The price action in oil is dramatic. It’s really significant considering it traded so consistently in a range around $100.00 a barrel prior to its recent drop.
The breakdown in oil prices is suspicious for the simple reason that both growing supply and stagnant demand have been such a constant over the last several years. There’s nothing new in the marketplace, only that OPEC (the Organization of the Petroleum Exporting Countries) isn’t altering its production for now.
For investors, the current environment is a great time to be perusing opportunities in the energy sector. The downward price momentum in oil probably has more legs, so there’s no rush to get into this area just yet. For the time being, though, there are some energy stocks investors may want to keep on their watch list.
“Special Situation” Stock for Your Watch List
One of the top large-caps to watch in this area remains the newly reorganized Kinder Morgan, Inc. (KMI), which is a great example of the kind of stock income-seeking investors may want to consider. With a dividend yield nicely over four percent and strong prospects for sustained dividend increases over the next several years, Kinder Morgan is a top pick for any investor’s watch list.
What I really like about Kinder Morgan, however, is the company’s tremendous assets in pipelines, distribution, and storage. These are great businesses to be in with domestic oil and gas production being so robust at this time.
Kinder Morgan is actually holding up very well in this market, considering the plunge in oil prices. There is a lot of anticipation regarding this newly organized energy company. The shedding of non-core assets will be a boon to its earnings going forward. Currently, this enterprise is its own special situation within the sector.
Two More Energy Stocks a Must-Watch
ConocoPhillips (COP) is actually getting back to an attractive price zone due to its dramatic share price drop. This stock is also yielding over four percent and is very fairly valued.
Not surprisingly, some of the biggest drops in oil stocks have come from small- and micro-cap producers. Although resource investing is a 100% risk-capital endeavor, opportunity comes with dramatic price action.
Consider Northern Oil & Gas, Inc. (NOG), a micro-cap energy producer we’ve looked at before in these pages.
Prior to oil prices selling off, this stock was holding at around $15.00 a share. Now, it’s a hair over $5.00 per share, a solid value.
Of course, just like investing in precious metals, everything is derived from underlying spot prices.
Northern Oil & Gas expects its total production this year to be about 25% greater than that of 2013, but the stock isn’t going to go up so long as oil prices aren’t doing so commensurately.
Hence, the added risk in resource investing. It’s only good until the momentum ends, so it’s imperative that investors really consider their entry and exit points in this area.
Investment risk has gone up with weaker oil prices and the stock market seems quite on edge with what’s taking place. Going into 2015, I have reduced expectations for capital gains from equities. The outlook for corporate earnings remains solid, however, and this is a big plus.
Northern Oil & Gas, ConocoPhillips, and Kinder Morgan are three companies to keep an eye on for those perusing the energy sector.