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Strategies & Market Trends : Growth stocks with Value -- Ignore unavailable to you. Want to Upgrade?

To: zx who wrote (1645)	2/13/2007 2:19:52 PM
From: zx	Read Replies (2) \| Respond to of 3145

Consistency is the hobgoblin of inattentive investors. Last month, I touted agricultural commodities and waved energy aside. That was then. Now Saudi Arabia has laid a $50-a-barrel floor under oil prices that only it can enforce -- at least to the degree supply-demand forces can be managed. Combine that with arctic cold from the Great Plains to the Carolinas, and we are reminded that energy is a theme with a future. "We think oil probably has bottomed," says Marshall Adkins, managing director of energy research for Raymond James & Associates. Production is down, demand is up, and that's not all. "As you move through the year, inventories will trend down more than the market currently thinks, so that will tend to support oil prices, particularly in the back half of the year," he says. A continued climb For market timers, now is probably too soon to plunge into petroleum; my colleague Jim Jubak counsels investors to "watch and wait" for oil bargains. But for more-strategic investors, the bargains already exist. For most investors, I think a natural resources fund is the optimal way to participate in oil. Such funds also own other commodities, like paper products and gold, so they're less volatile than energy-only funds. But you can pick portfolios anywhere along the commodity spectrum, from the most narrow to the broadest. The most direct way to own energy is through exchange-traded funds (ETFs) focused strictly on the oil patch. But it's also the riskiest. The trend for the Major Integrated Oil & Gas Index (MJROILGAS), for example, is clearly up, but the path is tortuous. And this is actually a somewhat diversified index, embracing, in addition to commodity prices, natural gas as well as the refining and distribution of petroleum. Some of the two-dozen-and-growing ETFs that invest in energy focus as narrowly as U.S. Oil Fund (USO, news, msgs) and iPath Goldman Sachs Crude Oil Total Return Index (OIL, news, msgs), both of which track the price of futures contracts for West Texas intermediate light, sweet crude. Others target particular niches within the sector, such as PowerShares Dynamic Energy Exploration (PXE, news, msgs), Oil Service Holders (OIH, news, msgs), SPDR S&P Oil & Gas Equipment & Services (XES, news, msgs) and SPDR Oil & Gas Exploration & Production (XOP, news, msgs). I think funds such as these are best left to experts in the "awl bidness." There are plenty of more-diversified ETFs for the less-expert. Too many, in fact. There are nearly a dozen that attack energy by varying strategies and degrees. By far the largest and most liquid, with assets of $3.93 billion, is Energy Select SPDR (XLE, news, msgs). It owns the energy names in the S&P 500 ($INX), with 44.7% of its assets in the three biggest companies, ExxonMobil (XOM, news, msgs), Chevron (CVX, news, msgs) and ConocoPhillips (COP, news, msgs). A bit less risk More-diverse portfolios also abound, and this is where I shop for exposure to the group. These portfolios typically have "natural resources" rather than "energy" in the name. The ETF I like is iShares Goldman Sachs Natural Resources (IGE, news, msgs), which has about 75% of assets in companies from integrated oil and gas companies like Chevron to exploration companies, drillers and oilfield services. Video on MSN Money: Jubak's Journal Jim Jubak Video: Are the Saudis driving down oil prices? Why is the price of oil so low? MSN Money's Jim Jubak says Middle East politics are currently driving down the cost of crude. As Saudi Arabia tries to put a stranglehold on Iran by cutting oil prices, the oil-consuming population benefits from the temporary drop in cost. The other assets are spread out among gold miners, paper manufacturers and other firms with exposure to industrial commodities. As an index fund, this ETF portfolio is rigid. I prefer active management so the people handling my investment are free to minimize areas they don't like and focus on those they do. I happen to own T. Rowe Price New Era (PRNEX, news, msgs), but manager Charles Ober was traveling abroad last week and I couldn't reach him. Instead I turned to Michael Hoover, manager of Excelsior Energy & Natural Resources (UMESX, news, msgs), another excellent fund with a broad mandate in resources. Like Jim Jubak, Hoover is a bit cool to energy at this moment. "The market is searching for an equilibrium price," he says. "We have too much (natural) gas in storage, and we think gas prices could be soft after the winter, and oil prices might be a bit soft prior to the summer driving season, so we see better buying opportunities in March and April." Range bound, in a good way So Hoover's fund, which would devote 85% of assets to the oil patch if he were bullish, instead has 75% there, with much of the balance in miners, both of precious and base metals. Today's range-bound oil prices are really a boon for the industry as well as the economy, Hoover says. "If prices are too high for too long you bring about recession, which would kill demand for oil and gas as well as kill the economy," he says. At current prices, "energy stocks can do fine in that environment." In Wall Street parlance, Jubak is a bottom-up stock picker and I am a top-down theme player. Jim focuses on company fundamentals. I leave that arduous work to fund managers. I try to align my investments with what I think are broad trends at work, and natural resources fits neatly into my view that global demand for industrial inputs, including oil, is outpacing global supply. "More than half the world has never driven a car," notes a recent U.S. Trust research report on energy. China, in particular, is taking to the road, however. According to a report from U.S. Trust, between now and 2030 demand for oil will increase 1.3% annually, to 5.58 billion tons, far more than any other fuel. Tomorrow might present a better opportunity to buy into that growth than today, but the theme won't be any better next month or next year.

