Having been investing successfully in real estate since 1993, there are several sources of information that have proven to be well worth the time and effort to follow over the years. One such website is drhousingbubble.com. After reading his latest article, energy stocks operating in North America become even more appealing for long-term investors.
Investing is the art of buying the future income stream of an asset. There is a lot to be said for real estate in that role, when it is efficiently priced. That is not the case at present as, according to Dr Housing Bubble, institutional investors are driving up the prices of real estate while driving down the level of home ownership.
That is another bubble waiting to burst as the demand for housing is falling among consumers, which is always a bearish indicator for any asset.
It is the exact opposite for energy companies, according to a recent report from the US Energy Administration. By 2040, global energy consumption is expected to increase by more than 55%. The bulk of that growth will be in consumer demand from emerging markets.
Much of that oil and natural gas will come from North America, with the United States already being the top oil and natural gas producer in the world, by content. The United States and Canada have several competitive advantages that should result in the increasing global demand for energy, enriching the shareholders of a vast array of oil and natural gas companies ranging from prominent blue chips such as ConocoPhillips (COP) and Suncor Energy (SU) to promising small caps such as Americas Petrogas (BOE) and Octagon 88 (OCTX.OB).
But don't take my word for it, look at what Repsol, the Spanish oil giant, is doing. Repsol, after getting burned in Argentina, is looking to spend up to $5 billion on energy assets in North America. The main reason is the political stability.
But there are other factors contributing to the superiority of the North American energy sector, not that political stability and business security should be discounted (just ask Shell (RDS.A) (RDS.B) as it has Nigerian assets on the block due to theft). The geography of the continent allows for exports to both Europe and Asia. With 85% of the new energy demand projected to come from emerging market countries, that is a critical element for the success of an energy company.
Despite the best efforts of the political leadership in Washington, D.C., the US dollar is the still the reserve currency. That is not likely to change anytime soon. This greatly facilitates transactions in oil and natural gas when the currency does not have to be converted, resulting in a significant home field advantage.
The education system of each country is geared towards servicing the energy sector. There are many undergraduate and graduate programs in petroleum engineering and related areas in both the United States and Canada. That ensures a stable, bountiful flow of new ideas, new employees, and new outlooks for the energy sector.
It is difficult to think of any major oil companies that have ever gone out of business. A huge chunk of the real estate sector was wiped out during the Great Recession. However, only trillions of taxpayer assistance revalidated the market. That is now distorting the housing sector as prices are rising with consumer demand falling, which is another disaster waiting to happen for investors, according to Dr Housing Bubble.
That can be seen in the performance real estate investment trusts that rent out single family homes. New developments due to the surplus of single family homes foreclosures from The Great Recession, two of the first to go public, American Residential Properties (ARPI) and Silver Bay Trust (SBY), have dropped in the double digits. For 2013, American Residential Properties is down almost 17% for 2013. Over the last six months, Silver Bay Trust has plunged more than 22%.
For 2013, the Standard & Poor's 500 Index has risen over 20%.
The energy sector, by contrast, is projected to experience a massive increase in demand, which will be even more bullish for stock prices, which have already done well. For one example, ConocoPhillips, a Warren Buffett holding, is up nearly 30% for 2013. Octagon 88 has risen nearly that much in just the last quarter. Due to many factors, companies operating in the North American oil and natural gas sector should prosper. As shown here by Dr Housing Bubble, sometimes the best investing ideas come from outside the industry.