1 Key Lesson From The Massacre Of The Cheapest Oil & Gas Stocks

Back in 13 January 2015, I had published an article titled Why You Should Proceed With Caution with the Cheapest Oil Stocks.

In the article, I highlighted five oil & gas stocks that had the lowest price-to-book (PB) ratios back then. The quintet are, namely, JES International Holdings Limited (SGX: EG0), Swiber Holdings Limited (SGX: BGK), Hoe Leong Corporation Ltd (SGX: H20), EMAS Offshore (SGX: UQ4), and Ezra Holdings Limited (SGX: 5DN).

They were really cheap shares back in the day, as all of them were priced at between 0.18 and 0.37 times their book values. For reference, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the fundamentals of the Straits Times Index (SGX: ^STI) – had a PB ratio of 1.3 at that time.

But despite their low valuations, I had pointed out that the five stocks may be risky. Here’s how they performaned after nearly a year:

JES, Swiber, Hoe Leong, EMAS offshore, Ezra share price changes
Source: S&P Capital IQ; author’s calculations (click table for larger image)

Four of the five shares have been massacred, with the average loss for the group of five coming in at 42%. This compares with the Straits Times Index’s loss of ‘only’ 14% over the same period.

Investing is supposed to be a long-term game, where a meaningful measurement of performance can only be done in timeframes that are measured in years. But, I think the experience of the five oil & gas stocks since January still contains an important takeaway for investors:

  • Shares with cheap valuations can still become painfully expensive losers. The jury’s still out on whether JES, Swiber, Hoe Leong, EMAS, and Ezra will be good investments eventually. But, what has transpired over the course of nearly a year so far is a good reminder that investors have to be aware of how cheap rubbish is still rubbish – not every cheap-looking share will be a bargain.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.