With oil back rolling over again CNBC interviewed guru Mario Gabelli (Trades, Portfolio) and prodded him for his picks in energy. Gabelli launched into a one-minute crash course on how to find great investments in the energy space in this market. His mantra is simple:
Big companies will find oil on Wall Street before digging for it again.
If I understand him correctly, it comes down to this: He expects an active M&A market in which we should be looking for small- to medium-sized companies that have positive cash flows even at low oil prices and avoid companies focused on the exploration for a while.
The one pick he gave was Flowserve (FLS, Financial) because it has all the characteristics he is looking for –Â a moat, barriers to entry and it is way down because of cyclical dynamics.
Interestingly it’s one of the three companies Matthew McLennan named earlier this month as well. McLennan liked the company a lot because its end market is energy related, but its customers are mostly in refining, which is not as cyclical.
Flowserve has nearly a $6 billion market cap with a limited amount of long-term debt on its balance sheet, and it trades at a P/E of 17x, P/FCF of 16x and at 3.5x book. It is fairly popular with gurus as David Dreman (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Brian Rogers (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Jim Simons (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) are all invested among others.
Gabelli briefly addressed the expected direction of oil prices as well, which he expects to go up after U.S. production goes down and demand comes back.
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