Energy Stocks
Resource and commodity stocks in general should make up only a limited portion of your portfolio—say less than 20% for a conservative investor or as much as 30% for an aggressive investor. And as part of that segment, energy stocks could make up, say half of that total. The rest could be fertilizer stocks, mining stocks and so on.
Oil and gas stocks have been below-average performers lately, and many investors are tempted to get out of the industry altogether. However, the energy sector can play a crucial role in your portfolio as a hedge against inflation. The low inflation rates of the past couple of decades deserve some of the blame for the poor performance of the sector. However, energy stocks will likely rebound in years to come as the global economy recovers.
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
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BELLATRIX EXPLORATION (Toronto symbol BXE;www.bellatrixexploration.com) produces oil and natural gas in Alberta, B.C. and Saskatchewan. Gas makes up about 69% of its output; the remaining 31% is oil. In the three months ended December 31, 2012, Bellatrix’s production rose 32.1%, to 18,763 barrels of oil equivalent per day (including natural gas) from 14,209 barrels. Cash flow per share rose 7.1%, to $0.30 from $0.28....
The long-term outlook for oil and natural gas is positive, although in the short term, shale oil and gas discoveries continue to rapidly increase supply. That’s keeping prices low—and pushing down the shares of producers. We advise against overindulging in any one sector. However, we do think most safety-conscious investors should stick with the energy stocks we rate as buys in Canadian Wealth Advisor. Here is our latest advice on two of them....
Weak natural gas prices have hurt oil and gas producers with a high gas component. In June 2012, the price of gas dropped below $2 U.S. per million British thermal units (BTUs). That was the lowest price in over 10 years, and down 87% from an all-time high of $15.40 in December 2005. High inventories and record-warm temperatures were the main reasons for the price decline. Gas has since risen to around $3.37. The long-term outlook for natural gas is positive, although in the short term, shale gas discoveries continue to rapidly increase supply. That’s keeping prices low. Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas....
Last week, we examined Precision Drilling (Toronto symbol PD) which, in the wake of the long slump in natural gas prices, has 84% of its rigs drilling for oil (view the article here). Today we look at an oil and gas producer that has also cut back on natural gas, although it still has a third of its production in gas. ZARGON OIL & GAS (Toronto symbol ZAR; www.zargon.ca ) produces natural gas and oil in Alberta, Manitoba, Saskatchewan and North Dakota. Its production is 67% oil and 33% gas....
PRECISION DRILLING CORP. (Toronto symbol PD; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers, mainly in North America. It had 363 rigs in service as of September 30, 2012. The company is slowly expanding its international operations: it now has a total of eight rigs in Mexico and Saudi Arabia. Precision’s overseas business now accounts for 5% of its revenue, up from just 1% a year ago....
Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle. This week, an Inner Circle member asked about one of the more versatile resource stocks in Canada. This company provides housing and a variety of other essential services for remote oil and gas rigs and mining sites. Pat looks at the company’s prospects for growth and its plans to begin making acquisitions in foreign markets....
Pat McKeough responds to many personal questions on investing in stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for the Inner Circle. This week, one Inner Circle member asked about one of the more recent energy stocks on the scene. This specialist in deep-sea drilling has only been in business for seven years, which gives it the advantage of having modern high-quality rigs that are in demand. Pat assesses the company’s ability to keep adding to its record backlog and maintain its high dividend yield....
Encana took its present form on December 1, 2009, after the old EnCana Corp. split itself into two new companies: the new Encana, which focuses on natural gas, and Cenovus Energy, which specializes in oil sands. Falling gas prices have pushed Encana’s shares down about 30% since the split. Oil prices have weakened lately, but Cenovus’ shares are up about 14%. ENCANA CORP (Toronto symbol ECA; www.encana.com) is one of North America’s largest natural gas producers. Its reserves should last over 11 years....
Natural gas prices recently dropped below $2 U.S. per million British thermal units (BTUs), a 10-year low. Prices have since moved up somewhat, to $2.82. Shale gas discoveries continue to increase supply. At the same time, demand is slowing due to the weak global economy. Even so, the long-term outlook for gas is positive—and one reason is the prospect of rising liquefied natural gas (LNG) exports to countries like Japan, China and South Korea, where gas sells at a big premium to North American prices....
