Noted for their simplicity and other advantages over mutual funds, exchange-traded funds have become a popular investing tool. ETFs hold a collection of stocks that share certain elements and allow investors to get in early on what they believe are tomorrow's big trends.

Investors bullish on growth in the gas production sector, for example, can turn to PowerShares Dynamic Oil & Gas Services or iShares Dow Jones U.S. Energy. But because these ETFs invest in a number of energy-related stocks, their diversity also limits your upside -- and investors may dilute stellar returns away from that one amazing company in the crowd.

Fear not, Fool -- in this edition of "ETF Teardown," we'll use some nifty tools to drill into the best investments in the gas production sector. To help, we'll use Motley Fool CAPS, our tool for screening and ranking stocks and stock pickers.

The power of tags
To help investors quickly locate great stocks, the 5,700 stocks rated in CAPS can be "tagged" with descriptors that group the company with others sharing certain qualities -- "Gold," for example, or "Recycling."

Selecting the Gas label in CAPS gives you a list of 86 companies that trade on American exchanges. With a big drop in oil prices and a correction in the commodities market, this particular collection of investments has fallen from its highs in the past year, down 38.5%, essentially matching the fall in the S&P 500.

To pluck out the companies the CAPS community picks as the best opportunities in the gas sector today, we'll sort a sampling of these businesses by their CAPS star rating, from one to the maximum five stars. We'll then examine a few companies to see who -- from Wall Street to Main Street -- is bullish or bearish on the business, and why.

Getting down to the nitty-gritty
Here are some gas stocks I've gleaned from CAPS today.

Company

CAPS
Rating

Market Capitalization (billions)

Penn West Energy Trust (NYSE:PWE)                     

*****

$4.2

Devon Energy (NYSE:DVN)

*****

$29.2

Petrohawk Energy (NYSE:HK)

***

$4.0

XTO Energy (NYSE:XTO)

*****

$21.3

BP (NYSE:BP)

*****

$141.2

CononcoPhillips (NYSE:COP)

*****

$77.6

Canadian Natural Resources (NYSE:CNQ)

*****

$19.6

Sinking in quicksand?
When oil prices were soaring past $100 a barrel, oil exploration companies were tripping over themselves to anchor new properties to exploit -- including many that were not economically viable in the past. Canadian Natural Resources (CNR) was one of many players making big moves to develop oil-rich sands in Canada. These plans are now increasingly seeing delays in the face of nearly $40 oil and rising production costs.

But CNR is broadly diversified in petroleum and natural gas around the globe, and it's been a good steward of shareholders' money in the past. While volatility across the commodities markets wreaks havoc on all capital intensive businesses, CNR is proactively managing its cost structure and adjusting to market conditions. With shares more than halved in the past three months, many value investors see it as a great time to buy the stock.

Many CAPS investors envision a rebound in oil prices too, and like the prospects of CNR's massive Horizon project over the long term. Today, Canadian Natural Resources has an overwhelming base of fans in CAPS, with more than 98% of the 1,415 members rating the company believing shares will outperform the S&P.

All gas and go
Though its shares have fallen nearly 30% this year, Texas-based XTO Energy has fared much better than many other energy players. With huge resources of natural gas and heavily hedged contracts for its spoils, XTO has had a smoother ride on the commodity roller coaster and continues to churn out cash.

The company has been aggressive in the souring economy, choosing to take on more debt as it snaps up smaller players in strategic buys. While it is becoming more leveraged than its peers, CAPS members are still bullish on the firm, with more than 98% of the 2,065 members rating the company believing shares will beat the broader market.

Lead a horse to water ...
Plucking individual stocks from the gas sector is, of course, a high-risk endeavor. Investors should always perform their own due diligence on companies rather than take a recommendation. Even the best stock pickers can be horribly wrong.

Do you agree that gas investments are the best place for new money today? Or will these companies soon run out of gas? Give your own opinion at Motley Fool CAPS.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool’s own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro, and to receive a private invitation to join, simply enter your email address in the box below.

Fool contributor Dave Mock loves doing the teardown part -- it's the put-back-together part he hates. He owns no shares of companies mentioned here. The Fool's disclosure policy doubles as insect repellant, too.