Filed Under: , , ,
Tickers in this Article: MWE, PDE, VDE, GEX, KMR, XOM, CVX, GEX
Oil has pulled back over $20 from its high and oil-related stocks have followed the lead. However, with the long-term outlook for oil still arguably bullish, now is the time to take advantage of the recent weakness and build long-term positions in energy-related investments. The following are a few of my favorite energy-related opportunities. (For related reading, see Fueling Futures In The Energy Market.)

Where the Opportunity Lies
MarkWest Energy Partners
(NYSE:MWE) - A somewhat stable stock for years has succumbed to the recent market volatility as it has swung between $30 and $38 over the past year. MWE has been attractive in the past as a stable investment that offers a high dividend yield (currently 7.5%). The company operates plants, pipelines, and storage terminals in the natural gas arena. MWE recently signed a deal with Range Resources (NYSE:RRC) to build pipelines in the upcoming Marcellus Shale in the Northeast U.S. Also in late July, the company increased its dividend by 19%, and I would argue the recent pullback in the stock to the $30 level offers a new buying opportunity for long-term investors. (For insight on dividends, read The Power of Dividend Growth.)

Kinder Morgan Management (NYSE:KMR) - Similar to MWE, Kinder pays a hefty dividend and is involved in the pipeline business. Their pipelines transport anything from natural gas to carbon dioxide. The company also operates terminals that handle coal as well as petroleum liquids. The diversified business along with a large dividend makes KMR attractive from both a growth and income viewpoint. In July KMR upped its dividend by 16% and the yield is now up to 7.2%.

Pride International (NYSE:PDE) - As one of the world's largest drilling companies, PDE would benefit greatly if the U.S. government decides to allow more offshore drilling in areas that are now restricted. PDE provides rigs for everything from deepwater drilling to land drilling as well as rig management services that include the technical side of the business and personnel. From a technical perspective, PDE has fallen from a high of $48 in late June to a low of $37 in July. The pullback in oil has brought the stock down to important support in the $36 area and now offers investors an attractive risk-to-reward setup.

ETF Options
Vanguard Energy ETF
(AMEX:VDE) - There are a number of energy-related exchange traded funds (ETFs), but with VDE you get diversity (168 holdings) and low fees (annual expense ratio of 0.22%). The largest sector exposure is 45% in integrated oil and gas companies, followed by 21% in exploration and production stocks. The top ten holdings list looks like a who's who of energy; Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are the top two names. The ETF has recently pulled back approximately 20% and has long-term support between $100-105.

Market Vectors Global Alternative Energy ETF (NYSE:GEX) - The pullback in oil has not only affected the energy companies, but also the alternative energy sector. As the price of oil rises it makes the more expensive alternative energy sources more viable. It is difficult to try and pick just one alternative energy stock because there are a number of sub-sectors that have the ability to be winners, so we let an ETF do the work for us. GEX offers investors a basket of 30 alternative energy stocks from around the globe that invests in everything from wind energy, solar and fuel cells. (For more, read ETFs Provide Easy Access To Energy Commodities.)

Short-Term Versus Long-Term
The short-term risk for the investments mentioned above is if oil continues to weaken and breaks below $120 per barrel. The long-term outlook for oil looks bullish in that the supply and demand issues will keep the black gold in the triple digits. Put the two together and investors should use the pullbacks as buying opportunities.

comments powered by Disqus

Trading Center