This article is part of our Rising Star Portfolios series.
In mid-January, I encouraged investors to grab a basket of energy stocks at great prices. At that point, I purchased about $2,000 worth of my four favorite stocks, representing 12% of my Motley Fool real-money portfolio. One month later, I decided to purchase another energy stock, Range Resources (NYSE: RRC ) , in hopes that the company would see a nice boost when the nascent recovery in natural gas finally arrived.
So how do I feel now that geopolitical events in North Africa and the Middle East have escalated, and Japan is suffering one of its greatest catastrophes since World War II?
Oil is both up and down
Prices for oil swung wildly upward, rising toward 30-month highs after Saudia Arabia sent troops into Bahrian. General unrest in the Middle East seems to prevail, despite the world's efforts to curb the chaos. Then an earthquake and tsunami struck Japan, sending prices back down to less than $100 a barrel on expectations of a long-term drop in demand.
After all, Japan is the world's fourth-largest economy, the third-largest oil consumer, and the second-largest net importer of oil. The disaster that struck Japan will no doubt curb oil consumption, bringing demand and prices down. In fact, the March 11 calamity has already shut down a quarter of the country's refining capacity and 11 of its 54 nuclear reactors, according to Reuters.
However, at the same time, geopolitical events abroad are having the reverse effect. Uncertainty in so many different oil-producing countries is causing prices to rise, and in Libya, a country that previously pumped out 1.6 million barrels of oil a day, an ongoing rebellion means continued supply disruption. According to Chris Lafakis, an analyst at Moody's, "if oil production were to shut down in Libya, Bahrain and Yemen, for example, the price could jump to $125 per barrel ... These are low-probability events. But they would have catastrophic consequences."
How to invest along the rollercoaster?
Expect oil prices to swing wildly up and down over the next few months as events continue to unfold. In the long run, however, prices have nowhere to go but up. A general backlash against nuclear energy could drive prices up; demand will remain high as global economies continue to recover; and so far, we haven't seen a big fallout from higher gasoline prices. This could actually be quite the time to grab your favorite energy stock, especially if it's taken a hit in the recent weeks.
In fact, check out how my basket of energy stocks has performed over the past five days:
|
Company
|
5-Day Price Change %
|
P/E Ratio
|
| Petrobras (NYSE: PBR ) |
(4.42%) |
9.02 |
| Diamond Offshore (NYSE: DO ) |
(6.46%) |
10.33 |
| El Paso (NYSE: EP ) |
(7.69%) |
17.01 |
| Schlumberger (NYSE: SLB ) |
(6.15%) |
24.58 |
Source: Yahoo! Finance.
Over the next few weeks, I'll be keeping a close eye on these stocks to see whether they continue to plummet. If they do, I might take it as an opportunity to grab my favorite stocks at discounted prices. Another Fool-favored company, ATP Oil & Gas (Nasdaq: ATPG ) , has plunged more than 16% over the last five days! As a small-cap company, ATP is obviously more volatile, but as my fellow Fool Dan Dzombak suggests, it's still worth keeping on your watchlist, especially if prices remain depressed.
If you're interested in energy stocks, I suggest you also keep an eye on your favorite stocks, or join me in monitoring whether shares of the companies above keep declining. If so, we could have a great buying opportunity on our hands.
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).
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