The investment environment for oil and gas producers remains bullish in 2008, as record oil prices hit the headlines almost daily … and analysts see many more to come. Since Goldman Sachs predicted a two-year move to $ 200 in commodities, people have regained confidence in buying companies that deal with oil and its cleaner alternative, natural gas.
There have been many skeptics that you should be aware of. With the latest dramatic rise in commodities, many investors are claiming that prices are being artificially inflated. While that may be true, that doesn’t mean they won’t continue to artificially inflate … making you money along the way. Despite how expensive all of these companies seem, I think the uptrend is going to continue … and it’s always better to get in on the action than to be sitting on the sidelines, sucking your thumb. 😉
The stock market performance of the net imbecile
In January, I advised buying four energy superstars, all of which would have already made double-digit profits to you. Transocean (NYSE: RIG) is up 15.20% since my recall at $ 140.10, and I’m still optimistic about their oil drilling capabilities after their fantastic first quarter results on May 07, I maintain a ” purchase “from the stock. If you bought Schlumberger (NYSE: SLB), you would be sitting on a nice 10.42% profit from my original pitch at $ 96.57. Schlumberger is the world’s largest petroleum services company, so if you like the security of a big business … you’ll love SLB, which still has a lot going for it. My best recommendation in the industry was with Halliburton (NYSE: HAL) which would have given you a 31.70% return since my purchase at $ 37.26. I think it might be time to take the profits off the Halliburton table by switching to another energy store. The benefit is still there, but I think your money would be better off elsewhere. Finally, XTO Energy (NYSE: XTO) has completely torn it apart since my pitch at $ 53.88, up for a 25.95% profit. XTO is an oil and gas exploration company on which I maintain a buy rating, always very bullish with a lot of leeway.
Where to go now
The energy sector as a whole has skyrocketed in recent months. But I don’t want you in the companies that are the core culture of energy, your Exxon Mobiles and your Chevrons … go to the source! I’m talking about the guys who directly drill for oil and natural gas, making a profit. Now that you’ve heard the drillers … I want you in these hybrid oil / gas companies like XTO Energy to capitalize on both markets and diversify the risk. Personally, I am much more optimistic about natural gas than about oil. I think gas is much more valuable as a source of energy, but it was not discovered compared to oil by the media, and it has not seen the same appreciation of the value it deserves. So here are some hybrids of the cream of the crop with a favorable inclination towards natural gas!
Chesapeake Energy Corp. (NYSE: CHK):
Chesapeake is the largest independent producer of natural gas, but still has a lot of risk covered to offset the volatility factor. He is the number one driller with 254 rigs and has beaten the market time and time again with his superior hedging strategies. You can count on the fact that they have increased their production by a higher percentage than any other large cap competitor. A lot of concerns about the share price are directed at Chesapeake, but they have exceeded expectations time and time again, so you can sleep soundly with the fact that they have given more solid advice than any competitor out there. My opinion. There are huge reserves that CHK have actively tapped, and I believe the best is yet to come.
Anadarko Petroleum Corp. (NYSE: APC):
Well, they crushed the earnings consensus of $ 1.22 / share with $ 1.55 / share … can’t say you couldn’t expect such stellar news from a large company that has been growing faster than the industry for some time now. This deal is not yet complete, and after an upgrade by Lehman Brothers on May 16, it’s clear that investors are still seeing the bright side. After earnings, the skies are sunny all year round for Anadarko … a company that trades at just 15.5 times earnings compared to a sector ratio of 23. APC has proven to investors that it can be the better in a fast growing industry. .. and I still buy.
Helix Energy Solutions Group (NYSE: HLX):
Helix produces a lot of oil and gas in the Gulf of Mexico, and I think they go largely unnoticed in the energy industry due to their low market capitalization. Their new Danny-Noonan fields should really boost profits for 2009, and could even be a catalyst in 2008. But more importantly than new exploration activity, Helix took a hit that I think is undeserved, mainly because of the way their oil service unit relates to their exploration unit. As a result, Helix has one of the most attractive valuations in the industry. While they might not have the profit margins to beat the competition, HLX is a silent assassin with a low P / E of 11 and a chip on their shoulder.
Apache Corp. (NYSE: APA):
High operating costs and expenses were more than offset by profits from high oil and gas prices as well as higher volume production in the first quarter. Apache has one of the best managed companies in the industry, and I see them outperforming the industry over the long term… despite the fact that there are close price targets. Apache has benefited like everyone else from five major discoveries, and I think APA can fully exploit its North American reserves to take advantage of a downturned market in 2008.
The average growth rate of natural gas drillers is 15%, so it is very difficult to find a loser in this environment. I see the following companies surpassing the industry in 2008: Chesapeake (CHK), XTO Energy (XTO), Anadarko (APC), Helix (HLX), Transocean (RIG), Schlumberger (SLB). I assess these energy stocks as having a market performance according to their valuation: Apache (APA), Halliburton (HAL), Noble (NE), Devon Energy (DVN), Southwestern Energy (SWN).
One thing is for sure, oil and gas explorers are surpassing almost every corner of the market. These stocks are poised to outperform in 2008. My investment strategy would be to wait for a $ 5-10 decline in the price of oil before pulling the trigger on any of these companies, mainly because I thinks the ramp-up has been a bit too fast.