Making Money in Energy Stocks - Calgary Presentation

After other speakers present views on energy demand, supply, environmental and geopolitical expectations, we (I) will present ideas for acting on those views at a conference on Investing in Energy sponsored by the CFA Institute with the Calgary CFA Society. The slides for my talk are in a separate (pdf) file here. Expecting a diversified global equity portfolio to have an energy component that might typically range from 10 to 20%, I also note that in my own case as an energy analyst, energy equity accounts for half of the portfolio with the other half primarily in inflation-linked bonds, along with gold and cash.

I explain that my recommendations cover six energy sectors. Three are mostly geographic. The first is Europe. In the second I combine Brazil/China/Russia. The third is Canada. The other three sectors are mostly U.S. stocks – Integrated, Independent and Income and Small Cap. Essentially, I am suggesting an equal weighting in each of these six sectors. Since my research concentrates on oil and gas producers, I have no recommendations in other sectors such as oil service or energy utilities.

Depending on the stocks selected, the portfolio would have representation in four business segments. The approximate weightings I like may be 30% North American Natural Gas, 10% Rest of World Natural Gas, 50% Oil Production and 10% Downstream. The twelve stocks I expect to talk about for a diversified energy portfolio are my current buy recommendations, including the three in this weekly analysis, Canadian Oil Sands Trust (COSWF.PK), Cimarex Energy (XEC), and Hugoton Royalty Trust (HGT). I briefly describe how to analyze stocks with the McDep Ratio and present value estimates.

Originally published on March 27, 2009.

Comments

[Living4Divi...:]

Kurt - Thanks for the Calgary presentation. I read it last nite. It was very well done.

Seems the mcdep ratios and valuations are based on data from March 4, Since then, most of the recommended stocks have moved up significantly. I looked a HGT - which you said normally yields 8-9% it is now at appx 5.6%. It no longer looks like a great bargain.

Question: Does the McDep ratio take into account variables as excise taxes and extraction fees ? What about cost of production? It seems you give very high marks to oil sands properties. It would seem to me that oil sands are mostly underwater now, because they need a high price of oil to be profitable.

Comments?

Apr 23 07:32 AM

[mbkelly75:]

Thank You. I am a great believer in Energy Stocks and found the "mcdep ratio" a very interesting way of looking at it. I would not invest in Russia because of the problems from politics - they shut down their entire stock market more than 30X last year. That makes them WAY too unpredictable for me - other than that - you had some great recommendations. I already own some of them and will look at the others. Thank you again for the presentation and the ideas.

Apr 23 03:21 PM