To: zx who wrote (1645)	2/28/2007 1:11:32 PM
From: zx	Read Replies (1) \| Respond to of 3145

Most energy stocks haven't moved much since April or so of last year, when big investors dropped out of the game in anticipation that oil and natural gas prices would level off. This was one instance when conventional wisdom turned out to be correct. After more or less tripling in four years, crude oil prices peaked in the low $70 per barrel range last August and, until last week, were treading water in the $50 to $60 range. Energy stock investors lost interest, worrying that stagnant energy prices would reduce demand for drilling services, pressure oil producers' profits and otherwise ruin the party. Besides, they had already enjoyed a good run. Most energy-related indexes more than doubled from early 2004 through last spring. Heading higher, long term So, what happens next? Will energy prices resume their uptrend or remain in a trading range? This is probably obvious, but I'll say it anyhow. Like so many things, energy prices reflect the balance between supply and demand. Prices drop if supply exceeds demand and rise when demand exceeds supply. While there's no real consensus on the issue, many experts advise that global oil production has more or less peaked. While they sound spectacular when announced, new oil finds, at best, compensate only for the depletion of existing reserves. World oil usage, already precariously close to the maximum that can be produced, is likely to soar as millions of consumers in China, India and other emerging countries find themselves able to afford automobiles, microwaves, espresso makers and other middle-class luxuries. Geopolitical tensions, if anything, have worsened in recent months, and it's not far-fetched to speculate that a terrorist strike of political upheaval somewhere in the world could disrupt oil supplies. If you agree that energy prices are headed up long term, this might be a good time to consider energy-related stocks, especially since most have been in a trading range for almost a year. Narrowing your search I'll use MSN's Deluxe Screener to find energy stock candidates. The screener has a useful feature that allows you to pinpoint particular energy industry subsets of interest, including: * Independent Oil & Gas * Major Integrated Oil & Gas * Oil & Gas Drilling & Exploration * Oil & Gas Equipment & Services * Oil & Gas Refining & Marketing * Oil & Gas Pipelines Oil and gas pipeline operators get paid by the volume, not the price, of petroleum products transported. Thus they won't necessarily prosper from rising energy prices, and I didn't search for stocks in that category. You can see price charts for indexes reflecting the action of each industry subset by selecting Historical Charts, then clicking on Find, Industry Indexes, Other Industry Indexes and finally, Energy. That's worth doing. That's how I learned that most of the industry categories had been in a trading range since April 2006. However, that was not the case for Major Integrated Oil & Gas, which includes the likes of ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs). Although considerably off its December 2006 peak, the index had moved up last year and didn't fit the "in the doldrums" situation of the other energy industry subsets. Thus, I didn't look for Major Integrated Oil & Gas stocks. The situation may have changed by the time that you run the screen. So, check the subindustry charts first and avoid any that are in sharp downtrends or have already moved up considerably. You can gauge that by comparing the index to its 200-day moving average. Ideally, you want an index that is more or less straddling its 200-day average, indicating consolidation. Indexes considerably above their moving averages are in strong uptrends and vice versa. Finding worthwhile energy plays in today's environment requires a different strategy than searching for growth stocks. Because oil prices shot up so much, most energy stocks enjoyed strong earnings growth in 2006. Since analysts are basing their earnings forecasts on flat oil prices, they're not expecting much, if any, earnings growth this year. Thus, you can't screen based on earnings growth forecasts. Also, since most energy firms are coming off a great year, there's little to gain from screening based on debt levels, profit margins, etc. Here's my strategy for finding worthwhile energy-stock candidates. First, I ruled out the obvious duds, and then I isolated stocks favored by savvy institutional investors. Then, from that list, I used MSN's StockScouter to pinpoint stocks the strongest stocks, partially based on fundamentals and partially from a charting (technical) perspective. Here are the details. Pick your sector Start by picking an Industry subset from the Energy category. You can only screen for one Industry subset at a time. For example: Screening parameter: Industry Name = Oil & Gas Drilling & Exploration After you've run one screen, select another Industry subset and rerun the screen. No duds My strategy requires mainstream stocks that will move up with their sector when it catches fire. Lightly traded stocks that nobody has heard of don't fit that bill. Most stocks trade hundreds of thousands of shares daily, and that's what we need here. Screening parameter: Average Daily Trading Volume Last Quarter >= 100,000 Along the