My colleague Murray Dawes texted me last night. He wrote: Gold’s down!

That’s happening right on cue, as far as we’re concerned. Our last Closing Bell tabled this very idea.

That begs the question…

Where to look for some alpha in the short term, if not gold shares?

One idea might be oil and energy stocks.

Why is that?

The tariff pause between the USA and China, of course!

Granted, it’s only for 90 days, at least as of now.

However, the price of oil was just pricing in a trade war between the two biggest consumers in the global economy.

Any good news on this front is good for oil.

Further positive signals out of the trade talks could drive it up 10-20% over the next few weeks.

That said, I’m not sure I’ll chase this one.

I don’t really love the idea of buying into energy companies.

That’s not an environmental thing.

Here’s my beef…

Like all commodity stocks, they always seem to be missing production targets, or something is broken or not functioning properly, or some other issue that stops the damn thing from working.

Have I lost money on oil shares in the past?

Clearly!

In fact, years ago, one of my favourite small cap energy stock ideas had everything you’d want in a small cap speccy.

There was management with skin in the game, good leases in known oil country, a sound business strategy…and, get this…they hit a big pay day of oil…

…and STILL the share price didn’t work out long term. It eventually delisted.

I’m still in a kind of shock about it.

It just goes to show, nothing is certain in the stock market.

One overarching problem, I think, is the market is less likely to herd into oil companies (without a big rise in the oil price) because it’s perceived to be an “ex-growth” industry.

Whether that perception is correct is an eternal question…

The world still uses 100 million barrels every day, and oil investment now seems perpetually under investing in future supply.

However, you can wait a VERY long time for this idea to pay off. I was writing about underinvestment in oil supply in 2018. That was seven years ago!

Barrell counting the energy sector just doesn’t work. The oil industry is a complex beast, impacted by many shifting variables.

Another problem, too, is that the price on Wall Street is driven in part from fundamentals but also the level of trader positioning.

In other words, if investors and traders don’t buy it up in a big way, oil is unlikely to go higher in the short term.

The other big wild card with oil is some sort of energy disruption, like the drone attack on Saudi oil facilities a few years ago…or a Middle East war.

Again, you can wait forever for something like that to happen, and even then the price spike might not even last that long, depending on events.

This might all sound jaded from experience. That’s a possibility.

My colleague Greg Canavan, a true contrarian, is positioning in a spread of energy companies to take advantage of the very investor disinterest and lack of supply growth I just described.

We know, too, that one of Warren Buffett’s last moves was to load up on American energy.

So, you do need to know what type of investor you are when it comes to something like this. I don’t discount the idea energy shares could be good buying here.

Personally, I prefer something more durable and permanent than the volatile oil price.

You can learn more about what that is here.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Murray’s Chart of the Day –
Google

By Murray Dawes, Tuesday, 13 May 2025

The chart above shows you the relative performance of some of the magnificent seven, since Google [NASDAQ:GOOGL] hit its all-time high in February.

It is interesting to note that Google is underperforming the other stocks markedly.

As the repercussions of AI start to come into view, it is becoming clear that Google’s river of gold from internet ads could be under threat.

Companies are reporting a sharp dive in clicks on their websites as AI dishes up answers quickly without the need to visit sites.

Could this be the beginning of a serious disruption to the way Google makes money?

As Andrew Birmingham from mi-3.com wrote:

For two decades, digital search has been an intent goldmine. A user types a query. Advertisers bid for visibility. Publishers optimise for rankings. But LLMs flip this.

‘Find me a chocolate chip cookie recipe,’ Evans said, ‘and the problem, of course, is there’s a million chocolate chip cookie recipes on the internet, because that’s how search works. You just go to the LLM and say, ‘Give me the recipe.’’

No links. No clicks. No bidding war. This seemingly benign shift in user behaviour, away from queries toward direct Q&A, threatens the core mechanics of the search ad model.

As a company starts to underperform it can pay to take note of how it behaves in rallies.

Last nights price action was a good hint that investors aren’t lining up to buy Google.

Amazon [NASDAQ:AMZN] was up 8%, Apple [NASDAQ:AAPL] was up 6%, Meta [NASDAQ:META] was up 8%, but Google was only up 3%.

If markets do turn back down again soon my guess is that Google will continue to underperform.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps