A Core Play on Oil

03/31/2006 12:00 am EST

Focus:

Lawrence Edelson

Editor, Real Wealth Report

"The great oil boom has only just begun, and I’m convinced that oil prices are about to soar yet again," says Larry Edelson, editor of The Real Wealth Report. Here, the expert in natural resources looks at an oil ETF as a core holding.

"One reason for my bullishness on energy is China. There are currently less than 30 million cars on Chinese roads, scarcely 1.6 cars for every 1,000 citizens. But more than 22,000 new cars are hitting the Chinese pavement every day of the year. This kind of explosive demand from a nation of 1.3 billion people can only mean one thing: An explosive demand for energy for years to come.

"And China has a huge competitor in its race into the 21st century: India, with one billion citizens. That’s more than three times as many consumers as in the US—and India’s economy is growing more than twice as fast as ours. While demand for energy is destined to continue skyrocketing for years to come, the earth’s supplies are running dangerously low.

"Meanwhile, Iran is on a collision course with the West over its nuclear program, Saudi Arabia’s oil facilities, the largest in the world, are being attacked by terrorists, and nearly all oil production in the region could be in jeopardy if Iraq plunges into civil war. We see the same pattern in Nigeria, one of America’s largest oil suppliers. We see it happening in Ecuador and Venezuela. Everywhere, revolutionaries and terrorists are transforming oil into their economic weapon of choice.

"Overall, none of these ‘energy hot spots’ are going away soon. And all this is very bad news for anyone who’s still praying for cheap oil. I love energy stocks right now. To me, they are a no-brainer. Every portfolio under the sun should have long-term core holdings in energy. One such core holding to consider is the Select SPDR Energy ETF (XLE ASE). The exchange traded fund is largely comprised of the top ten oil and gas companies in the world, with names like Exxon Mobil, Chevron, etc. Also use a protective sell stop 15% below your purchase price."

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