Here's some news that might come as a surprise to you...
If you look back over the past four years, the biggest winner
in the energy sector is a company that I bought last September,
Kodiak Oil & Gas (
, a $2.3 billion oil and gas exploration and production company.
Since January 2009, thestock has racked up a cumulativegain of
Next up on the list is
Concho Resources (
, a $9.55 billion oil and gas exploration and production company
with a whopping return of 312% in the past four years.
In fact, 18 of the top 20 oil and gas performers over the past
four years were small-cap producers.
You have to look much lower down on the list to find the
so-called supermajors. While smaller producers were doubling or
tripling in value,
eked out a 2.2% yearly return,
inched up just 1.6%, and
actually lost ground.
Really, though, it's not a fair contest.
That's because these companies are all basically selling the
same products at similar prices. And the easiest way to catch
themarket 's attention is by growing production and reserves. So
investorswill likely be much more interested in a company with a
100% surge in oil output than one with just a 10% surge.
I didn't exaggerate that growth-rate disparity for emphasis.
If anything, it's even more pronounced in many cases.
For instance, take
, a $78 billion company. The European giant managed to produce 2
million barrels of oil per day lastyear . That's an 8% increase
from 2011 -- not bad considering the firm's core hunting grounds
in the Norwegian Continental Shelf are in a state of gradual
Compare that with
Magnum Hunter Resources (MHR)
, a $679 million company, which is now pulling 18,500 barrels per
day from hot spots like the Bakken Shale. That's a powerful
700%-plus increase since the beginning of 2011, when production
stood at just 2,269 barrels per day.
The choice is yours: 8% growth or 700%.
No wondershares of Magnum have outrun Statoil by 148% to just
0.29% during the past five years. And there's no reason Magnum
shouldn't extend that lead in 2013.
By the end of this year, Magnum Hunter's output is expected to
expand by another 6,000 barrels per day. That incremental growth
is enough to move the needle by 30%. To match that increase,
Statoil would need to bring up 600,000 more barrels a
That just isn't going to happen.
Clearly, math is on the side of the smaller
And if you want to make seriousmoney in energystocks (or in
any sector of the market for that matter), you should,
But there's an even bigger reason to focus on smaller
producers -- one that has the potential to deliver
Let me explain.
There are plenty of oil puddles capable of spitting out 6,000
barrels of crude per day. But small and even midsize discoveries
won't do much for the Exxons of the world.
To move the needle in a meaningful way, they must tap into
vast basins holding millions of recoverable barrels, such as
those off the coast of Brazil. But those resource game-changers
So if you're an oil giant faced with dwindling reserves and
stagnant production, where do you turn for growth?
The obvious solution is to buy and absorb the assets of a
smaller peer that is sitting on oil-soakedreal estate .
This is yet another reason to own shares of the junior
producers -- many are ripeacquisition targets. Look no further
for evidence than
McMoRan Exploration (MMR)
, which attracted a buyer for its Gulf of Mexico assets a few
months ago, giving stockholders a quick 87% gain overnight.
Fueled by mergers and acquisitions activity and driven by
robust growth rates, it's no surprise that nimble energy
producers routinely outperform their larger brethren.
And this isn't just true for oil and gas producers. These
samefactors are just as potent for small miners sitting on piles
of gold, copper, platinum and other metals.
Which companies will be tomorrow's stars? Nobody knows for
sure, but all the evidence says they'll be the smaller producers
that are just starting to expand and grow.
Action to Take -->
That's why I'm focused on this space -- and you should be, too.
Many of these stocks are unknown and off the radar, but not for
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