are rare, and investigating how much cash and debt on the balance sheets is critical.
With the current oil price at US$50 a barrel, survival for the junior listed companies is tough, but Mould says Amerisur Resources (LON:AMER) is better placed than many of its peers due to net cash and no debt. This is the lesson, perhaps, to be learned by the big players who rely on the goodwill of dividend payouts to appease investors.