Several leading financial authorities offer a variety of ways to invest in the energy sector. Martin Weiss suggests a pair of domestic energy stocks. Richard Driehaus suggests two firms that explore in China. Jamie Dlugosch goes with an oil refiner. And John Buckingham picks an oil tanker operator. (For more information on any of the advisors below, simply click on their photos.)
Despite his expectations for deflation, a bursting of the housing
bubble and a bear market in equities, Martin Weiss, editor of
Safe Money Report,
still finds select opportunities. Last year, he recommended an oil trust which
has since returned 68%. Now, he says, "I've just completed a search of all
publicly-traded energy-related investments and have come up with two other
opportunities that I believe have the potential to do equally well." Weiss
explains, "Kinder Morgan (KMP
NYSE) operates
pipeline systems. In the 12 months ending June 2003, revenues were up 53% and net
income rose 17%. KMP pays a health quarterly dividend yield of 6.4%. Buy now,
but don't pay more than $42. Pogo Producing (PPP
NYSE) explores and produces oil and gas. Profits are up 179% since last June,
and its share price is on a roll as well. Buy now, but don't pay more
than $47."
Evan Simonoff, editor-in-chief of Financial
Advisor, interviewed Richard
Driehaus, one
of the
few growth managers to bail out of tech stocks just
before the bubble burst in March 2000. Simonoff asks, "Some say that China is at the same economic point that
Japan was in 1960 when Japan's appetite for oil increased four or five times.
If China does likewise, could that send demand for energy through the
roof?" Driehaus responds, "That's a good point, and it's why we have a big position in
China Petroleum (SNP
NYSE). The fear of a shortage or
tightening in physical supplies of basic materials in the Far East is a real one. My
feeling is that those companies that have energy placed in the Far East will be good long-term
buys, and the ones that will be most interesting are those that
are doing exploration and development over there. One firm we find interesting
is Ultra Petroleum (UPL
ASE). It explores for energy in China, as well as the
western US."
"Tesoro Petroleum (TSO NYSE) is one of our favorite undervalued selections," says Jamie
Dlugosch, editor of The Rational
Investor.
"Even after impressive gains in 2003, the stock is
still undervalued and well below our target price of
$20 per share. The company is expected to earn $1.23 in
2003 and $1.59 in 2004. At current levels, that gives the stock a P/E multiple of 7 and 5, respectively, which are much too
low for an oil refiner that has rebounded nicely
from the operating difficulties of
the late millennium. We would be comfortable buying up to $10 per share. Given that price stability has returned to the oil market,
demand is increasing and world economies are
improving, Tesoro is positioned to deliver superior
returns."
"We continue to think
that industry conditions in international crude oil transportation services
remain quite favorable," notes John Buckingham, editor of The
Prudent Speculator. OMI
Corp. (OMM
NYSE) is docked on our recommended list. OMI expects tanker rates for the
balance of 2003 to be buoyed by seasonally higher world oil demand and unusually
low commercial oil inventories in the U.S. and Western Europe. While we concede
that earnings in the sector have been notoriously volatile and that tankers
are a potential target for terrorists, we think that valuation of the stocks
in the sector are attractive, trading near book value and for single-digit P/E ratios.
We would buy the stock (with the symbol OMM despite the name OMI) up to $7.47
as it trades for just 8.1 times trailing 12-month
earnings."
