IEO: Worth Exploring at Today's Prices

From August 26 to November 18, iShares Dow Jones U.S. Oil and Gas Exploration & Production Index (IEO) fell from the No. 25 position on our ETF Sector Momentum Table to the No. 84 spot. While IEO’s investors have felt the pain of a distinct decline in recent months, the market has begun to reevaluate oil’s new lows and look for opportunities, such as IEO, to get involved in a potential oil upswing in months to come. IEO tracks companies that are involved in several aspects of the oil and natural gas sector, including exploration, extraction, production, refining and supply. IEO represents one of the more liquid oil and gas exploration offerings in the market today, with the fund trading nearly a million shares daily over the last three months. While IEO began the year with a strong start as oil prices surged, the fund has seen a sharp decline in the second half of 2008 as oil sank at nearly the same meteoric speed as it rose.

Analysts at Morningstar have recommended IEO as a more conservative investment in oil for investors since late summer. In an interview on August 28, exchange traded fund specialist Paul Justice recommended IEO as a more diversified oil play when compared to IYE, the iShares Dow Jones U.S. Energy fund that has more than 35% of assets in two holdings. Morningstar reiterated this recommendation on November 7 in a column by analyst Scott Burns.

IEO, in contrast to IYE, has less than 23% of fund assets concentrated in the top two portfolio holdings. The largest holding in IEO’s index is currently Occidental Petroleum Corp. (OXY), with 12.18% of the fund’s assets as of November 21. OXY is an international oil and gas exploration and production company with operations in the United States, the Middle East/North Africa and Latin America. OXY explores for, develops, markets and produces crude oil, natural gas liquids and natural gas. On Monday, November 24, OXY penned a deal with Abu Dhabi’s Mubadala, one of the world’s most active state funds, to develop natural gas fields in Oman. The newly minted proposal set off a wave of speculation across the oil and gas sector as to other potential deals between Middle Eastern and U.S. oil companies in upcoming months.

The second-largest holding in IEO’s portfolio is Devon Energy Corp. (DVN), an exploration, development, production and transportation fund that specializes in oil and natural gas liquids. Concentrated principally within Texas and New Mexico, DVN’s oil and gas properties also include international stakes in Mexico and Canada. The business diversifies its interests through the construction and operation of pipelines and processing plants in North America. An alternative-energy push in the new administration could help to boost DVN, which stands to benefit from an increased interest in American natural gas programs. DVN could also attract in upcoming months more conservative investors that are looking to beat the market over an extended time frame—DVN has beaten the S&P 500 for the ten years that ended in October.

The anticipation of an increased demand for U.S. natural gas has also fueled another potentially profitable deal for IEO’s fourth-largest holding, EOG Resources (EOG). Pecan Pipeline North Dakota Inc., a subsidiary of EOG, has proposed the construction of a $45 million pipeline to feed natural gas from North Dakota into the Alliance Pipeline. The Alliance Pipeline carries natural gas from Canada to Chicago. EOG is currently awaiting approval from the Public Service Commission to begin building but anticipates that the pipeline could be finished by July if given the go-ahead. The proposal of this new deal is a glimmer of hope for many natural gas exploration investors, and a potential indication of increased prospects in the new administration. Commissioner Kevin Cramer noted that with the “increased activity in the oil fields of western North Dakota, and the high demand and price for natural gas, we’re seeing more of that natural gas captured and processed and put into the marketplace.”

While the precipitous decline of oil prices in recent months may make some investors hesitant to dive back into the oil sector, it is a worthwhile area to explore at today’s bargain prices. Oil is a limited resource, and the scarcity of this resource along with the recent push toward U.S. energy independence could help to boost shares of IEO in upcoming months. IEO’s top components have their fingers on the pulse of American energy, including natural gas, which many believe will be a key factor in supplying energy in the future. There has been no place to hide in the recent economic downturn, but IEO could represent a good pick for investors looking to reemerge on the upswing, with trusted U.S. companies vying for the future of energy.

Comments

[James Wilson:]

I am begining to think the AP is doing some dirty work for the Oil and Gas Industry. The articles they write about Natural Gas are silly at most somtimes.
Are they trying to get people to buy the Natural Gas stocks when the Interior Department was trying to sell Japan all the Natural Gas they wanted to buy cheap to cause a shortage so they could keep the prices up in the USA.
This makes no sense when the AP reports Natural Gas supplies are slipping. Why are they slipping? It leaves out that fact. Was a storge unit closed just to makes the gas supply slip ?

2008 Dec 14 03:12 PM

[ShareTipsIn...:]

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All investors can simply check Research report and can see why to buy or not.

Regards
Regards
SHARETIPSINFO TEAM

Jan 02 12:28 AM

[Priya:]

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Jul 17 07:24 AM

[share tips:]

We all get bombarded every day with mails, morning briefs as to which stock we should pick and how will be the market trend today. Every time the brokerage houses will send the stock market tips> as if we all are playing a gamble and need the tricks as to how we can win it. And anticipating as to how to do stop loss and at least will make smaller profits. What most of the investor do is they consider short term trading as the long term investment and believe as to how it can be doubled in a day. Buying a stock just because the price is low and some stock market tip you received that this will boom in the market today. What most of us do is that we all trade with money which we can’t afford to lose but the market always says that invest only that money which is in excess to you. All of these are the big mistakes which we commit every day in spite of being reminded every time that we should complete our home work for the next day.
Things to Remember when invest in stock market: expert>
 We believe that the fundamental says invest in those company about which you know completely , but that doesn’t mean you fall in love with a company and a particular stock just because you are familiar with it or it create news in the stock market every time. Most of us just try proving our fundamentals are right and for that we apply too many technical indicators on that stock. It’s not true that the stock will go according to its fundamentals and technical, many stocks behave opposite to their indicators, thus they do not guarantee as to whether it will go up or down.
 Investors jump to penny stocks as they immediately boom in the market due to rumors what need to understand is that the Penny stocks are very risky , and on this basis make your strategy as to which one to pick from that lot and how much to invest . The portfolio of the investor should be constructed in such a manner that it allots weight age to different sector and the sizes of the stocks so that the diversification is there and the risk can be mitigated. Therefore the weight age of penny stocks in one‘s portfolio should not be more that the 15%. This is to minimize the losses and to accumulate the profits also.
 Keep a watch on the industry of the particular stock. Most of the stock behaves according to their industry trend. Thus if in the budget the government committed to play large role in the infrastructure sector , all the stocks will go react as per the budget and the whole sector recorded the jump of 12% on the next day. But it might be the case that the industry is booming and the stock is going down, therefore along with Industry, Company information is also vital.
 Past performance of any company doesn’t not hold true or affect its future performance. Many of the Indian stocks which were heavy weight in the past few years and were considered the blue chip companies in this market are either bankrupt or have become extinct in the market. Thus continuous performance analysis and evaluation is important.



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Aug 31 06:40 AM