Unlike previous market downturns, say 2008 for example, the economy remains strong and all preferred...
Buy Gas Low, Sell Oil High
06/08/2011 3:01 pm EST
Or do both without the mess of transporting volatile chemicals, with this company that uses natural gas from cheap, “exhausted” fields to produce much more valuable crude, says Ken Kam of Marketocracy in this exclusive interview with MoneyShow.com.
Ken, what do you think about the market? What’s your outlook here?
Well the market has been pretty volatile ever since the United States announced the capture and death of Osama bin Laden, but I really don’t think that that one single event is enough to change much of what’s been driving the market fundamentally.
What has been driving the market fundamentally?
Well, in a nutshell, it’s that the world’s economies are growing. I know it’s hard for many people to believe, but even if it’s growing slowly, it’s increasing the demand for energy and natural resources faster than the world is able to increase supply—and that is a good thing for people who are invested in those sectors.
So you’re looking for higher energy prices, higher metals prices?
I think as long as you continue to see economic growth, it’s something an investor with a three- to five-year investment horizon...can count on.
Should it be crude oil? Should it be natural gas? What type of energy should people be looking at?
Well there are different values for different kinds of energy in different areas of the market. We think there is a huge discrepancy in the price of natural gas and crude oil. If you equate them to a BTU perspective, natural gas is incredibly cheap compared to oil.
So, there are companies that are taking natural gas, buying something cheap and using it to produce oil. One of them is Berry Petroleum (BRY). We like companies that take cheap resources and transform them into more valuable resources. [Berry missed earnings estimates last quarter, leading to a quick 15% correction. This might provide a more favorable buying window—Editor.]
Kind of like buy low, sell high huh?
Yes, it makes sense to me—and they are able to do this in fields, such as in California, that have been formerly considered exhausted. So, you can buy the fields cheap, and apply this technology, and use inexpensive natural gas to produce oil out of these fields.
Any other picks?
Well, in the oil and gas area, I think it’s hard to go wrong with the big, integrated oils. No matter where oil is found, it’s going to be harder and harder to reach.
It’s becoming a business where you need scale to get the giant fields online, so I think the bigger players are where to be. The industry has always had successful small wildcatters, but I think a lot of the easy oil has been found.
What big player do you like most?
Well, it’s almost a question of picking which part of the world do you think is most stable. For a lot of years, people felt more comfortable with Saudi Arabia—but with all of the political turmoil in the Middle East, companies that are overly dependent on that area for their sources of crude oil, they look more risky.
So we’re looking at the companies that are doing their best to develop oil and gas close by. So, therefore, offshore of the United States. It’s hard to believe it...but British Petroleum (BP).
And they got beaten up, so stock prices…
They got beaten up. There was a chance to buy them when people thought they were going to go bankrupt.
Or taken over.
Or taken over. We still don’t know the full extent of the liabilities, but I think those are risks worth taking.
And lastly, gold?
Gold...I think...it did not come down like silver did, and you would think that if investors generally expected that the world would be safer after Osama bin Laden was eliminated, gold would come down.
It didn’t, and I think that’s probably the best indicator that the world is not a tremendously safer place. As a result, I wouldn’t be in a hurry to sell gold. The things that have been driving it are still the things that will continue to drive it.
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