Checking In on Energy Stocks

This article is part of our Rising Star Portfolios series.

As part of the management for my real-money Motley Fool portfolio, I publicly purchase one or more stocks each month, and I typically try to track them afterward for readers. So far I've bought six different stocks in three months and have invested a little more than $4,000, or close to 25% of my total allocation.

Last month I decided to buy a basket of energy stocks, which included El Paso (NYSE: EP), Petrobras (NYSE: PBR), Schlumberger (NYSE: SLB), and Diamond Offshore Drilling (NYSE: DO). If you're interested, you can read the original analysis here. Today I'd like to check back on these stocks to see how they've performed and note some key developments.

So how's the performance?
Below you can see how the four energy stocks I purchased have fared since inception:

Source: Yahoo! Finance.

It's been less than a month since these picks, so I'm certainly not exclaiming victory or acting as if these types of returns will continue. However, I would like to point out a few things that may have caused some of these stocks to rise or fall, and then I'll list two additional energy stocks I'm looking at buying this month.

The biggest movement, obviously, is the 20% gain for El Paso, which is much greater than that of peers Williams Companies (NYSE: WMB) or DCP Midstream over the same period. Although the company doesn't report earnings until Feb. 24, it did make a significant announcement. The company has pre-sold a large majority of its oil and gas production at above-average rates -- $5.95 per million btu for natural gas and between $86 and $92 for oil. This is significant because that is above the market rates assumed by the company when calculating next year's earnings (the company had projected $4.25 for natural gas and $85 for oil). Overall, El Paso has sold about 75% of its natural gas production and about 85% of its oil production at the aforementioned rates, leaving much room for increased guidance in the latter part of the year.

In general, increased positivity regarding the global economy has lifted projected energy spending, so service companies such as Schlumberger have risen the rising tide. The company announced an increase in 2010 profits of 36%, while peers Halliburton (NYSE: HAL) saw profits go up by 60% and Baker Hughes (NYSE: BHI) by 93%. Service companies like these expect the big exploration and production firms to continue drilling, as oil prices are assumed to increase for the foreseeable future. As long as that holds true, these companies should enjoy a nice uptick in their share price.

Unfortunately, the same couldn't be said for a turnaround favorite of mine, Diamond Offshore, which has gone down by more than 3% since I purchased it. Although it managed to beat Wall Street expectations, it still posted a fourth-quarter profit of $1.74 per share, representing a 12% decline from the year prior. However, I'm still bullish on the company, as it announced a few days ago that it would exercise its option to build a second ultra-deepwater drillship, which it drastically needs to do in order to compete with companies that have more modern drill equipment.

Stay tuned for a few more
So that's a general wrap-up of what's happened over the past few weeks. I'm encouraged about the progress some of the companies have made and am most interested to see how Diamond Offshore rebounds over the next year or so.

Energy stocks have treated me well recently, and because I believe that natural gas prices, in addition to oil prices, will shoot upward, I'm looking into some gas companies for my next purchase. In fact, I've already got my eye on two specific ones, so be sure to check out my next article when I invest $1,000 more of my capital in these two stocks.

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. Click here to see all of our Rising Star analysts (and their portfolios).