Technical Opinion
Total SA is a French, multinational oil and gas producing company whose stock price has been going down since 2014. From a technical perspective the stock is still in a downtrend and may continue lower, but not much lower, as traders expect that the stock will set some kind of first bottom at a phase where the 50 week moving average will actually be below the 200 week moving average. Being an oil producer company, its stock price goes much the same way that crude oil goes, because these companies maintain large reserves of extracted crude oil, as well as oil that will be extracted easily in the near future. Crude oil price itself is tied in a trading range now, trading from around just below $40 to the low $60s, and this is bound to continue for a while, possibly as long as one year. Finally crude oil will start a technical rally some time in 2016 or 2017. When this happens all good oil stocks will rally significantly and Total is one of these stocks. Some short term traders and analysts believe it’s a Hold, they are neutral on this stock for the near term, which is understandable at this time, but the reality is that it has better price margins for a rally, and more specifically for a two stage rally. The first stage will be from the new lows, possibly around $40 or lower, all the way to $50, this can happen soon regardless of crude oil price being in a trading range of its own. This first stage rally is one of very low risk and good rewards for all traders. The second stage needs to be powered by rising crude oil prices, and it will be, and it will see Total’s stock price actually exceeding the $70 high, and steadily rising beyond that, over the next 3 to 5 years. So the stock is actually a safe buy for investors seeking long term stocks, having good prospects and limited risk. The consolidation area at around $50, has created a lot of value area, where buyers and sellers agree, when the stock rises decisively above this level, then $50 will become long term support. So it is important to pay attention as to when the stock price settles above $50 for good, and ignore the fact that the 50 day or week moving average may be below the 200 day or week moving average.
Total’s stock price has still some way down to go, but this decline is a buying opportunity, the value area at $50 will pull stock price higher again and again, even without crude oil rallying, and without stock price breaking through $50. This is important to both traders and long term investors seeking better entry points.
Fundamental Opinion
Medium term analysts are divided on Total’s stock, some are being positive and believe that the stock will beat the rest of the market, while others still see it as a hold, a pattern which agrees with the overall technical outlook. The company maintains a net annual operating profit margin of over 13%, and a growth rate of 5%, which are acceptable figures in the oil industry. Total’s stock however is undervalued, as it is actually worth $90 when looking at 5 years down the line and today it is trading below $50. More specifically the stock will become overbought only when it rises way above $120 throughout the next 5 years, it will be neutral in the $90-$120 price range, and it will be under-priced below $90. It is therefore an excellent choice for long term investors seeking to invest in oil stocks and hold the stock until it becomes overbought. As a rule of thumb, oil stocks tend to become overbought when they exceed their valuations by a great margin, and this happens when crude oil rises too much. In this case crude oil would have to rise to $130 or more a barrel, this will be the first warning that oil stocks start to become overbought again. The next rally in crude oil is likely to be a multi year rally, where even at over $100 a barrel, prices will not fall back down again. This has to do a lot with the Chinese economy in particular, but it is highly unlikely that will ever see $40 crude oil ever again. Actual base price for crude oil will be $80 – $90 in the future, and prices will not drop below these levels again. Good oil stocks therefore will make their lows when crude oil will be approaching $90 or $80 at worst, and then continue higher again. There is nothing stopping Total’s stock from reaching and exceeding the $90 valuation that it has. This makes Total a good choice for all kinds of long term investing, including retirement investing requiring ultra low risk, and price resilience, as well as attractive dividend investing.
