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Elliott Gue knows energy. Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.

Elliott Gue’s knowledge of the energy sector and prescient investment calls prompted the official program of the 2008 G-8 Summit in Tokyo to call him “the world’s leading energy strategist.”

He has also appeared on CNBC and Bloomberg TV and has been quoted in a number of major publications, including Barron’s, Forbes and the Washington Post. Elliott Gue’s expertise and track record of success have also made him a sought-after speaker at MoneyShows and events hosted by the Association of Individual Investors.

Elliott Gue also contributed chapters on developments in global energy markets to two books published by the FT Press, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity and Rise of the State: Profitable Investing and Geopolitics in the 21st Century.

Prior to founding the Capitalist Times, Elliott Gue shared his expertise and stock-picking abilities with individual investors in two highly regarded research publications, MLP Profits and The Energy Strategist, as well as long-running financial advisory Personal Finance.

In October 2012, Elliott Gue launched the Energy & Income Advisor, a semimonthly online newsletter that’s dedicated to uncovering the most profitable opportunities in the energy sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

The masthead may have changed, but subscribers can expect Elliott Gue to deliver the same high-quality analysis and rational assessment of investment opportunities in the energy patch.

Articles

On the Radar

Shares of many exploration and production companies have rallied too far, too fast. However, investors will profit from exposure to names that can win market share in an environment where crude oil ranges between $40 and $60 per barrel–provided that they bide their time and buy at the right price. We highlight a handful of names to keep on your radar screen.

E&P Playbook

In the short term, oil prices appear to near the top of their range, having rallied too far, too fast off their February low. At these levels, US shale producers will start to ramp up drilling and completion activity and hedge their expected output for 2017, though decline rates could accelerate in the back half of the year.

Despite the sharp drop in oil prices last year and the recent recovery, rebalancing the market will take time; years will pass before oil prices top $60 per barrel for an extended period. As a result of over-exuberant investors piling into the sector in recent weeks, many energy stocks have rallied to valuations that have outstripped reasonable expectations for fundamentals, setting the stage for a pullback.

We remain bullish on exploration and production companies with franchise assets, low production costs, strong balance sheets and high-quality management teams; these names stand to take market share in an environment where energy prices struggle to break out of their trading range.

Thanks to efficiency gains and price concessions on basic services, America’s best independent exploration and production companies can generate a solid return on investment in their core acreage even if oil prices range between $40 and $60 per barrel in coming years.

To identify the best-positioned producers, we considered a handful of basic criteria. First, we focused on companies that can reduce their capital expenditures and live within (or close to) their annual cash flow without suffering a major decline in production.

Companies that fit this bill won’t need to borrow significant sums or issue a ton of equity to fund their planned expenditures for 2016 and can continue to grow their output. These names will benefit disproportionately when oil prices rally to the high end of our range and hold up better and take market share when the commodity slips to the lower end of our forecast.

 

Focusing on the Bigger Picture

In the short term, oil prices appear to near the top of their range, having rallied too far, too fast off their February low. At these levels, US shale producers will start to ramp up drilling and completion activity and hedge their expected output for 2017.

Despite the sharp drop in oil prices last year and the recent recovery, rebalancing the market will take time; years will pass before oil prices top $60 per barrel for an extended period.

As a result of over-exuberant investors piling into the sector in recent weeks, many energy stocks have rallied to valuations that have outstripped reasonable expectations for fundamentals, setting the stage for a pullback.

Nevertheless, energy stocks appear to have bottomed; investors should focus on upstream and midstream names with the best prospects to grow their production and throughput volumes in an environment where oil prices remain lower for longer.

Instead of aiming to time the cycle’s nadir, investors should remember that buying energy stocks near the bottom historically has produced impressive gains over a two- to three-year holding period.

The easy money has already been made during the wave of indiscriminate selling that occurred late last year and in early 2016 and the indiscriminate buying (and short covering) that took place in recent months. Going forward, stock selection will become more important to outperforming in the energy sector.

Updated Take on Oil Prices

Despite the recent rally in crude-oil prices and investors over-exuberance toward energy stocks, potential downside catalysts outweigh the upside drivers in the near term. Although we expect jagged volatility in energy prices in 2016, oil prices to settle into a range of $40 to $60 per barrel over the next few years–and that relative stability will be good news for select energy stocks.

MLP Musings: Earnings Takeaways and Conference Prep

Master limited partnerships (MLP) and exploration and production companies have been among the biggest winners in the sharp rally that has occurred since oil prices bottomed on Feb. 12, with the Alerian MLP Index gaining 35 percent and the Bloomberg North American Exploration & Production Index surging almost 55 percent.

The Bloomberg North American Independent Refining & Marketing Index has also underperformed significantly this year, validating our lack of exposure to this corner of the energy market.

In the MLP universe, the most downtrodden midstream names have outperformed; since oil prices bottomed on Feb. 12, the Yorkville High-Income Infrastructure Index has returned almost 60 percent, while the Alerian MLP Index has gained about 44 percent.

This sharp snapback has narrowed our losses on some of the names in our MLP Portfolio’s aggressive sleeve, though hindsight reminds us that we should have been more proactive about adding positions when valuations reached ludicrously low levels.

Nevertheless, investors who bought our favorite MLPs at dream prices should sit on solid gains. After the recent rally in midstream equities and bonds, investors should continue to focus on high-quality MLPs with superior costs of capital and exposure to low-cost basins that should take market share over the long haul.

Investors who fear that they’ve missed out on the opportunity to buy these MLPs should keep their eyes peeled for the inevitable dips to add to their positions.

 

05/24/16: May Live Chat

Elliott Gue and Roger Conrad will host the Energy & Income Advisor’s next Live Chat on May 24, 2016, at 2:00 p.m. ET. This is your opportunity to ask questions about the latest developments in the economy and energy patch.

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  • Live Chat with

    Elliott and Roger on Jun. 30, 2016

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor