With the oil price sinking another 3% overnight to just US$52.90 a barrel, shareholders in leading energy companies Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) are once again back in 52-week low territory.
In fact, over the past 12 months Origin has fallen 21.5%, while Santos has plunged around 52% which could arguably provide investors with the opportunity to acquire two leading energy players at attractive prices towards the bottom of the cycle.
Based on analyst consensus data provided by Morningstar, Origin is only expected to record a fall in earnings per share (EPS) of 7.8% in financial year (FY) 2015. Importantly, EPS is forecast to then see a 53% jump. Based on this FY 2016 forecast, Origin is trading on a price-to-earnings (PE) ratio of 12.1x.
Meanwhile, Santos is forecast to experience a more significant fall in EPS in FY 2015 of 49%. Shareholders will hope that the forecast for an 87% rise in FY 2016 EPS proves accurate. If it does, then Santos is trading on a PE of 13.5x.
When it comes to buying into cyclical businesses such as resource companies, the best time is generally when the underlying commodity price is depressed and at cyclical lows. Conversely the best time to sell is when cyclicals are at their peak.
With the oil price plumbing multi-year lows arguably the time is ripe for contrarian investors to weigh up the risks versus the potential rewards from buying into leading cyclical energy businesses such as Origin and Santos.
With the shares of Origin and Santos rebounding strongly after the oil price tumbled back in March, it could be appropriate for investors to consider if once again the recent oil price falls represents another good opportunity to buy.
