Special Report: Fuel Up on Oil & Gas

11/14/2003 12:00 am EST

Focus:

Oil and gas remain a favorite sector among the leading advisors. Ken Kam and the top stock pickers from Marketocracy --as well as  Richard Moroney --select different oil tanker operators. Neil George  highlights an energy growth stock. Richard Young selects the "best" energy company in the world. Ian Wyatt opts for a restructuring play, while Richard Band selects favorites in both oil and gas.  (For more on the advisors cited below, please click on their photos.)

Kam, KenMarketocracy --which monitors the performance of 60,000 virtual fund portfolios--has developed an exciting new service called Stock Alerts, which looks for stocks that are being bought by the best performing of the portfolios, while being sold by the rest. Ken Kam, manager of Marketocracy's Masters 100 Fund, says, "Nordic American Tanker Shipping Ltd. (NAT NYSE) leases and charters double-hull Suezmax oil tankers. The shares have dipped from over $16 per share this summer, down to nearly $12 at the onset of October. The best performing stock pickers increased their position by 40% recently as the price rose from its low for the year. These purchases have allowed NAT to become a top 20% holding in the 'best portfolio'. Meanwhile, when the price bounced, the 'rest' reduced their exposure to NAT by 11%. The stock is rated as a strong buy."

Wyatt, Ian

 "Even though we generally focus on high-growth situation, we also realize the need for diversification, explaining why we have positions in several natural resource companies, such as Anadarko Petroleum (APC NYSE)," says Ian Wyatt, editor of  Growth Report. "Rising oil prices, increasing demand, less then expected production in Iraq, and significant oil and natural gas finds have propelled Anadarko's strong third quarter earnings, which rose 45%. Revenues for the quarter were up 39%. The company is in the midst of a restructuring directed at cutting overhead costs. Anadarko should greatly benefit as America's largest independent oil and gas producer. We believe that the stock has great upside potential."

George, Neil"In the energy business, Enerplus (ERF NYSE) has continued to see the market catch up with my valuation of the company," says Neil George in the latest update of the growth portfolio at Personal Finance. "This is resulting in some high prices for the stock. Some might be thinking that it's had its run. But from where I sit, while at a hair above twice book, it's still only about a third of the way toward its industry average in its home market. And based on trailing sales for its group, Enerplus is far from being anywhere near the top of its peers. Just be prepared for some bumps on the way--energy companies don't always sail smooth waters. Even as gas and oil prices have remained softer than recent highs, Enerplus continues to pump out its steady stream of profits. And unlike many of its traditional oil and gas companies, it's truly structured to pay its shareholders as the profits are passed right on through. So while it's run up a bit, Enerplus is still a buy."

Young, Richard"My first target for most investors is dividend-paying stocks; you will save yourself a world of hand-wringing and sleepless nights, by assiduously avoiding non-dividend-payers," says Richard Young, editor of Intelligence Report. "I have a four-part formula for picking dividend-payers. You want to look for companies that 1) raise dividends, 2) reduce shares outstanding, 3) reduce total debt, and 4) build up cash and equivalent reserves. One favored company of mine that meets all four tests is ExxonMobil (XOM NYSE). The firm has one of the highest return-on-capital-employed ratios in the oil industry, and 2003 will mark its 22nd consecutive year for a dividend increase. It's hard not to label XOM the world's best-run and most dominant energy company. Buy it."

Moroney, Richard"When hunting for value plays, the price/cash flow ratio is an invaluable tool," says Richard Moroney, editor of Upside. "By measuring how much you must pay for each dollar of per-share cash flow, the price/cash flow ratio can help uncover bargains. We have found two cash flow bargains that also offer solid sales and earnings momentum, with decent near-term profit prospects. OMI (OMM NYSE), which owns and operates crude oil tankers, notched September-quarter per-share earnings of $0.23, up from $0.04 in 2002 and $0.03 above the consensus estimate. Despite the company's much-improved results in recent quarters, OMI still ranks among the cheapest one-tenth of US stocks based on its price/cash flow ratio. The stock, trading at less than six times expected 2003 earnings, is rated buy."

Band, Richard"With winter approaching, speculators in the commodity pits are already buzzing over the possibility of a sharp run-up in gas prices," says Richard Band, editor of Profitable Investing. "To profit from the big picture, I suggest locking away a few shares of leading gas producers. Shell (SC NYSE), my favorite energy stock right now and a member of our model portfolio, pumps about 3.4 trillion cubic feet of natural gas per year. Buy SC below $41. Of course, Shell is primarily an oil company. For a 'purer' gas play, I recommend National Fuel Gas (NFG NYSE). NFG does it all, from producing gas to transporting it wholesale via pipeline and distributing it to retail consumers. Thus, NFG combines the growth potential of an energy producer with the high dividend yield (4.8%) and conservative business profile of a utility. Pay up to $24."

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