Forget Goldman, Buy These Energy Stocks - Investment Ideas
21 Aprile 2011 - 2:00AM
Zacks
Goldman caused a big stir last week after a leaked memo hit the
Street telling its clients that the risk-reward ratio for energy
stocks had turned negative. The note was particularly interesting
for two reasons. First, because Goldman has traditionally been very
bullish on commodities, and secondly, because it was a short-term
call, laced with the usual caveats the investment banks use to
hedge themselves if their thesis turns out to be wrong.
Although the report did weigh on cash and equity
energy prices, the bottom line is that it's any ones guess what
will happen in the short run. Oil and oil stocks could trade all
over the map or they could just sit around like bumps on a log and
do nothing. But for investors looking to make long-term
investments, that short-term price action is totally irrelevant.
That's for all the big, bad traders of the world trying to time the
market to worry about. Investors are focused on the big picture,
and nothing more than a quick look at the current energy landscape
reveals more than a few compelling reasons why investing in energy
for the long run makes sense.
Fundamanetal Support for Energy
1.) Political Risk-Can anyone disagree that
the Middle East has embarked upon a seminal moment that could
forever change its political and economic makeup? Great investing
is all about identifying trends, and there is no stronger trend
than that of political tension in the Middle East right now. It
matters for many reasons, none more than the fact that OPEC is
responsible for 42% of the worlds crude production. So any
additional signs of stress in the region could have a serious
impact on global supplies.
2.) Supply & Demand-The simple fact of
the matter is that global proved reserves of crude continue to
decline as old wells run dry and new wells become increasingly
difficult to find and exploit. It comes on the heels of growing to
steady demand from the developed economies and surging demand from
emerging economies like China, India and Brazil. The relationship
between supply and demand is already tight, with very little slack
built into the system to compensate for production disruptions.
That is a virtual cocktail for rising prices and higher profits for
energy companies.
3.) Inflation-This is probably the most
under appreciated aspect of investing in energy, fueled by growing
concern over a weak Dollar and record stimulus from the Central
Banks of the world. Early signs of inflation will make investing in
hard assets and hard asset companies attractive.
So with a clear view on the long-term dynamic
affecting energy, let's go ahead and take a look at some of our
favorite picks in the category.
Top 4 Energy Stocks
Drilling services companies have been very hot as
exploration and production companies boost capital spending to
capitalize on sky high crude prices. One of the best in the field
is Nabors Industries, Inc. (NBR), an on-shore drilling
services company with a market cap of $9.1 billion. This Zacks #2
rank stock has an average earnings surprise of 17% over the last
four quarters and analysts looking for 33% earnings growth next
year. NBR also has an attractive valuation and upward momentum,
take a look below.
![](http://www.zacks.com/images/upload_dir/1303404426.jpg)
Another hidden gem in oil-field services is
Patterson-UTI Energy, Inc. (PTEN), a North American on-shore
drilling services company with a market cap of $4.9 billion. This
company has the best of both worlds, a good valuation and bullish
growth projection of 14%. With an average earnings surprise of 34%
over the last four quarters, PTEN is on a roll. Take a look
below.
![](http://www.zacks.com/images/upload_dir/1303404527.jpg)
Let's shift gears into the exploration and
production companies, the energy stocks with the strongest
correlation to underlying crude prices. One of the largest and most
popular names in the space is Apache Corp (APA), a global
exploration and production company with a market cap of $23
billion. With crude gaining traction and recently closing above
$111 a barrel, APA continues to trade directly below its recent
multi-year high at $132.50. And with a forward P/E of just 11X, a
sharp discount to its peers, this growth stock also has value. Take
a look below.
![](http://www.zacks.com/images/upload_dir/1303405054.jpg)
But if you're looking for a smaller name, Energy
Partners, Ltd (EPL) might do the trick, with a market cap of
$733 million. This Zacks #2 rank stock has been strong with crude,
recently hitting a new all-time high on rising estimate and a
bullish growth projection. The company's forward P/E of 12X means
their is value here too, take a look below.
![](http://www.zacks.com/images/upload_dir/1303405437.jpg)
Invest for the Long Run
So as you can see, there are still plenty of
compelling opportunities to invest in energy stocks. And if you
want to know what Goldman really thinks about commodities and
energy stocks, take a walk down to their trading floor and ask to
take a look at their book.
Michael Vodicka is the Momentum Stock Strategist
for Zacks.com. He is also the Editor in charge of the new Zacks
Momentum Trader Service.
APACHE CORP (APA): Free Stock Analysis Report
ENERGY PARTNERS (EPL): Free Stock Analysis Report
NABORS IND (NBR): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis Report
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