With the S&P 500 hitting an all-time high,stocks have been
stealing the headlines. But behind the scenes, there is amarket
that is just as hot.
And when this market accelerates as it did in early 2008,
prices can easily jump 50% in a few months. Take a look at the
big move below.
This is a chart of West Texas Intermediate (
) crude oil prices. Crude oil just logged its best five-day run
in eight months, trading near the key $100 level.
Thatbullish movement has been driven by big institutional
investors sending capital into commodities, withhedge andfund
managers increasing theirnet long positions across a basket of 18
U.S.futures and options markets by 10% in the week ended March
26. That mirrors a larger trend, with bets on commodities up 67%
in the past three weeks, the biggestgain since May 2009. And one
of the biggest destinations of those bets is into crude.
That's because peak consumption in the spring and summer is
right around the corner, and the smartmoney is betting priceswill
move higher. With monetary stimulation from the central banks of
the world fueling potentialinflation , the stage is set for crude
to make another run to its all-time high above $147 per barrel
Buying a crude-oilexchange-traded fund (
) such as
Powershares DB Oil (
is a good way toprofit from rising oil prices, as demonstrated in
the chart above. But there's a better way: Buyshares in
exploration and production (E&P) companies that own and
extract thecommodity from the ground. [These are the special
kinds of stocks and opportunities that my colleague Nathan
Slaughter looks for in his
Exploration companies provide unparalleledleverage to crude
prices, reaping hugegains insales andearnings when prices surge
But the group has been under pressure in the past two years
after energy stocks collapsed in the spring of 2011. That has
E&P stocks trading at record low valuations and carrying
big-time dividend yields.
Here are seven E&P stocks with yields up to 9%.
From this group, I like
Breitburn Energy Partners (Nasdaq: BBEP)
because of its outsizeddividend yield , and
Atlas Resource Partners (
because of itsearnings power .
Breitburn Energy Partners
Breitburn explores and produces oil in Texas, California,
Wyoming, Indiana and Kentucky. The company also explores for
natural gas, providing additional leverage to another growing
segment of the global energy market.
Despite the S&P 500's big gains in the past two years,
Breitburn's shares are down 7% during the same period. No doubt
that has alot to do with crude trading mostly sideways and
natural gas falling sharply. But with both markets on the mend,
higher crude and gas prices would be a boon to the
Analysts are looking forearnings per share (
) of 86 cents in 2013 and 96 cents in 2014. That has shares
trading with a forward price-to-earnings (P/E ) ratio of 23, a
slight premium to its peer average of 19. But when you add in the
dividend yield of 9.4%, Breitburn offers strong growth and
Atlas Resource Partners
Atlas Resource Partners explores and produces with interests in
some of the biggest and most lucrative energy properties in the
country. That includes assets in the Barnett and Marcellus shale
plays, two of the largest shale formations in the country. Atlas
has also been struggling, with shares down 17% in the pastyear
But with analysts expectingEPS of $1.15 in 2013 and $1.61 in
2014, that has sweetened the valuation picture considerably. As
it stands, Atlas's forward P/E of 21 is a sharp discount to its
10-year average of 33. And when you throw in a hefty dividend
yield of 8%, there is compelling value and income to be had.
Risks to Consider:
Oil E&P stocks are some of the most sensitive energy
stocks in the market. Any signs of slowerGDP growth or weakness
in the globaleconomy will weigh on the group heavily.
Action to Take -->
Crude just logged its best five-day run in eight months. That's a
bullish signal heading into spring and summer, which are peak
seasons for consumption. These seven E&P stocks stand to
benefit the most from higher crude prices, but the group still
trades at historically low valuations after falling sharply in
the past two years. My favorites are Breitburn Energy Partners
because of its outsize dividend yield and Atlas Resource Partners
because of its bullish earnings growth projection.
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