5 Tips for Energy Investors

Energy investing isn't easy, but there are plenty of ways for the individual investor to make a successful go of it. Whether you are looking for new ideas, or simply wish to gain a better handle on your current investments, here are five things to keep in mind when it comes to our energy investments.

1. Don't forget the macro
When it comes to our energy companies, there are an awful lot of things to keep track of: How many wells is your oil company drilling? What does the debt picture look like? Where are its assets, who are its joint-venture partners, and on and on.

But this industry, perhaps more so than any other, is tremendously affected by forces outside of an individual company's control. I'm not just talking about how oil stocks tank at the slightest hint of bad economic news, either. The expanding role of the national oil company and shifting world energy policy will affect energy investments in the coming years. Savvy investors tune in and adjust accordingly.

2. Don't forget the micro
Of course, let's not downplay the significance that management has on our stocks. The macro view is important, but CEOs still make or break these companies, and you need look no further than Chesapeake Energy (NYSE: CHK  ) for proof of this.

In fact, superior management is now more critical than ever, especially in North America. Environmental opposition and increasing regulations are turning out to be more than just a thorn in the side of fossil fuel producers. We are entering the age of accountability when it comes to our energy production.

The National Transportation Safety Board recently completed its review on the 2010 Enbridge pipeline spill in Michigan. Essentially, NTSB determined the spill was due to negligence, unpreparedness, and potentially bullying in the pipeline control center. Guess how easy it will be for Enbridge to get its Northern Gateway pipeline project approved? The spill itself may not have dinged its stock price too badly, but failure to launch a $5.5 billion pipeline will absolutely affect future earnings growth.

3. Read foreign newspapers
I enjoy The New York Times and The Wall Street Journal as much as the next person, but these papers are very U.S.-focused, and ultimately I find the best global energy coverage in the Financial Times. Give yourself the advantage of different vantage points. Check out Al Jazeera or BBC News, and think about how your investment fits into the world energy scene.

4. Embrace the Internet
Outside of newspapers, there are many sources available online that can enhance your understanding of the industry, and your stock's role in the energy picture. Here are three to get you started:

  • Legal blogs -- Largely used as a PR tool for attorneys, these blogs can actually be useful to investors, too. Law firms are frequently the birthplace for the legislation and regulation that guide our energy companies. Keep tabs on these developments at sites such as Energy Legal Blog, Renewable Energy Law Blog, and the e2LawBlog.
  • Consultants -- There are people out there who eat, sleep, and breathe energy. It's kind of intense; let's respect their dedication and then go take all their ideas. Whether you're checking in with Wood Mackenzie or IBM, there is a lot of information out there that you can just have. Go get it!
  • Oil company industry reports -- BP (NYSE: BP  ) and ExxonMobil (NYSE: XOM  ) both publish world energy outlooks. Baker Hughes (NYSE: BHI  ) tracks global rig counts, and Schlumberger (NYSE: SLB  ) issues a human resources benchmark survey. These reports are accessible, thorough, and greatly improve the context of our investments.

Or, if that seems too daunting, jump on Twitter and start following people in energy. Writers and industry professionals tweet relevant and interesting articles, charts, thoughts, and ideas that we are all now privy to (for better or for worse) thanks to the Internet.

5. Revisit your thesis
Energy companies are not like Coca-Cola. Perhaps there was a time when you could hold ExxonMobil for 20 years and not think about it, but those days are over. Revisit your investing thesis often, factor in the micro and the macro, and make your buy, sell, or hold decision again and again.

Foolish takeaway
It is easy to be overwhelmed by the sheer volume of information out there about energy, but if you start with the basics and build from there, it can actually be a lot of fun. Give the five tips above a try with the company Fool analysts peg as "The Only Energy Stock You'll Ever Need."

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.

