A recent announcement of a prominent company buying energy assets may raise a comparison to previous cycles where players outside the industry made large purchases of oil and gas companies at the peak of the cycle.

IN PICTURES: 10 Tips For Choosing An Online Broker

GE Makes Two Oil And Gas Property Acquisitions
General Electric (NYSE: GE) announced two acquisitions of oil and natural gas properties in North America. The company paid $65 million to a private company for properties in Texas, and $137 million to buy acreage in North Dakota from St. Mary Land & Exploration (NYSE: SM). GE is partnering with two smaller oil and gas companies to manage these properties.
The North Dakota properties are in McKenzie County, and they may be prospective for the Bakken Shale or the Sanish Three Forks formation, although GE didn't release any data on reserves or production on its new assets.

Other McKenzie County Players
Continental Resources
(NYSE: CLR) has been active in McKenzie County, and in the company's Q4 2009 it reported two well completions here. The Hendrickson 1-36H and Simmental 1-21H well produced an average of 1,990 and 1,271 barrels of oil equivalent, respectively, during the first seven days.

Kodiak Oil & Gas (NYSE: KOG) is also developing acreage here, and it has allocated $5 million to drill three gross wells in 2010 to test its potential.

Early 1980s Deja Vu
Some investors may find it a little disturbing when entities from outside the industry step in and buy assets, as this may be seen as a psychological sign of a peak in asset prices. During the last energy super cycle in the early 1980s, DuPont (NYSE: DD) purchased Conoco as a hedge against rising and volatile prices for its feedstock for chemicals. DuPont later got rid of Conoco in the late 1990s through a spinoff and sale. Conoco later merged with Phillips Petroleum to form Conoco-Phillips (NYSE: COP).

Another large deal at that time was U.S. Steel (NYSE: X) buying Marathon Oil (NYSE: MRO) for $6.3 billion. It might be a stretch to compare the small purchase by GE to these two deals, but this could just be the beginning of what Peter Lynch, the famed manager of the Fidelity Fund, called "diworsification", a process where companies buy businesses that are not complementary to current operations.

These purchases also coincided with a peak in oil prices when the media was full of scare stories about the soaring and permanently higher prices for oil, the difficulty in finding new reserves and the shift in world dominance away from consumers to oil producers. Sound familiar?

Watch For Signs Of A Peak
Understanding the psychology of an investing climate is an important part of the stock selection process, although one that is hard to analyze empirically. Nevertheless, investors should always pay attention to signs that may indicate a peak is near. (Learn about peak oil; read Peak Oil: What To Do When The Wells Run Dry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  2. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  3. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Dish Network's Return on Equity (ROE) (DISH, TWC)

    Analyze Dish Network's return on equity (ROE), understand why it has vacillated so greatly in recent years and learn what factors are influencing it.
  6. Investing Basics

    The Importance of Commodity Pricing in Understanding Inflation

    Commodity prices are believed to be a leading indicator of inflation, but does it always hold?
  7. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  8. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  9. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  10. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center