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  • Roger S. Conrad

Investing Topics: Investment Strategy

Game Plan for Lower Oil Prices

Over the past year, we’d taken some steps to reduce the Portfolio’s risk, cashing out of SeaDrill (NYSE: SDRL) last fall and selling fracking sand specialist Hi-Crush Partners LP (NYSE: HCLP) for a roughly 60 percent gain. We also reiterated our Sell call on SeaDrill, a stock we first highlighted in 2007, on several occasions this year.

By design, our Model Portfolios also feature less exposure to oil and gas producers than many energy-focused investment advisories, though we should have lightened up our exposure to riskier, high-yielding names earlier this year.

With only a few exceptions, our Model Portfolio, MLP Portfolio and International Portfolio’s conservative allocations have delivered solid returns and held their value better than most.

This resilience reflects our overweight positions in conservatively run midstream operators—many of which are organized as master limited partnerships (MLP)—that have little direct exposure to fluctuations in oil and other commodity prices.

Our primary hedge against weaker oil prices has delivered a total return of almost 80 percent since we added the stock to the Model Portfolio in January. Equally important, this stock has rallied 44 percent since we highlighted the pick as one of our top demand-side bets in the Oct. 17 issue, Picking the Pockets of Opportunity.

Although we’ve made a lot of right moves, our Portfolios’ aggressive allocations have taken some lumps, making us wish we had booked profits more aggressively at the top.

That being said, it’s not too late to position your portfolios to thrive over what promises to be a challenging six to 18 months.

More CAPEX, More Problems: A Survey of Big Oil

When casual investors think of the energy stocks, one of the Seven Sisters—BP (NYSE: BP) NYSE: BP), Chevron Corp (NYSE: CVX), Eni (NYSE: E), Exxon Mobil Corp (NYSE: XOM), Royal Dutch Shell (NYSE: RDS B), Statoil (NYSE: STO) and Total (NYSE: TOT)—likely springs to mind.

But these Western energy giants have come in for a great deal of criticism over the past several years, as investors lose patience with the industry’s massive capital investments and limited production growth.

Going Green

Can investors still make money in renewable energy? High-flying renewable-energy stocks like SunPower Corp (NSDQ: SPWR) and SolarCity Corp (NSDQ: SCTY) routinely garner headlines but also entail significant risks.

Our Portfolio holdings with exposure to renewable-energy have generated an average return of more than 26 percent since last fall.

And we see further upside for all five stocks, fueled in part by the bullish near-term outlook for renewable energy in the US. Our favorites should continue to generate reliable earnings and grow their dividends through acquisitions and organic-growth opportunities.

What sets our favorites apart from SolarCity Corp and other overhyped names?

These companies generate a profit and pay reliable dividends. Even better, our picks have the wherewithal to survive a slowdown in renewable-energy development, thanks to their contract-backed revenue and exposure to other business lines.

Despite these advantages, these stocks still trade at reasonable valuations, making them solid bets for investors looking to build wealth over the long term.

The Art of Bottom Fishing

With an eye toward value and capital preservation, we prefer to focus on potential turnaround stories where distribution growth has slowed or stalled, but the payout doesn’t appear to be under threat. At the same time, management must have a credible plan to restore the MLP’s fortunes and exceed the market’s low expectations. 

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  • Live Chat with

    Elliott and Roger on Jul. 29, 2021

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Producers and Drillers

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

    • MLPs and Midstream

      Our assessment of every energy-related master limited partnership.

    • International Coverage

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

    Experts

    • Elliott H. Gue

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

    • Roger S. Conrad

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