The Motley Fool owns shares of ExxonMobil and Chesapeake Energy. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (21) | Recommend This Article (75)

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 July 09, 2012, at 5:53 PM, JadedFoolalex wrote:

    Regarding the Embridge spill, you are correct that the spill is bad PR for the company. I don't believe this will prove deadly for the XL pipeline however. As Venezuela, Saudi Arabia and other countries that provide oil to the U.S. continue to balk at supplying oil to Americans, the ocean of oil sitting in the oil sands (No, not tar sands cuz you cannot economically extract gasoline and diesel from tar!!!) will become a more convenient source of oil for the U.S. Humans have short memories. Humans who are in need of oil to sustain their way of life have even shorter memories. This, in time too, shall pass!

  • Report this Comment On July 09, 2012, at 5:58 PM, opedbyme wrote:

    what no mention of alternative energy companies....that the future you fools

  • Report this Comment On July 09, 2012, at 6:12 PM, xetn wrote:

    JadedFoolalex:

    You can not get gasoline or diesel from any where except from a refinery. Both are derived from oil.

  • Report this Comment On July 09, 2012, at 6:26 PM, Educationist wrote:

    i am an avid reader of the London Economist and the Financial Express. In addition, I hear the BBC that informs me about US economy and the possible pitfalls much better and with greater accuracy than any of the US newspapers. I would however, recommend the Christian Science Monitor for its excellent journalism and the state of the art of the political situation in particular and the US economy in general

  • Report this Comment On July 09, 2012, at 6:28 PM, Educationist wrote:

    Can any intelligent reader tell me what is the best bond to buy? I am planning to buy some percentage of bonds for my portifolio.

  • Report this Comment On July 09, 2012, at 7:03 PM, wjcoffman wrote:

    "Perhaps there was a time when you could hold ExxonMobil for 20 years and not think about it, but those days are over." I'd be interested to read why the author thinks those days are over.

  • Report this Comment On July 09, 2012, at 7:08 PM, TMFAimeeD wrote:

    @wjcoffman

    Stay tuned! It's in the works.

    Aimee

  • Report this Comment On July 09, 2012, at 7:49 PM, NOTvuffett wrote:

    I would just like to point out for those that might not be famialiar with energy markets that natural gas is a much more seasonal and regional commodity than oil is. So for example a producer whos production is heavily weighted toward nat. gas (as is CHK which Aimee mentioned) will not respond the same as one with a higher proportion of oil production to macroeconomic forces.

  • Report this Comment On July 10, 2012, at 2:47 PM, hbofbyu wrote:

    I've always considered Exxon stock comparable to Coke. Similar growth. Similar dividends.

    The world can live without soda. It can't live without oil.

  • Report this Comment On July 13, 2012, at 11:01 AM, Educationist wrote:

    hbofbyu what you have said is so true. My oil stocks - Exxon Mobil and Chevron bouight 20 years ago has come to my rescue when the eonomy is in doldrums, like we are facing today. During my two years in Saudi Arabia and later in my home country in India I learned that dollar is cheaper than oil. That why the billionaire George Soros said Saudi Arabians are not pumping more oil than necessary. Dollar will get cheaper but not oil. Also, even in the economic down turns we need soap, detergents, baby milk, Gillette shaving blades (unless you want to grow long hair), toothpaste, so Colgate Pamolive and P&G will always do well.

  • Report this Comment On July 13, 2012, at 11:29 AM, gaz121 wrote:

    So did the CEOs of CHK make or break CHK? :-(

  • Report this Comment On July 13, 2012, at 5:49 PM, ocmas wrote:

    In the Rockies there are many dirt roads to travel on, some of these roads have areas that are very rough and bounce you around quite a bit. These areas are called buck boarding. This is what CHK is going thru, they should come out of it just fine.

  • Report this Comment On July 13, 2012, at 7:52 PM, chris293 wrote:

    Idon't have numbers, but i feel CVX should be in this group with its presents in Asia.

  • Report this Comment On July 13, 2012, at 8:31 PM, lisamariecurtis wrote:

    I would just like to echo a comment above that these days when you're talking about energy investments you need to talk about renewable energy.

