These Stocks Beat Petroleum Stocks

Just last week, I pointed out that petroleum companies had averaged significantly higher returns over the past year than alternative-energy companies. But in the spirit of personal one-upmanship, I've found that CAPS contains a group of investments that are doing even better than petroleum stocks.

Would the real hot stocks please come forward?
The 5,500 stocks that more than 115,000 Motley Fool CAPS community members have rated include descriptive "tags" that group them with other companies sharing similar qualities -- a country of origin, a sector, or an end product, for example. The Petroleum tag contains 25 stocks that have far outpaced the broader market, with a 22.7% average gain in the past year.

But CAPS can lead you to stocks that have outpaced even the near-term returns from the petroleum group: Independent Oil & Gas. This group consists of 98 companies that have outperformed the even the fantastic returns of the petroleum group, with a 39.8% average rise in the past year.

Every group has its share of winners and losers, of course, but CAPS can be a great resource for zeroing in on potential opportunities in each area.

From macro to micro
You can sort tag groups by their CAPS ratings, from one to a maximum five stars, and then see which players -- from Wall Street to Main Street -- are bullish or bearish on a company, and why.

For instance, here are a few of the stocks in the Petroleum group:

Source: Motley Fool CAPS, as of Aug. 29.

Now, based on the interest in the CAPS community, here's a sampling of Independent Oil & Gas stocks that investors may want to consider.

Source: Motley Fool CAPS, as of Aug. 29.

Vaalco Energy
With a focus on oil and gas deposits in West Africa, Vaalco Energy reported a monster second quarter of solid earnings and cash flow, a result of many more barrels being sold for almost double the $68.77 average price it fetched last year. The independent energy company's $13 million in net income for the quarter blew past the $3.7 million reported a year ago, and it remains on track with several new exploration projects.

Vaalco recently settled its way out of a proxy fight with a hedge fund that was pushing for a shake-up of the board. At the time, Nanes Delorme Partners believed the stock was underperforming and that a divesture or outright sale could create more value. That threat is quelled for now, but it will probably motivate company management to deliver strong on the prospects of new drilling sites. Many CAPS investors appreciate the company's proven reserves on hand and consistent growth over the past five years: 97% of the 1,458 CAPS members who have rated Vaalco expect it to outperform the market.

Devon Energy
With some members of Big Oil -- such as ExxonMobil (NYSE:XOM) -- seeing income falling precipitously in their downstream refining and marketing business, some investors might prefer avoiding integrated companies and instead join those heavily focused on the upstream side. That group includes independents such as Devon Energy. Whether savvy or just lucky, Devon got into the Barnet Shale early. It grabbed cheap leases with high net revenue. So its gross production there is on a level well above that of its closest competitors.

During the second quarter, Devon drilled 189 new Barnett wells, and 650 more are expected for the year. Increased production and higher oil and gas sales pushed Devon's profits up 44% in the second quarter. The company also takes efficiency to new heights --it managed to pull off an $11-per-barrel finding cost at its Lloydminster oil play in Canada in 2007. Compared with costs of around $18 at the likes of Occidental Petroleum (NYSE:OXY), that's music to value investors' ears. CAPS members are singing along. Too. More than 97% of the 1,444 members rating Devon bet it will outperform the market going forward.

Before you buy ...
Of course, what's happened in the past is no indicator of where investors should be putting their capital now. But the underlying reasons behind dramatic run-ups in stocks or groups of stocks can clarify trends that may significantly affect investments. Just make sure to do your own due diligence rather than simply follow crowds or individual recommendations.