A wipeout in the over-indebted U.S. energy sector is coming. Longtime PBRG friend Chris Mayer lists six companies you do NOT want in your portfolio…

From Chris Mayer, chief analyst, Bonner & Partners: There are six oil stocks that are almost surely toast by the end of 2016…

You can tell by their bond prices.

Bond prices are a clue to financial health. Firms usually issue bonds at face value, or par. But if the company gets in trouble, the market might discount the bonds.

For example, a $100 bond that paid 5% at issue might later sell for $10 if the market thinks the odds of repayment are very low. The firm still pays 5%, or $5. But because the bond trades for $10, it yields 50%.

Scott Fearon is a hedge fund manager and the president of Crown Capital Management. His fund has averaged 11.4% annually since its inception in 1991. And he’s had only one down year. His specialty is short selling, or profiting when a stock falls.

“Once bond yields surpass 50%,” writes Fearon, “the chances of a default and reorganization approach near certainty.”

Reorganization usually wipes out the value of the stocks. Bondholders get first crack at salvaging whatever value remains.

Today, Fearon points to six energy stocks where the bonds yield 50% or more: Basic Energy Services (BAS), Gastar Exploration (GST), Energy XXI (EXXI), EXCO Resources (XCO), Stone Energy (SGY), and W&T Offshore (WTI).

“Unless oil prices rally quickly back to toward $90 or more,” he writes, “every energy stock mentioned above will almost certainly finish 2016 at or near zero.”

I agree with him.

Reeves’ Note: Chris was a top corporate banker for a decade. He managed hundreds of millions of dollars. He had “golden handcuffs” and an executive pension… but he turned down a $950K-per-year offer from another investment bank to write his own investment newsletter. He preferred to share his expertise with Main Street, not Wall Street.

Over 10 years, Chris provided his subscribers with an average return of 28% per investment. (Some returned gains as high as 269%.) Now multimillionaire Bill Bonner—founder of Agora Inc.—is investing $5 million of his family’s trust in Chris’ recommendations. Click here to learn how to get into these positions—before Bill does.