Say it together with me, brothers and sisters: "Above-average stock selection will set you free."
Take the major oil companies. They've done a pretty mediocre job as a group, with only ConocoPhillips
While full-year revenue rose 39% and full-year net profits rose 28%, profits weren't quite as good as many analysts had hoped. The problem wasn't in the E&P business -- operating earnings there were up 60% on the combination of higher prices and production. The problem was in the other two legs of the tripod -- refining/marketing and chemicals.
Refining and marketing operations posted a loss because of much worse refining margins. Volumes were up 6%, and costs rose nearly 11%. While those numbers aren't bad, the price controls the Chinese government imposes on refined products cripple profitability. On the chemicals front, the word here isn't much different from that at ExxonMobil
Certainly, there are some risks here. Government policy can make or break profits, and it's reasonable to assume that energy demand will fall if the economy slows. That said, there are some positive points as well. The company's E&P operating statistics are sound -- including reserve replacement greater than 100% and relatively low lifting costs -- and the company expects to see price reform (or rather, price control reform) on refined products later this year.
What's more, even with such solid outperformance this past year, the stock isn't unattractively priced. Of course, there's controversy here, since Chinese oil companies are willing to invest in regions where rule of law and respect for human rights is questionable at best. But if these policies don't trouble you personally very much, there could still be room to run with the only Asian energy company that qualifies as a major player.
For more Foolishness from the energy patch:
- Chesapeake: Full of Gas and Making Cash
- Cash-Rich Growth From Occidental
- Big Oil Gets a Little Bigger
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Fool contributor Stephen Simpson owns shares of PetroChina but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a high-octane disclosure policy.