Five Storm Tested Energy Stocks

Five buy recommendations, ConocoPhillips (COP), StatoilHydro (STO), PetroChina (PTR), Devon Energy (DVN) and Canadian Oil Sands Trust (COSWF.PK) are financially strong, geographically diverse and well-represented in North American Natural Gas, Rest of World Natural Gas, Oil Production and Downstream. Related stocks in each group that have low McDep Ratios and low debt could substitute for, or supplement, the buys.

Amidst the storm of change for financial companies, recommended oil and gas stocks meet the test of growth, inflation protection and deflation resistance. We define growth as a 7% real return on investment expected for stocks priced at a McDep Ratio of 1.0. By definition, real assets, such as oil and gas, offer inflation protection. Low debt offers deflation resistance.

The schizophrenic market seems to worry about the dollar or inflation one day only to worry about economic decline or deflation the next day. More inflation is likely to be the cost as our political leaders seem determined to avoid deflation. Sound investments are likely to be rewarding for the patient. Meanwhile, six-year oil price has rebounded to match the 40-week average at $110 a barrel.

Originally published on September 23, 2008.