Why Energy Could Be a Solid Sector in 2009

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After the past year's wacky, unpredictable, and somewhat unexplainable action in energy, it's amazing that Fools who spent time and money in the sector haven't all donned neck braces. But while I won't crawl out on a limb and offer a prediction about where I think 2009 might take us, I'll go so far as to venture that we might just have hit a crude-oil price bottom and begun a movement higher.

After all, crude descended from its all-time high in the $140s in July to $33.87 in mid-December, and now it's moved back up to above $46 by the end of last week -- a leap of 37%. On that basis alone, I'd urge Fools to ascertain that their portfolios include at least a modicum of oil, gas, and oilfield-service names. My key reason: Even though it's hard to argue that oil prices are headed back to the highs of 2008, stocks in the sector have been hit so hard lately that a slow price improvement -- or even reasonable stability -- could do wonders for their 2009 success.

There appear to be at least a couple of contributors to crude's recent revival. Clearly, the military action in Gaza is playing a role. And beyond that, OPEC's decisions to reduce its production -- including its mid-December agreement to lop off a record 2.2 million barrels a day -- have applied upward pressure.

I've argued recently that ExxonMobil (NYSE: XOM  ) is a stock to watch closely this year. But it's not the only energy name I'd pay attention to. In fact, ConocoPhillips (NYSE: COP  ) , Total (NYSE: TOT  ) , and BP (NYSE: BP  ) are all solid integrated companies that could perform nicely. You also need to know that BP starts you off with a 6.9% dividend yield.

And don't neglect the service companies. It wouldn't take much more of an oil-price improvement to reinitiate some energy projects that have recently been shelved. The result could benefit the likes of big service companies Schlumberger (NYSE: SLB  ) and Baker Hughes (NYSE: BHI  ) , along with deepwater driller Transocean (NYSE: RIG  ) .

Another key, however, is the steep fall in the companies' share prices during the second half of last year. On that basis, and given the overall importance of energy, even amidst my promise not to crawl out on a limb, I'd anticipate a surprisingly strong relative performance from energy in the year to come.

All of the companies mentioned above have five-star ratings from Motley Fool CAPS players, with the exception of ExxonMobil, which is a four-star performer. Why not add your opinion to the group?

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Total SA is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does encourage your questions, comments, or kibitzing. The Motley Fool has a disclosure policy.

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10/21/2016 4:00 PM
BHI $52.35 Up +0.10 +0.19%
Baker Hughes CAPS Rating: ****
BP $36.25 Up +0.20 +0.55%
BP CAPS Rating: ****
COP $41.54 Up +0.05 +0.12%
ConocoPhillips CAPS Rating: ****
RIG $10.50 Down -0.09 -0.85%
Transocean CAPS Rating: ****
SLB $80.47 Down -2.52 -3.04%
Schlumberger CAPS Rating: ****
TOT $48.28 Down -0.26 -0.54%
Total CAPS Rating: ****
XOM $86.62 Down -0.59 -0.68%
ExxonMobil CAPS Rating: ****