Dividend stocks for income investors
See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Jubak's Journal
Recent articles:
• Why OPEC won't turn off the oil, 2/7/2006
• The state of coal stocks is strong, 2/3/2006
• 5 stocks for the next spending surge, 2/1/2006
More...
| | Jubak's Journal
5 energy stocks for a smooth ride
As the energy sector is buffeted by everything from geopolitics to weather forecasts, these companies continue to deliver solid profits.
By Jim Jubak
By now, investors should know the drill. Energy stocks soar to new highs on worries about supply disruptions from Iran, Iraq, Nigeria, Venezuela, Russia, wherever. Energy stocks crash, like they did on Tuesday, coming back to earth from those new highs, on news that warm weather has tempered demand and/or that inventories of oil, natural gas, or gasoline are climbing.
Boom. Bust. Boom Bust. In the short term. On news that is, in essence, noise.
In the long-term, though, each boom takes the stock to a new high that's a bit higher and each bust ends with the low that's also a bit higher.
As long as the long-term trend toward higher energy prices is intact, investors should use a sell off like Tuesday's as an opportunity to buy. As long as global energy demand is growing fast enough to force global energy suppliers to tap increasingly expensive sources of oil and natural gas -- drilling in deep, deep, deep water or mining and refining the oil sands of Canada -- the long term trend for energy prices, and energy stocks, is up.
Charting a course
And how do you know that the long-term trend is intact? Not by watching the shares of energy producers: At this stage in the energy rally, they're so volatile they respond to every bit of news. No, instead watch the shares of the companies that supply the picks and shovels for continued energy exploration and production. As long as these companies continue to report rising orders and climbing revenue, then the long-term direction for energy shares and prices remains upward.
At this stage in the energy rally, these indicator stocks are also often the best stocks to own to reap latter stage profits as well.
To see the long-term trend that the short-term booms and busts tend to obscure, look at a chart, almost any chart, for a stock in the energy sector.
XTO Energy (XTO, news, msgs), among energy producers, shows exactly what I mean. It peaked in booms on Oct. 3 at $46.15, Dec. 15 at $46.95, and Jan. 30 at $49.95. It bottomed in busts on Nov. 10 at $38.72 and on Dec. 27 at $43.94.
End result: a $3.85-a-share, or 8%, gain from the Oct. 3, 2005 to the Jan. 30, 2006 high.
More from MSN Money
Charts don't come with a guarantee that the trend won't reverse. The energy sector could break down technically if the current sell-off is deep enough to send a majority of stocks in the sector to significantly lower lows.
But the trends on the charts are backed up by fundamental trends that, in my opinion, make that unlikely.
For example, on the same day that most energy stocks went into their dizzying decline, Gardner Denver (GDI, news, msgs), a maker of pumps and compressors for the oil industry, reported earnings of 96 cents a share, almost 25% above Wall Street projections, on a 53% increase in revenue. And the company bumped upped its earnings guidance for 2006 by at least 6% or as much as 12%.
A huge contributor: demand from the oil industry for drilling and well-stimulation pumps. Orders at the company for that type of equipment were up 300% and 100%, respectively, in 2005. The market is so strong that the company is now taking orders for 2007. To prevent a re-run of 1982, when the market suddenly collapsed and customers cancelled orders right and left, Gardner Denver is charging an up-front fee to take any order. And even that hasn't quashed demand.
|
