When Syria uses chemical warfare or Iran threatens to launch
missiles, it puts the collective world on edge, pushes stock
markets over the edge and launches oil prices off the charts. The
mere mention of Middle East mayhem has been known to spur
investors to sell and seek shelter from a potential storm of
Unrest in oil-rich parts of the world has been a part of
history seemingly forever. Although Syria, the latest Middle
Eastern country on the global radar, accounts for just 0.5% (half
a million barrels per day) of world production, it's the domino
effect that has investors on pins and needles.
Syria's allegiance with Iran, a potential civil war in Iraq,
and continuous tension in Egypt--home to the oil-transporting
Suez Canal -- puts about 3.5 million barrels a day at risk. Any
escalation could trigger economic sanctions, sending the price of
oil back to the $150 mark or more.
But you don't need to let it wreak havoc on your
Why not grab the oil bull by the horns and invest in stocks
with nothing at stake should someone stick a cork in the Suez
Canal, and everything to gain from panic-driven oil prices? Let's
look at a couple of oil companies that stand to profit amid
either peace or war in the Middle East -- and deliver hefty
dividends to boot.
For our first gem, we look to Canada. A Canadian energy trust
operating as a real estate investment trust (REIT),
is the largest conventional oil and natural gas income fund in
North America. The Calgary-based company typically invests in
mature properties located in Western Canada -- far from any
upheaval in the Middle East.
Here's something you may not know: Our Northern friends are
one of the top oil exporters to the United States; Mexico and
Venezuela are the others. It's a misconception that the U.S.
imports most of its oil from the Middle East. Last year, an
average of 2.8 million barrels per day came from Canada, double
what the U.S. imported from Saudi Arabia last year.
There is little doubt that Enerplus has benefited from the
recent increases in energy prices. The price of oil hit a
year-to-date low of $97 per barrel on April 17 and increased 10%
to $107 per barrel in September. Since mid-April, shares of ERF
have shot up 31%.
Enerplus said in its second-quarter earnings report that daily
production rose 10% year over year and that it remains on track
to meet or beat analysts price targets of $22.50 this year. Add
to that a meaty 6.4% yield, and I think we've found a way to
sleep well at night.
The next opportunity takes us across the Atlantic. French
) is the world's fifth-largest publicly traded oil and gas
company. Like Enerplus, its stock performance is strongly
correlated with the price of oil and is highly likely to benefit
from further spikes. Over this summer, Total's stock rose from
$47 to $57 in just three months on the back of high oil
That's not even the best part.
2012 Proved Reserves By Region
In late August,
China National Petroleum (
finalized an agreement with Total and
Tethys Petroleum (
to develop petroleum assets in Tajikistan in Central Asia.
According to a Woods Mackenzie report, China will spend $500
billion a year on crude oil imports by 2020 and overtake the U.S.
as the biggest consumer by 2014. Total also recently secured new
developments in Africa and Australia.
But -- and this is a big "but" -- Total also just bought
retail and commercial fuel operations in Egypt from
Royal Dutch Shell (NYSE: RDS)
. It may be risky to buy anything with ties to Egypt right now,
but the company's exposure is small: About 8.5% of production is
in "high-risk" countries.
With Total's dividend yield near 5%, I can look past the
Egyptian connection. Only
Exxon Mobil (XOM)
exceeds Total's ability to extract cheap oil and achieve higher
earnings per barrel of produced oil. Total's sales grew 8% from
the previous year to $266 billion in 2012, and its operating
income increased 2.4% over the same period.
Looking ahead, Total has a target of 3% annual production
growth up to 2015, backed by geographically diverse pipeline of
new projects. The company expects output to reach about 3 million
barrels a day in 2017.
Risks to Consider:
Commodities and volatility go hand in hand. It's never a good
idea to devote a large percentage of your portfolio to oil
stocks. Should oil take a turn south, you might want to limit any
exposure to 10% or less.
Actions to Take -->
Both Enerplus and Total are trading above their 50- and 200-day
moving averages and have strong upside potential. If oil appeals
to you, these stocks might also.
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