An Energy Infusion for Your Portfolio

What's a good investor to do? With the market doing triple-digit loop-de-loops -- frequently in the form of tummy-squeezing plunges -- picking stocks, or even sectors, can be challenging.

My inclination, as I struggle to take a top-down perspective on the universe of equities, is to suggest that Fools think awfully hard about how the world of energy is likely to shake out in 2009 and 2010. When I go through that exercise, it seems to me that the Big Oil stocks of ExxonMobil (NYSE: XOM  ) , ConocoPhillips (NYSE: COP  ) , and BP (NYSE: BP  ) deserve your attention, as do the Bobbsey Twins of deepwater drilling: Transocean (NYSE: RIG  ) and Diamond Offshore (NYSE: DO  ) .

Here are some reasons why I think Big Oil is ready for a comeback:

  • I won't contend that the slide in crude prices from north of $145 a barrel in July to about $55 currently can't continue. But OPEC recently agreed to cut 1.5 million barrels a day from its production. It has also scheduled a meeting for later this month, in addition to its regular meeting in December. I'll be surprised if further production cuts don't result.
  • Baker Hughes (NYSE: BHI  ) is predicting the idling of 200 rigs in North America in December, a whopping number that'll likely affect oil prices -- and to some extent natural gas prices -- during the next year or two. This trend is unlikely to hit the deepwater companies as hard as it will their jack-up brethren.
  • Analysts differ about the extent to which oil demand will grow this year and next. Nevertheless, in a world where supply and demand are effectively in balance, it won't take long for the cancellation or deferral of numerous global energy projects -- including several in the oil sands of Canada, our biggest crude supplier -- to come home to roost.
  • According to BusinessWeek, the Integrated Oil & Gas group has outperformed the S&P 500 during the past year. If you believe -- as I do -- that energy prices are near a bottom, it's difficult to envision that trend reversing itself.

So, as you wander through the great wasteland that stock picking has become, it seems to me that, if your investment time horizon is at least a year out (and preferably longer), it makes awfully good sense for you to stop for an energy infusion.

Of the companies mentioned above, ConocoPhillips, Transocean, and Baker Hughes have generated five-star ratings from Motley Fool CAPS members. Do these ratings include your thumbs-up?

Related Foolishness:

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned, and can't for quite awhile because he's written about them. He does, however, welcome your questions or comments. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy hopes Bert, Nan, Flossie, and Freddie Bobbsey are all doing well.


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 19, 2008, at 3:56 PM, Brettze wrote:

    David

    You dont seem to understand one thing... Americans is determined to cut oil consumptioin by 50% at least so to silence the Big Oil for a long time to come... Big Oil is no longer able to be depended on for continued economic expansion... Car makers, homebuilders, everyone who is fed up with the tail waggings of the dog that is Big Oil , are all up in arms to fight oil consumption downward permanently!! Car buyers are too petrified to take out a car loan after paying $80-$120 per fill up not long ago.. We are sitting at home and waiting out Big Oil until it is drowning in its oil glut with air bubbles rising to the surface...We need to be sure of Big Oil deep burial before we head out of our homes and resume business as usual..

    GM and Ford already have fuel efficient models ready to go with more new models to follow that will raise CAFE far higher than today's 20 or so... so once we hit 30 or 35 CAFE , this means halving of our oil consumption. This will be a bigger disaster for Big Oil and OPEC than for GM and Ford.

    Oil shareholders are so periloiously slow to unload oil stocks that boggles my mind!!

    What is in your wallet?

  • Report this Comment On November 19, 2008, at 6:33 PM, BasicRobert wrote:

    Brettze

    Americans will NOT cut oil consumption by 50% or anything close to that in the near term. Big Oil is NOT the problem. Our country being hooked on oil is the problem. The current economic down turn has softened demand for oil and oil products. This is a short term thing and when it's over oil will go right back up to $100 per barrel or more. It's all about supply, demand and speculators. Car buyers are afraid they are going to lose their jobs or afraid of purchasing a car from a soon to be bankrupt car manufacturer. That is why they are not buying cars. This country needs to re-double it's efforts to develop sustainable alternative energy sources. One of these days most of the easy to recover oil will be gone (that day is not far off). When that day comes if we don't have alternative energy going strong we will think $7.00 gasoline is cheap.

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