A Volatile Play on Oil
03/19/2004 12:00 am EST
Neil George, in addition to his role as editor of Personal Finance, publishes his daily ByGeorge!, an always intriguing and often controversial e-letter. His latest feature is a near-term bullish play on the speculative oil-service sector.
"Petrol prices continue to be firm. And one of the primary suppliers to the US petrol market is Venezuela, which isn't getting any more calm or more stable. In fact, the news coming out of Venezuela continues to worsen. Indeed, the country is ready for another coup–or worse–with a good fight to be had by the current president and his increasingly violent opposition. This is great for even the most troubled and conflicted gas and oil companies in the US, Canada, and beyond. In addition, as prices continue to remain buoyant, look for the most leveraged of the petrol businesses to get the biggest bang in the near term.
"Now these aren't the sorts of companies I like to buy and hold. From marginal producers to drillers and exploration and support companies, these are the sort that fare well quickly in flush times and get flushed quickly when prices turn. I've been reticent to recommend them, but given the continued bullish conditions for petrol, here's a near-term, higher risk market call to take a look at: Oil Service HLDRs (OIH ASE), which has been recovering and performing quite well for the past couple of months. The most risky and leveraged companies in the petroleum patch can be bought in this nicely packaged exchange traded fund.
"We caution that this ETF is very volatile and prone to big losses. For the unfocused investor, it goes up quickly and can go down just as quickly. As such, we consider this a higher-risk, shorter-term call. But indeed for the quick and active investor, it might be worth a further look as it trades now at about 74.50, and from my vantage point, it should hit 77 and then close at 85.50 or so. The downside would initially be around 63.50 and then 55.25."
Editor's Note: We would like to give our best wishes to Gregg Early, executive editor of ByGeorge! and KCI Publications' newsletters, and now proud father of Sofia Chance Early. All the best to Gregg and his family from everyone at InterShow!