Statoil: Norwegian Energy
02/27/2004 12:00 am EST
"We're just at the beginning of a massive move for the entire energy complex in 2004 and 2005," says Eric Naimer-Roseman, editor of Commodity Trend Alert. Here, he provides an overview of his bullish position and a lesser-known play on this trend.
"The kind of environment I see for oil and other energy-related products is extremely bullish because of a combination of factors now running like a freight train that's completely out of control. The US continues to deplete its International Petroleum Reserves at an alarming rate. Reserves now sit at 1975 levels. America is still highly dependent on foreign imports from countries like Venezuela, Saudi Arabia, and Iraq, where supplies are not reliable and in fact, will likely dwindle due to political instability in these countries. In my opinion, Saudi Arabia is probably the next domino to collapse in the Middle East, which could portend huge problems. I give the chances of a regime collapse in Saudi Arabia better than 75% by 2007, or sooner. In addition, China is probably hoarding an incredible amount of oil. Only a few years ago, China was a net exporter of oil. In less than 36 months, China has become a substantial net importer. And while I'm not claiming to being an alarmist, the bottom line here is that we are smack right in the middle of an energy crisis.
"We hold more long positions in the energy sector than any other individual commodity area in 2004 and I continue to delve around the globe for companies with strong management, proven reserves in the oil business, and solid fundamentals. Based in Norway, Statoil ASA (STO NYSE) is a great oil company, which operates in 25 countries and is a large international retailer of petrol and oil products in Scandinavia, Ireland, Poland, and the Baltics (as well as Iran). The company has an impressive 19% of its market-cap in cash, or $2.08 per share. Return on equity in 2003 was a wicked 40% and the stock is still very cheap, trading at just 10.6 times current earnings. As the oil bull market continues to reach new heights, you want to own the right companies at the right price with proven reserves. Meanwhile, smaller producers, like Statoil, are in a better position than the large majors because they can still grow production while still capable of finding new oil reserves to replace lifted reserves, something the majors are having a big problem with in 2004. Buy up to $13 and place a 15% stop-loss on your purchase price to protect your downside losses. This is a very strong company with an excellent balance sheet, capable management, and a cheap multiple. I love oil, and Statoil is a great investment at this price."