"The cancellation of the Chrysler Group sale is just one example," said DiGeorgia. "Investors are simply too frightened to proceed and postponed a $12 billion sale of debt last week.
"Investors are showing a strong aversion for risky debt. It's apparent that the supply of unlimited cheap money to fuel leveraged buyouts and takeovers is drying up."
This isn't the case, according to DiGeorgia, in the oil sector, because these sales are based on cash, not debt or credit.
"Historically, Wall Street won't deal with the oil industry because it doesn't follow traditional rules governing growth and earnings," said DiGeorgia. "The oil sector's focus is on current and future reserves. These companies must continually replace reserves, and this is done through the acquisition of companies with reserves or innovative exploration methods."
DiGeorgia encourages investors to analyze these oil companies and points to the fact that in today's market a barrel of oil is going for $20-$30 in a buyout. He predicts that number will jump to $40 a barrel in a few years. He also urges investors to consider companies that are purchasing reserves, as opposed to those which are in aggressive exploratory modes. According to his research, oil costs approximately $21 per barrel to find, but just $12 per barrel to purchase. The value of these companies is apparent, he says, when considering that in 2001 it cost about $8 to find.
In analyzing these potential mergers & acquisitions, DiGeorgia urges investors to consider the following:
1. Levels of oil reserves as a benefit as opposed to natural gas reserves
2. Reserve life
3. Finding & acquisition costs
4. Market value per barrel
5. Replenishment projections
