Energy Stocks Ready to Melt Down

It doesn't take a super-secret report to know that energy stocks have been on fire. Over the past five years, the energy sector has outperformed the S&P 500 by 139 points. However, recent declines in oil prices may be signaling an end to the easy money. Formerly cherished highfliers such as Valero Energy (NYSE: VLO  ) -- down about 50% year to date -- have fallen hard recently. How can we hope to avoid these kinds of meltdowns?

CAPS Screener to the rescue! Harnessing the power of the Motley Fool CAPS investment community, I screened for companies that investors are bearish on. The following stocks were rated five stars a year ago, but have dropped to three stars or worse since.

Company

Recent Price

1-Year Return

CAPS Rating

EXCO Resources (NYSE: XCO  )

$22.58

39.1%

***

Kodiak Oil & Gas (AMEX: KOG  )

$2.85

(29.6%)

***

Linn Energy (Nasdaq: LINE  )

$20.40

(35.1%)

***

Penn Virginia (NYSE: PVA  )

$61.31

54.6%

**

Petrohawk Energy (NYSE: HK  )

$29.05

95.9%

***

Data provided by Motley Fool CAPS and Yahoo! Finance.

Note that this is not a list of companies to buy or sell. In fact, all these companies may turn out to be solid investments.

For instance, CAPS All-Star carbonates recently wrote the following about EXCO Resources: "I see the recent decline in price as a buying opportunity for a company that is in the hottest gas shale play in the US... that I think will benefit from continuing tight energy supplies."

But considering that three-star stocks as a group were flat over CAPS' first 20 months of tracking, while five-star rated stocks trounced the market by 12 points annualized, I'd rather not bet against the wisdom of the Motley Fool CAPS community. Given this, I'd much rather invest in companies like five-star-rated Petroleo Brasileiro (NYSE: PBR  ) for my energy fix.

Have your own thoughts on which energy stocks are poised to fuel your portfolio? Join our 115,000-member Motley Fool CAPS community and let your voice be heard.

Fool analyst Tony Arsta does not own shares of any company mentioned. Petroleo Brasileiro is an Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a solar-powered disclosure policy.


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  • Report this Comment On August 22, 2008, at 7:03 PM, carbonates wrote:

    I too own PBR, but keep in mind there is political risk in a company that is controlled by the Brazilian government. Even with their spectacular exploration results, the government of Brazil may very well assign the production rights of some of those incredible discoveries to another state-owned company. How the Brazilian government decides to distribute the profits from these new discoveries creates a downside risk for Petrobras that bears close watch. Research, research, research.

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