Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Energy's Respite Won't Last Too Much Longer by Dimitra Defotis
Summary: Barron's interviews John Segner, manager of the AIM Energy fund, which has 17% average annual returns over the last decade. The energy market will see a temporary improvement in the supply-demand balance in 2007, but will then return to a supply shortage in 2008 and 2009. Current demand is 88 million barrels per day, and "if every oil well in the world were running, assuming 1.2% production growth, we are producing 88 million barrels per day". Demand will continue to rise, driven by India and China, but supply from non-OPEC countries, particularly Venezuela, Nigeria, Iran and Iraq, won't rise sufficiently.
Stocks he likes:
- Natural gas: Bill Barrett Corp. (BBG) -- people haven't realized yet that imports from Canada and GoM are coming down. The company's current discount is due to transmission shortcomings that will soon be remedied with a new pipeline. Southwestern Energy Company (NYSE:SWN) -- it has the largest position in the Fayetteville Shale in northwest Arkansas, one of the few U.S. natural-gas growth areas. Longer term it will trade significantly higher.
- Oil majors: ExxonMobil Corp. (NYSE:XOM) -- "I love the company, to be honest." Petrobras Energia Participaciones SA (NYSE:PZE) -- it has one of the best growth profiles of any major oil company, and has had some success expanding into the GoM's deep water reserves.
- Oil service companies: National-Oilwell Inc. (NYSE:NOV) -- the world's biggest oilfield rig and rig equipment supplier, it just blew through earnings numbers. Grant Prideco Inc. (GRP) -- it looks cheap and Street estimates are too low. Schlumberger Ltd. (NYSE:SLB) -- it stands to gain from its international focus, as that's where a lot of the spending is being done.
- Alternative energy: BP plc (NYSE:BP) -- it's the largest solar developer and very big in other alternatives.
- Nuclear -- it has its issues, but it doesn't have carbon dioxide, and "the political train on CO2 has already left the station." NRG Energy Inc. (NYSE:NRG) -- it is proposing to build two Texas nuclear plants. Chicago Bridge & Iron Company N.V. (NYSE:CBI) -- a prime candidate to build nuclear plants. Cameco Corp. (NYSE:CCJ) -- one of the better uranium plays. Its main mine is flooded, but 10% of the world's supply of uranium and 50% of all uranium growth should come from it.