Oil profiting strategy
Since oil is now back in focus, we would like to remind folks of this strategy. Thus far, we have been correct in our predictions:
Orginally published on 1-24-07: We have written many articles on oil at iBooyah.com because we believed oil plays a large role in the world’s economy. When oil was dropping because the weather was unseasonably warm at the beginning of the year, we encouraged people to buy companies like ConocoPhillips (COP), Exxon Mobil (XOM), Chevron (CVX) , BP and Valero (VLO) as they were falling with the price of oil. We also predicted any fall in oil prices would be temporary and should be viewed as an opportunity to buy. Our other prediction that oil will unlikely fall below $50 per barrel remains intact. To profit from oil, read on..
Let’s not forget how precious oil really is; countries are prepared to go to war for this stuff. Like an automotive engine, this economy needs oil to keep it running smoothly. Do not let your guard down when you hear gasoline prices are expected to drop a few pennies; it’s all nonsense in our view. Any drop should be viewed as temporary. Despite all the promises of alternative energy, oil will always be in demand in the foreseeable future.
The President again called for alternative energy in his State of the Union speech as he did every year and the many presidents before him. Future Presidents will likely sing the same tune, “We must find alternative source of energy, blah, blah, blah...”. Last I look; our cars still runs on gasoline.
What’s the point of this post? The point is, don’t believe the fools that keeps saying oil will drop to $30 per barrel. It won’t happen, period. The next time oil drops close $50 per barrel, buy oil related companies such as VLO, COP, XOM, and CVX; it’s easy money. Hold it until the price heads towards $60 per barrel and then dump the stock. You will have earned an easy 20 percent right there. We have watched this pattern on many occasions and have profited from it every time.
updated: 2/3/07:
Another interesting oil stock is Marathon Oil (MRO). This way brought to our attention by one of our readers. With respect to MRO, after looking at the stock, it appears to be very inexpensive in comparison to its peers. The P/E is 50 percent lower while the Earnings per Share are almost twice that of their competitors.
While the stock is trading in the mid $80 range, this is certainly a good stock to consider buying. However, we would suggest exercising patience with any oil stocks at the moment given oil price is almost at $60 per barrel. We would suggest waiting for oil to fall; this stock should fall in tandem. If oil falls back to around $50 per barrel, we believed that would be the ideal time to buy MRO.
Comments
Isn't the best play the Canadian Oils? With no political or climate change risk, stocks such as Suncor (SU) Canadian Natural Resourses (CNQ) appear to be classic buy and hold forever stocks.
Posted by: Joe Canepa | January 24, 2007 06:11 AM
the Canadian royalty trusts are in fact subject to "political risk".... last fall the very conservative prime minister announced intent to subject the trusts to a business tax (currently they are largely exempt if they passs through their earnings via dividends to shareholders) and each and every royality trust got hit for 20 to 40% declines.... certainly Canada has much better government thatn any South America or middle East or Russian nation but the fact remains politicians are politicians and Canada like the US will seek opportunities to extract $$$ were even and when even possible...
Posted by: mjcboston | January 28, 2007 01:03 PM
MRO will continue to trade at a lower P/E due to its hisgher exposure to US refining. Compare it to VLO and TSO, and you'll notice similarities. Bottom line, US demand for refined products is not going to be seeing large growth anytime soon.
Posted by: atha | February 6, 2007 08:27 AM