All Entries Tagged With: "Value Oil Plays"

Value in Energy and Construction Stocks

Surveying the markets right now I continue to see strong growth and value in energy and construction/engineering stocks, my two favorite sectors. Assuming you think oil continues to go higher, in which I do, and then it bodes well for all theses stocks. Companies to focus on in this case are the driller and construction/manufacturing companies working directly with the projection of oil. Right now the market is choppy with high volatility on a daily basis. That means it’s hard to trade without boding the risk of getting burned. In this case I think the best option is to buy on a dip and hold onto these stocks. Take a long-term view, if you are looking to day-trade then pick high beta stocks. The main energy sectors to look at our natural gas and oil and then look at an array of construction and engineering stocks.

Buy Oil, Long-Term it will Continue to Rise

Ever since July I have recommended oil in all my articles. Since then, it has soared higher I continue to see it going up. People are wondering whether supply will go down. I can see no reason why supply would decrease more than 2-5% at max in the next several years. Ultimately people won’t stop using gas, as there are no other cheap alternatives. People want to help the environment and all but not at the expense of their pocketbook especially now a days. Oil has become more of a currency trade as a bet against the dollar. It’s hard to bet the dollar long with the high risk of inflation this makes oil bullish. Need more reasons to buy oil? Here it is:

1. Oil is undervalued, futures continue to rise proving prosperous times.

2. OPEC expects Global Oil Consumption to increase 500,000 barrels a day in 2010

3. Per day Oil Consumption to spring back to 940,000 barrels a day and maybe even as high as 1.4 million barrels a day if demand rebounds

4. Analysts predict higher oil prices will be fueled by a stronger economy and higher global demand in BRIC countries

5. Energy forecasters have regularly made assumptions throughout the past year as the fast-changing economic landscape altered consumption patterns and will send crude oil price high above $145 a barrel

Why I like Oil as a Long-Term Investment?

I am bullish about the prospective of the industry leading into 2010, as U.S. consumption is expected to rebound somewhat and consumption in emerging markets is supposed to rebound substantially. While most U.S. based Oil Companies expect profit drops of around 65% in 2009, I see it rebounding over 65% in 2010 and higher based upon higher projected pricing due to improved long-term economic outlook and new project start ups that have helped boost the upstream in the gas and oil volume. The main determinant to the oil recovery is the pace of how our economy continues to rebound. The stronger our economy becomes, the stronger the oil markets become. One large effect by the stagnate economy is the how the global credit crunch is making it hard for many companies to expand. I feel that our economy is slowly stabilizing and as a result the oil boom will start to take off in 2010.

What Oil Stocks to Look at?

Bullish Oil Stocks: Chevron (CVX), Noble (NE), Transocean (RIG, Diamond Offshore Drilling (DO), and Apache (APA).

Natural Gas another Bullish Sector

Moving on I think Natural Gas is another Bullish Energy sector. Natural Gas is a clean, quality energy that is cheap and domestic. Natural Gas is the second most abundant fossil fuel in America. It’s estimated that we have upwards of 100 years of Natural Gas usage. Plus if you add Canada into the equation who is the largest holder of Natural Gas then combined we are the Mecca of Natural Gas. With this surplus we could develop it into the energy of America and tell the Middle East to screw off for holding us hostage to oil for so many years. Its only now that people are finally catching on that Natural Gas is the cleanest of the renewable resources. As of right now, natural gas is used to heat homes, cook food, power lights, and fuel the revolutionary new Natural Gas powered vehicles. With the winter season coming up, Natural Gas is a huge play as due to the cold winters people crank up the heating. This is even more important as this is expected to be the coldest winter in the past decade. The next great part about Natural Gas is since it is so cheap its getting huge backing from both the consumer and the government. The government is pushing natural gas as the future energy through tax breaks, stipends, etc. The goal is to make it more centered and help push America off oil and onto Natural Gas. With sustained price levels it has become a strong long-term energy play. A couple weeks ago I advised buying the following natural gas stocks and since then many are up 10%+. I still think they have great long-term value so here’s some stocks to loom at: Chesapeake (CHK), Andarko (APC), Devon Energy (DVN), XTO Energy (XTO), Rage Resources (RRC), and United States Natural Gas Fund (UNG).

Construction and Engineering Stocks Strong Investments

Finally, the third sector you need to invest in is construction and engineering. Why? In 2010, I foresee the sluggish global economy picking up its pace and an increase in spending on capital projects. In my opinion, China will continue to spend billions on infrastructure to maintain their world dominance. I foresee the Middle East, Africa, and Eastern Europe to pledge billions to the construction of infrastructure projects to energize growth in their developing regions. Finally, I believe Brazil will lead a resurgence in capital spending across the board in Latin America as they prepare for the 2016 Olympics. In 2009, construction equipment orders have kept stable and have continued to increase due to the large amount of global infrastructure demand. I have no reason to believe that this would not continue to increase throughout 2010. To better the situation, I believe that credit conditions should lighten up allowing for a large amount of delayed construction projects to begin operations again. With recent increases in oil and gas prices, I expect us to see a gradual rebound in oil and gas projects as well. I also anticipate the U.S. to increase its capital spending for highways, tunnels and bridges in 2010 aided by Obama’s $787 billion economic stimulus package and federal/local spending.  Going against these predictions are theories that the global markets will continue to struggle. I disagree, for one we have seen great strides recently in the improved economic forecast. As for the sector itself, most major oil companies have already increased capital spending plans as oil is back over $80 a barrel. In the New Year, I expect capital markets to lighten up allowing more lending to take place. Building off this, acquisitions activity should increase as companies have access to lower borrowing rates and attractive multiples. Overall, we are seeing a resurgence in capital projects, which helps the markets across the board as demand for commodities, and resources will increase. Stocks I like are my three favorite Bucyrus (BUCY), Fluor (FLR), and Foster Wheeler (FWLT).

Invest, Invest, Invest in these sectors. I can’t stress more how bullish these will be long-term and that you will regret missing at this opportunity to buy these value stocks at these low levels. A year from now they will all be up 30%+. Stocks I currently own in this sector are: Fluor (FLR), Foster Wheeler (FWLT), Noble (NE), Chevron (CVX), Bucyrus (BUCY), and EOG Resources (EOG).