Energy Favorites from Marketocracy

09/10/2004 12:00 am EST


Ken Kam

CEO, Marketocracy, Inc.

"In one of the largest sector re-allocations in our portfolio all-year, we invested heavily in the energy sector during August," says Ken Kam of Marketocracy. "We've upped our commitment from 13.2% to 32.2%, making energy our largest sector holding."

"Energy has a number of drivers working in its favor at the moment. For starters, the price of oil has inflationary supply vs. demand pressures presently at work. As world-wide consumption grows, areas of the globe are experiencing supply shortages, a combination that is leading to higher oil prices and that will eventually lead to higher energy-related company profits. While this macro-economic analysis has filtered into the price of oil, it has not led to an equal rise in share price for the oil companies."

"Even though the price of crude has fallen recently, garnering much press attention in the process, the price of crude for delivery in the longer term has not dropped that much. If the long-term price of crude is higher than about $25 (the level most analysts were expecting at the beginning of the year), then the same analysts will have to ratchet up their expectations for profitability of oil producing companies. As long as prices for oil remain above $30 per barrel, a number of energy companies stand to perform very well into the future. We expect that the results of higher oil will be reflected in the earnings of energy firms beginning in the next two quarters. Here are some of our favorites:"

"NS Group (NSS NYSE) is a supplier to the oil & gas drilling industry, providing steel-based components used primarily in oil and natural gas drilling and production operations. They reported record earnings in the second quarter, which was their 6th consecutive positive quarter. The price of oil and gas has led companies to up their commitment to drilling and production, which has created quite a bit of upstream demand for NS Group's products. We've increased our position in NSS by 236% over the last 14 days in expectation of further growth ahead."

"Overseas Shipholding Group (OSG NYSE) is a bulk shipping company whose charge it is to transport oil and derivative products by tanker. The company and its stocks have had a particularly good run over the first 8 months of 2004. They announced record second quarter and 6-month income (ending June 30), and expect the run to continue into the third quarter as growing world oil demand is projected to continue to fill the coffers of the tanker industry. Accordingly, shares of the company are trading up nearly 30% for the year-to-date. Still, we like the company going forward, and have added 25% to our existing position over the last two weeks."

In another of its in-depth research products which assess the buy and sell activity of its monitored stock pickers, Marketocracy offers a weekly analysis that highlights those stocks being bought by the best-performing of its monitored investors, while concurrently being sold by the underperformers. Two energy trusts fall into this "best buy" category.

"Pengrowth Energy Trust (PGH NYSE) is a closed-end investment trust entitled to the net revenues generated by its petroleum and natural gas properties. In recent weeks, the best investors have been net buyers of PGH, growing their position by 16% at prices ranging between $15.20 and $15.80 per share. Over the same period, the rest have decreased their holdings by 1%."

"San Juan Basin Royalty Trust (SJT NYSE) is a trust that pays out income generated from oil & gas concerns on properties located in the San Juan Basin in New Mexico. At the end of July, the best were decreasing holdings by about 15%. However, the top group has upped their stake in the trust by 11% recently at prices between $26.93 and $28.92 per share. With the price of energy rising, and an increasing demand being placed on finding domestic sources of energy, we've increased our position in this stock by 33% in our portfolio."

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