In a global market where most stocks are valued for a picture-perfect future of rising economic activity and flawless central bank policies, Canada's beaten-up energy stocks are a remarkable exception.
After Thursday's shocking selloff, when falling crude oil hammered even blue-chip Canadian oil producers, these stocks are becoming hard to ignore.
If you want to know what a panicking market looks like, this was it – and it should be embraced by anyone who can stomach the turbulence and focus on the longer-term recovery ahead.
Of course, the worries about oil and energy producers are real. They are being driven by concerns that the world is awash in oil, and OPEC is helpless to do anything about it.
Clearly, investors are rattled. After West Texas Intermediate crude dropped 6.3 per cent to a four-year low of $69.05 (U.S.) a barrel on Thursday, Suncor Energy Inc. and Canadian Natural Resources Ltd. – Canada's two biggest energy producers – fell 5.7 per cent and 7.1 per cent, respectively.
The worrywarts are nervous that oil producers will halt their production plans, hurting their revenues and earnings.
But these fears are getting old, given that crude oil prices have been sliding for some time.
Indeed, the S&P/TSX energy sector has fallen 22 per cent since the end of August, putting it deep into a bear market and back to levels seen in mid-2005.
Arguably, some pretty nasty scenarios for the oil patch have been factored into share prices already, leaving little downside risk and plenty of upside potential.
Where can you spot this potential? You don't have to be a technical wizard to recognize that this latest setback for energy stocks bears a striking resemblance to some of the moments of capitulation seen during so many other downturns – most recently, at the end of the broader stock-market correction in mid-October.
When sentiment is deeply depressed, the rebuilding can begin. And there are good reasons to expect better days ahead.
For one thing, there's nothing in Thursday's reaction from OPEC that looks particularly alarming.
The market already knew that the 12-nation oil producing cartel was heading into its meeting in Vienna with an impossible task: Cut production and surrender market share to upstarts in North America; or leave production alone and see the oil price fall.
Therefore, the decision to leave production levels alone hardly comes as a shock – and therefore the selloff that followed looks like noise.
What's more, the market is jumping from one fear to another – peak oil! Libya's production is offline! The economy is slowing! There's too much oil! – without really considering the longer-term picture: Oil is a limited resource and a growing global population needs a lot more of it, especially when the economy is growing.
Sure, Europe is struggling and Japan has fallen back into recession. But the United States is the world's largest oil consumer, and its economy is recovering at an impressive clip, providing key demand for oil. Some observers are even speculating that lower oil prices will give car sales a solid push, underlining the old adage that the solution to cheap oil is cheap oil.
Even though China's economy is slowing, its oil consumption continues to rise at a 4-per-cent clip. It has become the world's second largest oil consumer and now accounts for a third of the world's oil consumption growth, according to the U.S. Energy Information Administration.
In other words, it is hard to believe that the world will be awash in oil for long. Right now, everyone is ignoring this long-term demand picture for oil and obsessing over a short-term concern.
Investors are prepared for the worst. Scary? Sure. But that makes conditions for investing in Canada's energy sector look ideal.