    Warren Buffet, the third-richest man in the world, seeks investments in undervalued sectors that deliver consistent returns over long investment periods. Late last year, Buffet invested billions of dollars in two solar farms located in Arizona. The two farms will generate enough electricity to power more than 200,000 homes, but trust me when I say Buffet did not make the move simply because it was “the right thing to do.” His enormous investment in these projects highlights his investment thesis that solar energy will produce consistent annual returns as energy prices continue to rise.

    Goldman Sachs, the fifth-largest bank in the world, called renewable energy sectors “one of the biggest profit opportunities since its economists got excited about emerging markets in 2001.” And they aren’t the only ones who think this market shows enormous potential. Last year, U.S. investors led the world with $56 billion invested in renewable energy (a 33% increase from 2010). Goldman Sachs, not looking to miss an opportunity, has pledged to invest $40 billion in renewable energy projects over the next decade.

    Lastly, Germany, with the largest national economy in Europe and the fourth largest in the world, recently reached a historic milestone regarding renewable energy and solar energy in particular. Last month, half of Germany was powered by solar. You read that right—50% of Germany’s midday electric needs were met by 22 gigawatts of solar power (equivalent to 20 nuclear power stations running full blast). "Never before anywhere has a country produced as much photovoltaic electricity," said Norbert Allnoch, director of the Institute of the Renewable Energy Industry. This is a historic step towards Germany’s goal of using 100% renewable power by 2050. Imagine the potential in the U.S.; we receive 3900% more sun than Germany, yet Germany currently produces 6000% more solar power.

    Clearly, there is enormous room for growth in renewable energy sectors both in the U.S. and abroad. So when considering investments that will have the greatest impact, don’t forget about return on investment. You and I want to help the world, but there is no reason we shouldn’t seek reasonable financial returns while we’re at it. Renewable energy may prove to be the perfect nexus between creating social / environmental progress and earning consistent financial returns on your investment.

    For more information on renewable energy investments, check out my company's blog at www.solarmosaic.com

  • Report this Comment On July 13, 2012, at 9:11 PM, AaronRogers wrote:

    To the person askig about a bond- I'm guessing your looking for an energy companies bond I'd rec. ATPG. The yield is extreme. Company is facing cash flow challenges. However, they have huge prob and proven reserves and extremely valuable leases and infrastructure. Very strong possibility of actually pulling out of debt spiral.

    That being said there is a very strong chance of bankruptcy. That is only bad for the share holders as they will be wiped out in that event. However last I heard the bonds were at a 50%. Straight slavage value alone pegs for atleast 75% return I believe. So collect a huge yield until 2015 and then even worst case you get paid additional 25 on bankruptcy. A no lose. I forget which company (not Motley) did a great article on this. Do due diligence. This is a starting point

  • Report this Comment On July 15, 2012, at 1:05 PM, compufixer wrote:

    To the person asking about bonds: consider FNMIX. On a closely-related subject: "cash". Give up on money markets, they give zero income. low is one thing, Zero another. Instead, consider VCSH, it's very stable and pays a low but definite interest. Even better, consider VCIT, it's similar but longer (duration bonds). Pays a decent return. Without getting too far off the subject, long term interest rates are still falling. While they do, VCIT will rise in value a little.

  • Report this Comment On July 16, 2012, at 1:25 PM, swiver wrote:

    The Enbridge disaster was not nearly so critical as the PG&E one. The report on it, as a person involved in pipe inspection, made me cringe. They kept talking about "risk analysis". They let leaks go unattended. They used old pipe to fix problems, and their record keeping was a mess. People dont seem to realise that line pipe corrodes, and eventually will leak, especially if they keep pressuring it up to see if it will leak. Many lines in the US and uninspectable (unpiggable). But none of this gives me a a good feeling about the 2 pipelines at the bottom of my garden, despite the occasional helicopter flying over it.

    Until new pipelines are laid in this country, these disasters will always occur

  • Report this Comment On July 16, 2012, at 4:49 PM, SpaceVegetable wrote:

    These tips can apply to just about all investments. Getting a wide variety of information can help one make the most informed and balanced decisions. I regulary watch BBC News and am often astounded by the complete lack of coverage of some issues by US news outlets. I think too many people have limited themselves to too few news sources and suffer from the lack of varying perspectives.

