STO - Long Term Buy

STO must be a tough company to run at the moment, everywhere you turn there is negative press on oil, negative press on gas.

To me though the key is to take a longer term view of the situation. Commodities is a cyclical business, it always has been and always will be and right now we are at or getting close to the bottom of the cycle. How much further can oil really fall from here, the bulk of the downward move is already done. The situation with OPEC will resolve itself at some stage because it's not in their interests for the oil price to continue at these levels indefinitely. In fact the economies and spending of the OPEC nations will drive a result regardless of what OPEC do, the governments of these economies will lose control of power in time if they don't resolve the situation. They cannot sustain their current levels of spending with oil at current levels and in countries like Saudi and Iran money is needed to maintain control.

My point is at some point the cycle will turn, it may not be in 6 or 12 months but it will happen at some stage. With oil so cheap the drive to find alternative energy sources will ground do a halt. Already you are seeing many drilling and exploration projects being mothballed (including shale projects), so you will gradually see this lack of new projects impact on the supply of oil.

So in my opinion if you can find well capitalised, well managed companies that can survive through the bottom end of a negative cycle then they will come out the other end more efficient and more profitable.

No matter how well run STO was it couldn't avoid getting dragged down by the collapse in Oil prices. To me the way they have reacted is sensible. They have long term sales contracts in place and to weather the storm they have raised enough capital to sustain themselves for a reasonable amount of time.

The management has been critised for not accepting the takeover bid. But to me it is telling that takeover bid has come at all when overall sentiment for commodity stocks is so low. In short they are a target because they have good assets and are currently cheap. In my view it takes courage from management to take a longer term view (and raise capital) rather than the easy option of selling out right at the bottom of the cycle.

There is obviously some fundamental problems in energy and commodity markets at the moment of this there is no doubt. But at some stage this will flip, it could be months or even years but at some stage it will happen.

I am not positive on STO in the short term, there are too many speculators trading it and too much negative sentiment surrounding it. But at current levels in my opinion it's sensible to start accumulating with a 3 to 5 year time frame in my mind.

My opinion only and do your own research! I would be interested to hear the opinions of others.