February 15, 2009
2009 is the Year of the Ox according to the Chinese Astrology, but for the stock market participants, 2009 will be the Year of the Stock Trader. You are going to see some volatile days with very big news revolving around long term oil prices, viability of the United States stimulus package, increasing unemployment, California running out of money, and whether the housing market will ever bottom out.
My strategy this year will be taking positions in companies that are being oversold and doing it incrementally instead of “going all in” like they say in poker. If you normally invest in $3000 chunks, break that into $1500 chunks and reserve a bit of money in case that stock you love falls another 10% so you can cost average and spread around your funds to different sectors. 2008 showed us that no sector is immune to the slaughter in stock prices although some stocks only fell 40% compared to 80% from yearly highs.
With oil hitting $150/barrel and even though it’s sitting at barely 25% of that value, I am a big fan of energy and commodity stocks. Knowing how important natural gas, coal, solar, and petroleum will be through every developing nation, it’s a golden opportunity to take a position while these prices are so depressed. Banks and housing stocks will have many more tough times ahead of them and a lot of infrastructure stocks will follow the health of the economy. Most of the ten investments below are ones that I believe will have a better chance to go up than down in the next few months. If they do go down any further, just add more shares!
- Alcoa (AA)
- Procter & Gamble (PG)
- Wal Mart (WMT)
- Garmin (GRMN)
- Diamond Offshore Drilling (DO)
- Transocean (RIG)
- Devon Energy Corporation (DVN)
- Nabors Industries (NBR)
- General Electric (GE)
- Perdigao (PDA)
Most of these are large companies with none being small cap stocks. 6 of the 10 corporations have some kind of ties to the energy industry and all are well off their yearly highs. I threw in some Dow Industrial stocks too for some dividend plays that shouldn’t take too big of a hit if the market tanks any further. Take your 30% gains when they come and be a happy investor!!!
Disclosure: I have current ownership in Transocean.
August 28, 2007
As of August 27, 2007, oil has been trading at a relatively high price of about $72/barrel for reasons explained in my last energy article, but natural gas was only trading for $5.59/mmbtu. To read about how the natural gas industry works here in the US along with charts/graphs about the supply and demand of natural gas over the years, click here for an article entitled “Understanding Natural Gas Markets”. As you can see from this graph from Charles Augustine’s Understanding Gas Market’s article, natural gas spot prices have declined from high of $12/mmbtu at the end of 2005 to their current level in the mid $5 range. Seems like quite a reversal is such a short amount of time, and probably a good time to look for stocks oversold in the natural gas industry.
If you want to play the natural gas ticket while prices are relatively low, pay attention to Nabors Industries (NBR), the largest land based natural gas driller. Nabors was highlighted in an August 20 Barron’s article saying that there are many opportunities that exist from this highly profitable company with a forward PE of 7. Robert Marcin, the head of Defiance Asset Management in Conshohocken, Pa. states that “Nabors doesn’t need to hit the current 2008 consensus estimate of $4 a share for investors to do well. If Nabors makes $4, it’s a home-run stock. It could trade in the 50s. Even with $3 a share in earnings, Nabors could be a $40-to-$45 stock.” Nabors has over 600 land drilling rigs and has operations in the US, South America, Africa, the Middle East, Central America, and Canada. The natural gas industry will seek some short-term catalysts to help natural gas related companies and an improvement in the currently weak North American market, especially in Canada when in July it was reported that Canadian operations had its first major quarterly loss since the early ’90s.
If you’re looking for a producer of natural gas, Nabors would be the stock to look at, but if you believe in the pipeline business of petroleum and natural gas, then BJ Services Company (BJS) would be the stock to check out. BJ Services is near their two-year low and provide pressure pumping services for oil and natural gas companies. They help enhance the production of natural gas on land and offshore as well as maintain services to existing natural gas wells. BJS has a stimulation service that accounts for 69% of their 2006 pressure pumping revenue which uses different methods to deter any pipeline hindrances of the pathway of oil and natural gas.
Also if you look at the ratio of oil to natural gas over the last decade, it seems that oil trades at around a six times premium where the current commodity prices ($72 oil to $5.50 natural gas) stand at a 13:1 ratio. For the sake of Nabors and its competitors, hopefully natural gas prices should rebound to get closer to the six to seven times premium.