Forbes asks: What energy stocks does James Digeorgia recommend?
I'm spending a good part of every day answering the questions of reporters from the most prestigious newspapers, magazines and Internet from all over the world. Oil, Energy and Gold are red hot and the vast majority of investors want to know what to buy and what to sell. As one of my subscribers I believe it's important that YOU know what I'm recommending before you see it reported.
A few minutes ago I sent the following answer to Forbes in response to the following compound question...
"What is your favorite energy industry stock picks if oil prices continue to rise, and his favorite picks if oil prices fall?"
The first thing to do is to throw out the traditional price/earnings and cash flow valuation models used by Wall Street. Energy is an asset story and not a earnings and cash flow story.
Investors should be focused like laser beam on proven and probable gas and oil reserves. In addition, investors would also do well to focus on companies with the bulk of their reserves in politically stable parts of the world and that have higher oil to gas ratios. ABSOLUTELY steer clear of political unstable trouble spots..
I believe in the longer term oil prices are going to be higher, perhaps rising over the next 3-5 years to $150 a barrel. With the risk of it spiking to that price level on any severe supply disruption. My favorite energy plays to buy on pull backs are the exploration and production companies such as, Anadarko Petroleum(NYSE: APC), Berry Petroleum Co CO (NYSE: BRY), Encore Acquisition Co. (EAC), Occidental (NYSE: OXY) and Devon Energy (NYSE: DVN) . All of these are finding and developing oil at a lower cost as compared to the bulk of their industry competitors.
Keep in mind high energy prices won't be good news for all energy companies. The refiners here in the United States will suffer from tighter margins as their costs rise. Refiners such as Valero (NYSE: VLO), Tesero (NYSE:TSO). Both stocks have pulled back significantly already. Other companies suffer when energy prices rise, especially transportation companies like UPS (NYSE: UPS) and Fedex (NYSE: FDX).
On the flip side if oil prices fall, these refiners and users of energy (transportation companies) would benefit.While this is possible in the short run, longer term investors should own the exploration and production companies I've recommended above because no matter how many assurances we get from Saudi Arabia and OPEC about supplies, low cost, viable sources of fossil fuels are scarce and getting scarcer. The current slowdown may cause energy prices to weaken but when economic energy prices will continue to move higher, much higher.
James Di Georgia
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