Turning Points for Energy Stocks

Includes: MTR, SBR
by: Kurt Wulff

Stock prices may be turning up for eleven oil and gas small cap and income stocks that hit new lows in the past week just as the fundamental outlook may be turning up for gasoline demand. The smallest stock, Mesa Royalty Trust (NYSE:MTR), came back 57% in two days. A simultaneous potential early sign of recovery from the global economic recession appeared with the U.S. Department of Energy disclosure of gasoline demand advancing ahead of a year ago (see chart below, U.S. Gasoline Demand).

We also like the parallel of an historic turning point 75 years ago when the Dow Jones Average began a four year climb from a secondary low on March 1, 1933 (see www.djindexes.com). Then, as now, a new president was leading the way out of a generational financial setback. Meanwhile, we can’t forecast stock price action, but we can express conviction that income and small cap stocks are selling well below fair value in a normal context. That implies investors should be able to look forward to gains, at the same time we should be alert to predators who would attempt to gain control of our assets at terms disadvantageous to us.

Three years ago, an acquirer seeking Sabine Royalty Trust (NYSE:SBR) was thwarted by a vigilant trustee and unit holders. To illustrate what might have been, the stock price of the company behind the proposed buyer has since declined by 97%. Thus, with vigilance and patience, investors can make money from here in almost any of the stocks in our tables, we believe.

Originally published on February 27, 2009.