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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Get my latest buy/sell/hold advice on five commodity investments and my short- and long-term forecast for the fast-moving agricultural sector absolutely FREE
In light of the takeover bid and other recent changes in this fast-moving sector, I’ve written a new free report. Click here to immediately download my new free report, Commodity Investments: Fertilizer Stocks and Potash Stocks That Will Profit from Rising Food Demand....
Wheat prices have almost doubled, from a low of $4.25 per bushel on June 9 of this year to a recent high of $8.15. That’s mainly because Russia banned wheat exports to preserve its stockpiles in the face of a severe drought and widespread wildfires. Despite the jump, wheat is still well below its 2008 high of $13.34. Moreover, the U.S. and Europe expect to have large crops this year. And farmers are already planning to plant more wheat this fall to take advantage of high prices. That could lead to a glut of wheat next year. Wheat’s recent rise illustrates the cyclical and volatile nature of commodity prices. Still, agricultural prices should move higher in the long term, mainly because rising populations in developing countries will increase demand....
Oil prices fell from their July 2008 peak of $148 U.S. a barrel to just under $40 U.S. in February 2009. Prices have roughly doubled since then, but are unlikely to get back to their 2008 highs any time soon. We think oil prices could rise further if the global economy continues to recover, as we expect. Even so, we continue to advise against overindulging in natural gas and oil stocks. That’s because the Resource sector (including oil and natural gas) is highly volatile, and no one can accurately predict future commodity prices.
This oil stock’s diversity and high-quality reserves give it a strong foundation
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In the first quarter of 2010, Canada’s economy posted an annualized growth rate of 6.1%. That’s the fastest pace in more than a decade, and much stronger than the 5.8% that the Bank of Canada and consensus forecasts called for. The sharply higher growth has added to investor concerns about inflation, and was part of the reason why the Bank of Canada raised its key interest rate by 25 basis points, to 0.50%, on June 1. That’s the first time the bank has raised the rate since 2007. However, despite the sharp rise in economic growth, Canada’s current inflation rate of 1.8% (as measured by the consumer price index) is still well within the Bank of Canada’s target range of between 1% and 3%....
China Investment Corp. (CIC) continues to catch investors’ attention by making a number of big purchases in the resource sector, including crude oil stocks. CIC is the Chinese government’s “sovereign wealth fund.” Sovereign wealth funds have been around since the 1950s. They are state-owned investment funds that are usually financed by an economic surplus. Many Middle Eastern sovereign wealth funds, for example, are financed by state oil revenues. CIC is directly funded by the Chinese government, largely with U.S. dollar reserves accumulated through exports.
An aggressive move into the oil sands
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Oil prices fell from their July 2008 peak of $148 U.S. a barrel to just under $40 U.S. in February 2009. Prices have roughly doubled since then, and oil now trades at about $84 U.S. a barrel. We think oil prices could rise even further if the global economy continues to rebound, as we expect. Even so, we continue to advise against overindulging in oil stocks. That’s because the Resource sector (including oil) is highly volatile, and no one can accurately predict future oil prices. However, you can profit nicely over long periods by investing a reasonable portion of your portfolio in well-established or well-managed Canadian oil stocks, especially those with high-quality reserves and rising production. These companies are well-positioned to profit during periods of high oil prices, and are able to at least partly offset price declines by producing more oil....
The rebounding global economy has pushed up commodity prices in recent months. But with the exception of gold, which has recently hit record highs, most commodities remain below their 2008 peaks. Still, resource demand should continue to improve with the global economy. Here are two profit-killing strategies to avoid when buying commodity investments. (We’ve also included our preferred approach, which you can read about below.) 1. Futures trading. Rising resource prices will likely tempt more investors to trade commodity futures. These include metals and minerals, fertilizers and agricultural products....
Copper continues to attract a lot of attention from investors in commodity stocks. That’s because the metal has more than doubled in price, from a low of $1.25 U.S. in December 2008 to around $3.03 U.S. today. Traditionally, investors have bought copper as a way to profit from general economic growth. That’s because, unlike gold or silver, copper has a wide range of industrial uses. For example, it’s a key element in electrical wire and pipe.
Higher copper will brighten this commodity stock’s prospects
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China Investment Corp. (CIC) has caught a lot of investors’ attention recently with a string of big purchases of commodity investments in the resource sector. CIC is the Chinese government’s “sovereign wealth fund.” Sovereign wealth funds have been around since the 1950s. They are state-owned investment funds that are usually financed by an economic surplus. Many Middle Eastern sovereign wealth funds, for example, are financed by state oil revenues. CIC is directly funded by the Chinese government, largely with U.S. dollar reserves accumulated through exports.
An impressive string of commodity investments
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Natural-gas prices have recently moved dramatically higher, jumping 57.5% to $3.78 U.S. per thousand cubic feet since early September. That’s when natural gas hit a seven-year low of $2.40 U.S. per thousand cubic feet. Since then, a number of economic reports have pointed to a continued rebound. The resulting increase in industrial activity will lift natural-gas demand.