Jubak's Journal
Recent articles:
• How to beat the short-term traders, 11/8/2005
• 5 reasons the Fed will fumble in 2006, 11/4/2005
• 5 stocks safe from rising rates, 11/2/2005
More...
| | Jubak's Journal
5 energy stocks for the cold of winter
Sure, computers and caterpillars say it's going to be unusually mild in the coming months. But the first sign of a cold-snap should send these beaten-up stocks soaring.
By Jim Jubak
The Farmer's Almanac predicts a warm winter. Computer models at the National Oceanic and Atmospheric Administration forecast a slightly warmer winter. Woolly bear caterpillars are sporting the wider-than-normal orange bands that, according to folklore, signal a milder winter.
And the commodity and stock markets agree. With unseasonably warm temperatures ruling the Northeast and Midwest -- it was 62 degrees at noon on Sunday as the runners in the New York Marathon made their through Central Park -- the futures market kept the selling pressure on. The December crude-oil futures contract traded on the New York Mercantile Exchange hit a mid-day low of $58.47 a barrel on Monday, Nov. 7. That's the lowest price for a future delivery of crude since July.
All that means, as investors with a contrarian streak know, that it's time to buy the out-of-favor energy stocks that will rally on the first return of seasonably cold weather.
If the woolly bear is wrong
Since lower oil prices mean lower costs to run trucks, trains, and planes, transportation stocks have rallied on the belief in a warmer-than-normal winter. Truckers Old Dominion Freight Line (ODFL, news, msgs) was up 19% in the three weeks that ended Nov. 8 and Arkansas Best (ABFS, news, msgs) climbed 25%. Canadian National Railway (CNI, news, msgs) was up 8% in those three weeks and CSX (CSX, news, msgs) moved up 6%. Continental Airlines (CAL, news, msgs) climbed 10% and (AMR, AMR)), the parent of American Airlines, soared 22%. (Note how the less fuel efficient sectors outperformed the relatively fuel-efficient railroad stocks.)
More from MSN Money
Now I don't know if the almanac, the computer models and the woolly bears are right about the trend for the rest of the winter. Weather prediction isn't much more of a science than, say, stock picking. So without some inside information -- no disrespect meant to the computers or the woolly bears -- on real temperatures this winter, I'm reluctant as an investor to put my money on these predictions and buy transportation stocks. Especially since the transportation stocks have already climbed so far on hopes for a warmer-than-normal winter.
But I do know that investors and commodity traders that at some point this winter we'll have a patch of colder-than-normal weather and suddenly the stock and commodity markets will start to worry about a colder-than-normal winter. The farther the markets swing toward a belief in a warm winter, the harder and farther they'll swing back in the other direction. And with that swing, the sectors that are in favor now will fade and be replaced, at least temporarily with the currently out-of-favor energy sector.
And the place to be when that happens, in order to maximize your gains, will be in the shares of the domestic independent oil and gas companies that have been punished most severely in the move toward cheaper crude. (And to minimize your risk, you should stick to the shares of fundamentally sound oil and gas companies--no speculative stocks trading on potential future big oil strikes, thanks.)
| |
|
|
|
|
MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
|
