Three Ways to Play Energy’s Rebound

09/25/2008 12:00 am EST


Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says energy will rally again, and he has three recommendations.

It’s coming to light that the recent drop in commodity prices was due to an overconcentration of positions held by hedge funds and similar money pools. Such concentrations, combined with the elimination of long-held trading standards like “the uptick rule,” are a sure formula for volatility and mischief.

There is certainly some monkey business afoot. I have no doubt that we will see more bear (and bull) raids in the future, but artificial manipulations—be that in currencies, stocks, or commodities—have always had a temporary effect on price. If you can exploit the fear, you can take advantage of these events.

As for the dollar, on a long-term basis, 80.00 [in the US dollar index] should offer stiff overhead resistance, and I look for it to revisit its lows during the first quarter of next year. That assumes we cruise along as we have been and there are no surprises on the political or military front to accelerate the decline once it begins. I truly think we are looking at the best buying opportunity in the metals since the late 1990s.

Crude oil has dropped lower than the $108 I expected (it fell as low as $91 a barrel, but traded at around $107 Wednesday—Editor), but I like all of the energy issues on our list. Three come to the forefront at this point in time.

The first is Apache (NYSE: APA). Apache operates in relatively “safe” areas, and they are masters at revitalizing old fields and maintaining reserves. They held up better than I expected as crude broke through $100 a barrel. (It traded at around $113.50 Wednesday—Editor.)

Second, income investors should consider Blackrock Global Energy and Resources Trust (NYSE: BGR). I am dropping the downside buy price to $26, and you should now look at [that] as a maximum price to pay. (It traded around there Wednesday—Editor.) The indicated yield is above 6% at the current price.

My third choice in the energy sector is for those willing to take a longer term stand on a more speculative issue with great growth promise. It is Headwaters (NYSE: HW). They are forging ahead with their clean coal and coal to fuel technologies—not just in the lab, but in the field as well.

From a technical perspective, Headwaters has avoided the weakness suffered over the last couple of months in the energy stocks. Headwaters is actually about 25% higher than it was when the commodity market began its correction this summer. I am reinstating the “downside buy price” at $15, which is the maximum you should pay. Don’t chase it further than that. If you want to go for this one on the cheap, there should be strong support at $12. (It traded around $14 Wednesday—Editor.)

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