  • Report this Comment On July 18, 2012, at 6:03 AM, DelOjoZafado wrote:

    A post mentioning Buffet and so there is the way to invest in the producers of alt/renewable energy and NOt the manufacturers of the technologies who rapidly copy each other's innovations and then sent=d every thing to China or someplace even cheaper for the manufacture. It is hard to follow BRPFF as it just converted to a partnership this year from being GLHIF. The stock has put in a triple off the 2008 handles of $7 to $8 US dollars when the Loonie was still less than .80. Ditto NPIFF.

    Warren also teaches us to be greedy when others are fearful. The CHK "scandal" was then a gift to the paying attentioners. It occurred in a sycrocicity with the annual Sumer sell of in stocks and a knock down in gas from the then nascent rally off the April $2.20 lows and last year's sub $2. The CHKR 75% OWNED by CHK got knocked down unmercifully. And the wirst thing that probably could of happened to CHKR would have been that CHK would have had to sell their 75 to another O&G major to raise cash as they s=did with the pipelines. Not being totally clairvoyant I grabbed a tranche two days before it went ex with a $20 handle. Then just waited for the scandal to & market to keep the pressure on before adding another with an $18 handle. I missed calling the bottom for a third tranche but so what. I am sitting on a 13% gain in the "units" and the yield is going down ...from the current 11.7%. Gas is holding $2.80 in the commodities rally re-asserting and the Great Inflation II continuing to wind up. If only I had been greedier! But then I was also mugging up on shares of CPNO, MARPS,FRHLF, and WHZ at the same time so now we are dsitting pretty in Gas trusts and virtual MLP CPNO. We also added to BP with $38 and $36 handles for the yield! that 5.2% yield is gone now as the Stock has added on 6.5% in just the last 7 trading days. ALL the fear and dread of sub $80 WTI sub $100 Brent was just fleeting. Now it is drought that the fed blames for self financing 30% of the national debt. With Romney that debt grows to $20 Tril by the midterm elections at least 80% self funded. With Obama triumphant it takes two more years.. In either case we are heeding for GDP growth at a lowe r rate than the rate on the 30 year. Some time soon in the next 3 to 5 years our +20tril nat Debt will become +50% self funded. The Chinese with $1.7 trill of that debt that has now nearly peaked in value have near unlimited resources to get "Stuff". They have already committed to buying nearly 30% of our 2012 & '13 Soybean crops. The US consumer gets +60% of their edible oils consumption from soybeans. The Chinese have made similar commitments to buy corn and other grains. They are going to keep coming for our "stuff" including metallurgical ores, met coal, LNG, fertilizers, petrochemicals, refined oil products, forest products, and cement. Next time you hear those financial news pundits talking about the benefits of lower oil prices and the strengthening dollar is having g=for US consumers think about what a gallon of gasoline cost 2 ! years ago. think about how strong that dollar is against a basket of commodities currencies? The Indonesian Rupiah is up 10% against the US Pe$o since it bottomed a couple months ago. The strong Dollar not so strong as of late against the Rupiah. Inflation is rampant in every thing that is energy or food related. Of course there is the disinflation in real wages continuing. Commodities WITH YIELD and yield IN A COMMODITIES CURRENCY as the two utes cited or VNRCF also on a tear since falling below US$14.50. So yes you can buy the BP, COP, &/or the RDS/B for those yields when the prices dip to provide those near or better 5% yields.! You can buy them and put them away as they continue to increase this dividends. RDS a stealth global leader in the LNG sector.

  • Report this Comment On July 18, 2012, at 6:10 PM, Ics54 wrote:

    Can't miss with XOM or RDS. Latter has a pipeline of new projects coming on line and a great dividend. Both sitting on a pile of cash.

  • Report this Comment On September 17, 2012, at 4:49 PM, bartsd wrote:

    Funny how this "advice" centered squarely on oil.

    Yet you would think that having the "renegade fool" motto that you started out with, things like the US Navy increasingly testing and using bio-diesel fuels would have caught more attention.

    But hey, doing real fool's work and research would mean going back to your roots!

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