The world’s largest company is about to go public…

Saudi Aramco has an estimated market cap of $2 trillion. That’s more than twice the size of the largest U.S. company—Apple.

Saudi Arabia owns the company, which is the world’s largest oil producer. Some call it the country’s crown jewel.

But now the government wants to take Aramco public. When it does, it will be the biggest initial public offering (IPO) ever.

Today, I’m going tell you how to profit from this historic event… And it won’t be to buy the IPO. (In fact, I recommend you avoid buying shares when they go public.)

Instead, we’ll play this another way. You see, the IPO will have ramifications across the oil market that we can take advantage of. More on that in a moment…

Setting the Stage for the IPO

The Saudi royal family runs Aramco as a virtual monopoly. But the government wants to diversify and modernize its nationalized economy.

That’s why back in January 2016, the government announced Aramco would go public. And on January 1, 2018, it revealed more details…

The country plans to sell 5% of Aramco at $100 billion. That would give it a total valuation of $2 trillion—nearly five times the size of ExxonMobil.

In my view, the Saudis are waiting until this year to offer an IPO because the timing wasn’t right in 2016.

You see, for an oil company to have a successful IPO, it needs high oil prices. And over the past seven years, oil prices have been falling.

Higher oil prices will make an oil company more profitable… And if the company is more profitable, investors will pay more to buy its shares.

And behind the scenes, the Saudis have been working to increase oil prices.

Saudi Arm-Twisting

Saudi Arabia needed oil prices to rise before it launches Aramco’s IPO.

So in November 2016, the government pressured the Organization of Petroleum Exporting Countries (OPEC) and Russia to cut production.

As you can see in the chart below, OPEC oil production has dropped 1.7 million barrels per day since 2016.

Look what has happened to oil prices since then…

That’s no coincidence…

OPEC plans to extend production cuts through 2018. I predict these cuts will last until Aramco’s IPO later this year or early 2019.

(The government is still deciding whether to list shares in New York, London, Hong Kong, Tokyo, or its own stock exchange. That decision can take months.)

That means for the next year (or longer), we’re likely to see elevated oil prices. And this is good news for energy companies.

How to Profit in the Meantime

Higher oil prices will be a tailwind for the entire oil industry.

The best way to gain exposure to this sector is through the Energy Select Sector SPDR ETF (XLE).

This fund holds many of the world’s largest oil producers and suppliers, including ExxonMobil, Chevron, and Schlumberger.

If you want to profit from the biggest IPO in history, a basket of oil companies is the safest way to go.


Nick Rokke, CFA
Analyst, The Palm Beach Daily


Two Reasons to Keep Your Guard Up

I spoke to a lot of people last Thursday night. Everyone is worried.

Most folks are worried about the possibility of a market crash. They have too much exposure to stocks (many were deeply stretched out on margin). And they want out.

But some folks were worried about something different. They didn’t have much exposure to the market at all. They’re looking to buy into this correction. But they were worried they would either be too early, and suffer as the correction worsened, or that they’d be too late and miss their chance to buy.

To the first group… a crash could happen. But it’s a low-probability event. Betting on it would be similar to betting on one number on a roulette wheel—a roulette wheel with 1,000 numbers.

But if you’re losing sleep worrying about it because you have too much exposure, then you need to lessen your exposure. You have too much risk. It’s messing with your emotions. And your emotions are going to make you do something unwise. Trim your positions to the point where you can sleep easier. And swear off ever borrowing money to buy stocks.

To the second group… forget about the idea of buying into this market right at the bottom. It’s not going to happen. You’re either going to be early, or you’re going to be late. Define several points at which you are willing to buy and then slowly buy as those targets are met. You don’t need to put all of your money to work all at once.

As I told my Delta Report subscribers before the market opened Friday morning…

Personally, I bought some stocks yesterday. I put a little money to work when the S&P hit the 2650 level, and I put a little more money to work at 2595. If stocks keep falling from here then my next target is 2535.

After Friday’s dramatic reversal off the 2532 low on the S&P, folks are breathing a sigh of relief right now. But let’s not drop our guard too soon.

There’s a lot of emotion among investors and traders right now. So we’re probably going to get some more wild swings over the next few weeks. Look for the S&P 500 to trade in a large trading range between about 2580 on the downside and 2730 on the upside.

If you’re in the first group I mentioned above, then you should get a chance to lighten up your stock exposure at slightly higher prices. And if you’re in the second group, but didn’t put money to work last week, you should get another chance to do so at slightly lower prices in the weeks ahead.

Jeff Clark

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