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StockScouter likes oil, shipping for 2004
The system that beat the indexes with small banks and builders during the bear market is pointing a different direction now. Think energy. Think global.
By Jon D. Markman
Oil and water arent supposed to mix, but dont tell that to StockScouter, the proprietary stock-rating system on MSN Money. The system, whose Top 50 portfolio rose 52% last year, currently takes dead aim at shares of both small and giant international and domestic energy producers and the ocean shippers who move their products around the world as some of the best opportunities for capital growth in the next six to 12 months.
If close attention on earth and sea seems strange at a time when most investors are focused on the Dow Jones Industrial Average's ($INDU) stunning move toward 10,500 in recent weeks, it shouldnt. Over the past 2 years, StockScouter has repeatedly led investors down lucrative paths that seemed a bit out of sync with conventional wisdom at the time:
- In 2001 and 2002, as investors obsessed on the possibility of a reversal for plunging tech stocks, the rating system systematically loaded its Top 50 portfolio with small-cap regional banks -- companies such as BankMutual (BKMU, news, msgs) and W Holding (WHI, news, msgs) that many readers dismissed as too boring until their shares had risen so much that they had somehow become momentum stocks.
- In the middle of last year, as investors wondered whether the post-Iraq bump in the market could last, StockScouter systematically loaded its Top 50 portfolio with low-priced technology, regional bank, construction and energy stocks. The top 15, published in my column on July 9, (20 top stocks for 2003s second half), rose 17.5% over the next six months, not counting dividends -- a few percentage points better than the 14% gain in the Standard and Poors 500 index ($INX). Leaders included Cognizant Technology (CTSH, news, msgs), +72%, Cisco Systems (CSCO, news, msgs), +44%, and Greater Bay Bancorp (GBBK, news, msgs), +39%.
- The top five Dow Jones industrials, according to StockScouter ratings on July 9 last year, were also an interesting mix of technology, retail, banking, consumables and industrials: Intel (INTC, news, msgs), Home Depot (HD, news, msgs), Citigroup (C, news, msgs), Coca-Cola (KO, news, msgs) and Caterpillar (CAT, news, msgs). Theyre up 40%, 4%, 9%, 12% and 47% respectively for an average of 22.3% -- six points better than the whole index.
The top 20
Now the model is obsessing on the energy and industrial complex in a dazzling variety of forms: Its not just drillers and shippers, but also international electricity producers and telephone carriers, metal miners and processors. If the past serves as any indication, many of these obscure stocks should advance slowly but steadily over the next six months even though they are already hitting one-year highs now. StockScouters entire Top 50 for the start of 2004 are listed in a table at the bottom of this column, but for the purpose of narrowing the group down to a manageable handful, you can focus on the lowest priced ones. (The stocks priced under $25 on the July 9 list were up 28.5% over the past six months -- more than half again as well as the full list.)
| StockScouter's top 20 for 2004's first half | | Company | 1/5/03 price | Rating | Company | 1/5/03 price | Rating | | Exploration Company of Delaware (TXCO, news, msgs) | $6.26 | 8 | General Maritime (GMR, news, msgs) | $17.61 | 10 | | Plug Power (PLUG, news, msgs) | $7.80 | 8 | TDC (TLD, news, msgs) | $19.05 | 10 | | KCS Energy (KCS, news, msgs) | $10.50 | 8 | Lan Chile (LFL, news, msgs) | $19.69 | 10 | | Telefonica Moviles (TEM, news, msgs) | $10.93 | 9 | BHP Billiton (BHP, news, msgs) | $19.20 | 10 | | Statoil (STO, news, msgs) | $11.52 | 9 | Tsakos Energy Navigation (TNP, news, msgs) | $18.58 | 9 | | AirTran Holdings (AAI, news, msgs) | $12.36 | 8 | Comstock Resources (CRK, news, msgs) | $19.65 | 10 | | Dura Automotive Systems (DRRA, news, msgs) | $13.07 | 10 | Repsol (REP, news, msgs) | $19.93 | 9 | | Energy Partners (EPL, news, msgs) | $14.29 | 10 | Headwaters (HDWR, news, msgs) | $20.37 | 10 | | Bassett Furniture (BSET, news, msgs) | $16.98 | 10 | Apex Silver Mines (SIL, news, msgs) | $23.48 | 9 | | Swift Energy (SFY, news, msgs) | $18.10 | 10 | Stelmar Shipping (SJH, news, msgs) | $21.22 | 9 |
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For the complete StockScouter Top 50 list, click here.
StockScouter rates stocks from 1-10 on their likelihood of low-volatility gains six months out, with 10 being best. Our list include some lower-ranked stocks, however, because the Top 50 portfolio is comprised of stocks rated 8 and above that also have the highest average in-favor tailwinds, or market preference scores. Currently, StockScouters favorite sectors are basic industries, consumer durables, energy, public utilities and transportation. Favored market capitalization groups are small caps and large caps (midcaps and microcaps are neutral).
Stepping aside from the quantitative view for a moment, your outlook on the many energy-complex shares on our list depends on whether you believe the price of a barrel of oil will stabilize at its current level in the low $30s, which is historically high. Bears think prices will sink to the mid-$20s, while bulls can see prices in the mid- to high-$30s for the rest of the year.
Is oil going up or down?
StockScouter has no input for higher or lower oil prices and it is completely oblivious to geopolitics. It only knows that fundamentally and technically, these stocks look great. Companies like KCS Energy (KCS, news, msgs), The Exploration Company of Delaware (TXCO, news, msgs), Swift Energy (SFY, news, msgs), Energy Partners (EPL, news, msgs) and Comstock Resources (CRK, news, msgs) all have active and prospective wells that will gush money for shareholders at current prices or better. Theres not a whole lot to differentiate them otherwise, as each essentially tries to leverage its geologists and executives ability to find rich oilfield blocks, negotiate crafty leases, and keep expenses down. Theyll go up or down as a group with slightly varying intensities. To pick one or two for your own portfolio, choose the lowest-priced.
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