Four Strategies for Energy Investors

02/16/2015 9:00 am EST


Jim Powell

Principal Analyst, Global Changes & Opportunities

Energy stocks remain at the top of our buy list. We’ve seen many downturns in the energy cycle and they have always been followed by even bigger upturns, recalls Jim Powell, editor of Global Changes & Opportunities Report.

The long-term global appetite for energy knows no bounds. The oil price rebound this time should be especially sweet because a large part of the decline was due to political, not economic, forces.

The Saudi’s in particular are keeping prices low to help Washington raise the pressure on Putin in Russia, to keep Iran in the poorhouse, and to hurt the country’s energy competitors that need higher oil prices to survive.

Low prices are also causing energy companies to postpone many exploration and development projects. When demand returns to normal, there won’t be much extra supply coming online for several years. The result should be another oil price spike.

Boom and bust, boom and bust, that’s why energy can be so profitable for investors who know how to use the cycle.

There are three time horizons to choose from with energy investments:

1. For the best chance to see growth right away, stick with our two pipeline companies, Kinder Morgan (KMI) and TransCanada (TRP) that are paid by the volume of oil and gas they transport, not their prices.

Since energy demand increases when prices decline, the pipeline companies should recover quickly. Valero (VLO) is in a similar position regarding rising demand for refined products.

2. If you are looking for strong rebound profits when energy prices start to recover, I continue to recommend ExxonMobil (XOM) and Cheniere (LNG). I consider both stocks to be slam dunk plays for patient investors.

3. If you want the highest profits, and you are willing to wait longer to get them, I recommend the oil exploration and development company Diamond Offshore Drilling (DO). Ditto for First Solar (FSLR). Both should come back into the limelight when it appears the cheap energy party is ending.

4. If you would prefer a diversified rebound investment, the best ETFs are Energy Select Sector SPDR Fund (XLE) and Market Vectors Oil Services (OIH).

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