The notorious oil bubble of 2008 and its subsequent burst has left a sour taste for energy stocks in many investors' mouths.
However, now many investors are rethinking that perception.
As demand for oil decreased during the recession, oil companies slowed pumping. This doesn't seem problematic, especially since America's oil inventories currently are at a huge surplus -- well above where they usually are at this time of year.
But the opportunity for investors comes as the economy continues turning around. You have probably already begun experiencing this with recent volatility in gas prices.
As oil companies resume high-production pumping, it will cause the price of oil to spike once more.
All of this might make you nervous about a subsequent rise in prices at the pump, but it bodes well for owners of the Vanguard Energy ETF [NYSE: VDE]. This ETF, with a bargain-basement price tag of just 0.14% in annual fees, lays claim to 169 energy-related companies primarily based in the United States, ranging from oil drillers to oil explorers and storage companies.
As if the predictions above weren't enough, there's a wild card that will further aggravate the problem. Remember those emerging economies we described earlier? Although demand has nearly fallen off a cliff in the developed world, those emerging economies haven't witnessed such a drop. In fact, China's importation of oil is nearly as high as it was before this global recession began. If this trend continues, even more pressure will be put on the price of oil.
This ETF could see significant upside over the next year or two. But if oil prices rise to more than $150 a barrel (and the stock prices of oil companies join in on the ride up), the risk/reward scenario will shift. At that point, it would be better to take your profits and invest them in more attractive opportunities.
Speaking of attractive opportunities... let's take a look at our next ETF. It tracks a sector that was white hot at the beginning of the decade. And though it may have fallen out of favor with some investors... it still has plenty of room to run.
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