When oil is cheap, buy these companies
It's tempting to look at the price of a barrel of oil, or the price of a gallon of gasoline as a way to evaluate when oil companies are cheap.
But there's little correlation between oil price and profitability, value or future share price for most of the companies in the oil sector. There are a few exceptions that I'll talk about in a minute...
Not to go into too much detail, but most oil companies, large and small, hedge their production in the futures markets. When you hedge your production, it has the effect of evening out the highs and lows in the market.
You can easily see the effect of hedging by looking at two charts stacked on top of each other: the percentage performance of a price of a barrel of oil plotted with the percentage performance of the AMEX oil index (AMEX: ^XOI).
The AMEX oil index compiles the price movement of the 13 largest publicly traded oil companies. And no, you can't buy it - unfortunately it's not a traded index.
Anadarko discovers oil in Mozambique
There's a lot of buzz in the oil markets these days, and while we've been kind of lulled into complacency with oil in the $75-$80/barrel range, this situation won't last forever.
It might not even last for long, and right now there's a unique opportunity to buy a highly specialized mid-cap oil company. I'll get to this company in a bit...
In the meantime, the United States currently has one of the largest stockpiles of oil it's ever had, with over 1.13 billion barrels of petroleum inventory - or about 60 days worth of supply at current rates of consumption.
The news immediately caused oil futures to dip - briefly below $75 a barrel.
That'sabout the average price for 2010, year to date:
Your Last Chance to Buy Cheap Oil Stocks this Summer
Today I want to talk about why I think the next couple weeks will be your last opportunity to buy inexpensive oil stocks this summer, and possibly all year.
The reason? Seasonality. Oil prices tend to hit their yearly highs in the third quarter. That's largely due to increased demand from millions of Americans and Europeans driving more for their summer vacations.
This tendency seems to fly in the face of one of those investor "rules" we've all heard a million times before: past performance does not guarantee future results.
It's a mantra for mutual fund managers, financial advisers and newsletter editors. It has an almost Shakespearean meter to it, and if you say it enough you become numb to opportunities on the basis that all of the information you have is from the past - and therefore, unhelpful when it comes to making decisions about the future.
Earnings Warning
Yesterday’s huge move took
the S&P 500 above 1,105 to close right at 1,115. TradeMaster Daily Stock Alerts’
Jason Cimpl told his readers he’s bullish going into next week. And yesterday’s
close at 1,115 will keep him from selling his latest round of upside trades.
That’s good news for TradeMaster
readers, because one stock they bought on Friday made a 50% move in
just two days. Jason’s bullish stance suggests there are more gains ahead for
this little beauty.
Graham Corporation: Looking golden
Trading at just over $90 per barrel, the price of crude oil has skyrocketed more than 60% over the course of the past year and benefited major oil drillers such as Transocean Inc. (NYSE: RIG), Diamond Offshore Drilling, Inc. (NYSE: DO) and Noble Corporation (NYSE: NE), which have all seen stock prices rise along with the trend.
Investing in these oil exploration companies is not the only way an investor can play this boom, though. Graham Corporation (AMEX: GHM), based in Batavia, N.Y., is one of many companies that have been cashing in on the strength of the energy sector. Fresh off of 2007 where the company saw its stock price surge an astonishing 297%, Graham now wields a market cap of $169 million.
The company, founded in 1941 in upstate New York, started out with its production efforts focused primarily on producing surface condensers and heat exchangers for the U.S. Navy in World War II. It was after the war that the company made its push into the commercial market.
Today the company designs and builds vacuum and heat transfer equipment that is utilized in a wide array of industries. The key industries that the company serves include the chemical, petroleum refining and electric power generating industries. Graham’s products are used to produce everything from gasoline and electrical power to fertilizers and processed foods.
Graham has come a long way since 1941 and its transition into the commercial market has been a notable success. In 2008, the company is looking to continue where it left off in 2007. It has already rang in the new year with a $3.7 million oil refinery order that was locked up at the beginning of January. The company will be installing an injector system for a refinery that is being reconfigured to process synthetic crude oil.
Russell falls as earnings lift Dow
With a void of economic news, the bullish sentiment on Wall Street was primarily due to the latest mergers wave.
The Russell 2000 began the day with a healthy rise and briefly touched a level of 842 around 1 p.m. ET before slipping into negative territory shortly before the close.
Houston-based offshore driller GlobalSantaFe Corp. (NYSE: GSF) and city rival Transocean Inc. (NYSE: RIG) agreed to a merger of equals to create a $38 billion combined company. The deal is scheduled to close by the end of 2007.
Wall Street gaining
At 10:52 a.m. ET the Russell 2000 had added 2.28 points, or 0.27%, to 838.72. The Dow Jones Industrial Average was up 71.37 points, or 0.52%, to 13,922.45.
Pharmaceutical heavyweight Merck & Co., Inc. (NYSE: MRK) reported unexpectedly positive second-quarter results. The Whitehouse Station, N.J.-based company saw its quarterly profit climb 12% due to higher demand for cholesterol-lowering drug Vytorin and cervical-cancer vaccine Gardasil.
Russell 2000 ready to rise
Houston-based offshore driller GlobalSantaFe Corp. (NYSE: GSF) and city rival Transocean Inc. (NYSE: RIG) have agreed to a merger, according to an announcement this morning.