same lines, cheap stocks get that way because most market players don't like their fundamental outlook. Since we're looking for strong stocks, not for contrarian or value candidates, we'll do best by sticking with stocks that the market likes. Depending upon the circumstances, stocks trading above $5 per share might fit that bill. However, since we're looking for solid in-favor picks, I set the bar higher at $15. Screening parameter: Last Price >= 15 Let the big boys do the work Institutional investors such as mutual funds and pension plans have squads of analysts at their beck and call. Don't waste time and effort reinventing the wheel. Stick with stocks that the big boys like. Institutional ownership measures the percentage of a firm's shares held by these wired-in players. The percentage often exceeds 95% and rarely falls below 50% for in-favor stocks. Screening parameter: % Institutional Ownership >= 50 StockScouter MSN's StockScouter combines dozens of factors such as valuation, earnings growth, recent changes in analyst forecasts, institutional and insider trading and chart action to grade stocks from 1 to 10, where 10 is best. One of StockScouter's strengths is that you can use it to spot the best prospects within a given industry, which is exactly what we want here. Although, in theory, stocks rated 6 should outperform those rated 2, research has found that stocks rated 8 and above are your best bets to outperform the market over the next six months. However, the ratings depend partially on earnings forecasts. Since analysts are basing their earnings forecasts on energy prices remaining flat while our premise is that oil prices will rise, I've given our stocks a little extra slack and only required a rating of 7 to qualify. Screening parameter: Rating >=7 Charting the course Since we're trying to get in ahead of the crowd, a stock's price chart action might be our first clue that good news is on the way. That's because market players with access to inside information often accumulate shares ahead of the news. Thus, in place of a more stringent overall StockScouter rating requirement, I'm putting more emphasis on the StockScouter's technical grade, which analyzes recent price action. Technical grades run from A through F (no E), where A is best. I require a minimum B grade, which, just like in school, is above average. Screening parameter: Technical Grade >= B My screens turned up six independent oil and gas producers, two oil and gas refining companies, two oil and gas drilling and exploration companies and three stocks in the oil and gas equipment and services category. However, two of the three oil and gas equipment and service providers listed, Infrasource Services (IFS, news, msgs) and Willbros Group (WG, news, msgs), derive most of their revenues from businesses outside the energy industry. I eliminated them because they would not benefit much from rising energy prices. Here are the remaining 11 candidates: Company Industry Recent price StockScouterrating StockScoutertechnical grade XTO Energy (XTO, news, msgs) Independent Oil & Gas 52.57 10 B Talisman Energy (TLM, news, msgs) Independent Oil & Gas 17.84 9 B Noble Energy (NBL, news, msgs) Independent Oil & Gas 58.65 10 A Denbury Resources (DNR, news, msgs) Independent Oil & Gas 30.19 9 B Cabot Oil & Gas (COG, news, msgs) Independent Oil & Gas 70.57 10 A Petroleum Development (PETD, news, msgs) Independent Oil & Gas 52.25 10 A Valero Energy (VLO, news, msgs) Oil & Gas Refining & Marketing 58.77 7 B Murphy Oil (MUR, news, msgs) Oil & Gas Refining & Marketing 51.72 7 B Oceaneering International (OII, news, msgs) Oil & Gas Drilling & Exploration 41.07 9 B Whiting Petroleum (WLL, news, msgs) Oil & Gas Drilling & Exploration 45.42 7 B Lone Star Technologies (LSS, news, msgs) Oil & Gas Equipment & Services 50.04 9 B Four of the independent oil and gas firms listed -- Cabot Oil & Gas (COG, news, msgs), Denbury Resources (DNR, news, msgs), Petroleum Development (PETD, news, msgs) and XTO Energy (XTO, news, msgs) -- produce oil and natural gas from resources located primarily within the U.S. Noble Energy (NBL, news, msgs) operates in the U.S., but also has resources in South America, China, the North Sea and in other areas. Talisman Energy (TLM, news, msgs), although headquartered in Canada, is traded on the NYSE and operates in the U.S., Australia and many other countries as well. My screen listed only two oil and gas refining and marketing companies. Valero Energy (VLO, news, msgs), which specializes in handling difficult-to-refine heavy crude, refines and markets exclusively in the U.S. Murphy Oil (MUR, news, msgs), although listed in the refining and marketing category, also produces oil and natural gas. Murphy operates in Canada, Ecuador, Malaysia and other countries, as well as in the U.S. Although listed in the oil and gas drilling and exploration category, Whiting Petroleum (WLL, news, msgs) is an independent oil and gas producer, much the same as the firms listed in the independent oil and gas category. Whiting operates primarily in the U.S. Oceaneering International (OII, news, msgs), also listed under oil and gas drilling and exploration, actually provides services and products to offshore oil and gas drillers. Finally, Lone Star Technologies (LSS, news, msgs) also provides parts and services to oil drillers and producers.