Oil Triple Play

05/14/2004 12:00 am EST

Focus:

Oil-related investments have been at the top of our advisors' lists for the past year, and the sector remains a favorite. Here, Eric Naimer Roseman offers an options play on crude oil, Martin Weiss picks a tanker play, and Lou Dobbs opts for a large-cap energy bet.

(For more on the advisors below, please click on their photos.)

Roseman, Eric"Oil at $50 is a real possibility," says Eric Naimer Roseman, editor of Commodity Trend Alert. "Despite a decline in other assets, oil prices have continued to trade with strong support over $35 per barrel and are heading shortly to take out very strong resistance at $40 per barrel. There is absolutely no doubt in my mind that we are in the midst of an oil crisis. The government is playing a ‘just-in-time’ inventory management game with its strategic oil reserves, and there is no room for error. Meanwhile, the world is running out of oil. The rate of discoveries around the globe has plummeted in recent years. I think by 2006, if not sooner, we’ll have a major world energy crisis on our hands. Oil is the best and most bullish commodity right now. The charts for light sweet crude are just terrific. I think we’ll take out the $40 per barrel resistance area very soon, if not $45. We'll probably see $50 oil over the next 12-24 months. The best way to play this trade is with futures options. We recommend that speculators buy the March 2005 40 Calls on light sweet crude oil, which recently traded at an ask price of $0.82."

Weiss, Martin Meanwhile,  Martin Weiss, editor of Safe Money Report, suggests looking at an oil tanker firm. He explains, "Investors can consider a moderate position in Tsakos Energy Navigation (TNP NYSE), which operates a fleet of 28 modern tankers that transports oil all over the world," The company’s business model is very simple: The more oil it transports, the more money it makes. Typically, a Tsakos vessel receives around $100,000 a day to carry the oil and $65,000 a day on the return, while its break-even cost is only $22,000 a day. So, as long as the company can keep its ships busy, its profits will continue to flow. And for 2004, it already has 70% of its operating days booked. Here's the kicker: The International Maritime Organization, an agency of the United Nations, has mandated the retirement of every single-hulled oil tanker. By the end of 2005, the oldest single-hulled ships must be junked and all will be banned by 2010. That's where the Tsakos tankers have a major advantage: Their average age is only 6.8 years, and 92% of the company's fleet is already double-hulled—substantially above the 42% industry average. The shares are trading for only seven times 2004 earnings and pay a $1 per share dividend (3.3% yield). Buy TNP at $28 or lower. But if the stock falls to $23 or lower, sell."

Dobbs, Lou"We’ve talked recently about the high energy prices we’re seeing these days," says The Lou Dobbs Money Letter. "These higher prices cost us more as consumers, but we can try to offset the increased costs by profiting from the same trends that are driving prices up. In fact, energy is the top-performing market sector this year. I expect the trends toward higher energy prices to continue for the foreseeable future, and I think most investors would do well in maintaining a position in select energy stocks. The latest addition to our list of stocks with long-term wealth-building potential is Duke Energy (DUK NYSE),  a large, well-established company. However, until recently, it hasn’t been high on anyone’s list. But things are different now, thanks to a new and innovative CEO. In fact, he’s agreed to forego an annual salary for three years, receiving compensation in the form of stock instead. That means he doesn’t get paid unless investors also get paid in the form of a rising share price. Plus, the stock pays a nice dividend, so investors can earn some money while this turnaround plays out over the next few years."

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