With the recent correction in the market, one could argue that some compelling opportunities exist. We believe that right now the market is still in the "sell the rally" mode but believe for those who are patient, a few names in the beaten down oil and natural sector are worth looking at.
Looking forward to 2012, the market will at some point begin to evaluate the coming election and investors will position themselves accordingly. One theme that seems to resonate from the Republican side of the aisle is the need to drill for more oil and natural gas here in our own country. We couldn't agree more and feel that utilizing our own resources here at home makes perfect sense. If there is a change in leadership in 2012, investors will want to own those companies who will benefit the most.
For a conservative play, we like Exxon Mobile (NYSE:XOM). As one of the largest integrated oil companies in the world, XOM represents a compelling long term value at current prices. Trading at 8.5x forward earnings, Exxon carries a nearly 10% profit margin and a respectable 2.5 % dividend yield. Technically, the stock is consolidating at the $70-$75 level. A close above $75 would be bullish for the stock in our opinion.
Encana Corporation (NYSE:ECA) is a beaten down natural gas play and is one of North America's largest natural gas producers. Natural gas is one of our countries greatest untapped resources and Encana stands to benefit from more exploration here at home and the continued push to convert commercial fleets to run on natural gas. Natural gas vehicles are one of the fastest growing segments in the alternative energy space as many companies are entering into this market.
The stock has pretty much been in freefall over since the summer where it traded north of $30. The current dividend yield on the stock is over 4% and given the recent volatility, it may be a candidate for a covered call strategy We believe the stock is oversold at current levels ($20) which is less than the $23 book value per share. Buying the stock at current levels and selling a January $20 call against your position gets you in the stock for under $18. If you are called away at expiration, you will have made over 10% on your investment in about 3 months. If you are not called away, you would own the company at under $18 and have a 4% dividend yield.
Disclosure: I am long XOM.