5 Energy Stocks with Low Long-Term Risk 13 comments
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The odds appear high that within 18 months to two years from now, stock prices in general, and by extension oil and gas income stocks, will be higher than today. The recent decline for the broad averages approached a half in inflation adjusted terms. Only in the extreme 1932 bear market did the decline go further, and then the additional decline was reversed by 1935.
The recent decline became comparable to the next two most severe bear markets of 1974 and 2002. Since the typical bear market lasts about two years, we may need more time before the likely rebound is sustained. For the possibility of early appreciation we have two Buy recommendations: Canadian Oil Sands Trust (COSWF.PK) and Hugoton Royalty Trust (HGT). For the possibility of a delay in sustained appreciation we have Hold recommendations on two stocks we had rated Buy until September 5: San Juan Basin Royalty Trust (SJT) and Penn West Energy Trust (PWE). Dorchester Minerals (DMLP) and three smaller market cap stocks have high quality complementary appeal, subject to necessarily less stock market liquidity.
Originally published on October 17, 2008.
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This article has 13 comments:
The REAL point...buyers can rush out the door now..but oil and gas are CRITICAL..not OPTIONAL. Silver mines can shut down and the general public doesn't go cold or hungry..Try a few months with half the fuel you have now. They will be rushing back in..and PWE..LINE..LGCY will be huge beneficiaries.
May 2009 Oil @ 75.00..Nat gas @ 11.50..and that'sjust for starters.
PWE also has 50% in natural gas. Where price of oil has fallen by nearly 50%, the price of natural gas has held up. The reason is simple. People can combine trips to the supermarket with other errands, and they can cut out their Sunday afternoon drives, but they will not lower their thermostats by more than a few degrees, or take fewer showers.
Elementary, Watson...... ahem .... Wulff.
On Nov 10 01:06 PM bill d wrote:
> AH - I see - another wait until oil goes up, then wait for stocks
> to go up, then jump in. buy high, hold or sell low. Sherlock spent
> most of his life on another planet, too.
The pundits are forecasting lower oil ahead:
oiltradersblog.blogspo...
On Nov 10 03:48 PM dubious wrote:
> ....... he also ignores altogether the exodus from CanRoys to occur
> with the new Can tax law going into effect...........
jegan
It doesn't matter what you've read or what your opinion is, what matters is that it doesn't coincide with what Georealist believes. If its not his/her idea, its not worth proposing but definitely worth attacking.
Sure the Canroys have been beaten down, but before you start putting your money under your mattress, or listen to doom and gloom gurus, here are some common sense things to consider:
1. If there is a consolidation, as some people believe, the weaker Canroys may go under or be bought out. But the stronger Canroys that survive will come back with more market share than before. The entire oil market is not going away unless we all give up driving, or stop heating our homes in the winter.
2.Look for the stronger Canroys are selling at a fraction of their NAV. Canroys that are so cheap they are buying back their own shares. Look for companies where CEO's are buying back shares on the open market (not just exercising their options).
3. Look for Canroys with a conservative payout ratios below 60%.
4. Look for Canroys with over 10 year reserve life.
5. Look for Canroys with at least 3 years of tax pool credits so that they will not have to pay corporate taxes even after 2011.
6. Look for the low cost producers -- ones that have shallow wells , and do not have to resort to horizontal drilling and other expensive techniques. These companies will likely survive in the low price environment, whereas the one that are based on a high oil price business model will not.
7. A companies that hedges part of their production is more likely to maintain the dividend in spite of temporary low prices.
8. Look for low Debt to Cash Flow ratio.
8. After finding a few Canroys that fit all these requirements, then pick only the ones that are paying a sustainable 20% dividend.
I own shares in two companies that fit all these requirements. I continued buying more as their stock prices came down. With a little research, you can find them too.
On Nov 10 03:48 PM dubious wrote:
> ....... he also ignores altogether the exodus from CanRoys to occur
> with the new Can tax law going into effect...........
" Buying oil sands (COSWK.PK) makes ABSOLUTELY NO SENSE right now because the price of oil needs to be much higher than it is now to justify the high costs of extracting. In comparison, PWE has mostly conventional oil wells, where costs of extracting is lower. "
most aptly sums it up here!