Its Time To Buy Energy Stocks | Oil Service and Equipment Companies

Energy Stocks - Oil and Gas Service and Equipment Stocks

Many energy stocks are trading at very attractive valuations as this article is written. MR believes this is the right time to start scaling into these stocks and ETFs if you haven't done so already.  And, even though these stocks could still pull back from these levels, the patient investor will be rewarded. Investors should take advantage of the low prices in our recommended stocks list. Furthermore, this article details the first four strong reasons that energy stocks and energy ETFs will be good long term investments beyond 2012. This is part 1 of a 2 part blog with four more reasons and more energy stocks to follow.

Crude oil, natural gas, coal, and refined oil products, like unleaded gas, will continue to be used extensively in the future. And while there currently is a significant large storage inventory and oversupply of all of these energy sources in today’s economic environment, the demand and supply curve is starting to shift as the world recovers. The time to invest is before that coming big demand shift happens quickly and everyone sees the recovery occurring.

Crude oil and coal are still the work horses of the energy world and that won’t change anytime soon. Furthermore, the higher demand that will be placed on these energy sources coupled with the explosive driving middle class in China and other emerging markets will put huge pressures on refined liquid gas products. We all know that inflation is coming in the next few years if not sooner.
Even during the 1970’s and early 1980’s when inflation was raging and the general stock market was falling, energy related stocks made strong gains.

This article will discuss numerous reasons to invest money in energy stocks and energy ETFs and details support for upward price pressures going forward for years to come.

Reason #1: Oil, coal, natural gas, and unleaded gas are cheap at their current price levels as measured on an inflation adjusted basis from their previous historic peaks.

While oil is not cheap relative to the overall historic levels ($100), it is still cheap compared to the recent $126/barrel level in 2008 and also compared to the $108 per barrel in the late 1970’s. Coal is selling now at 2005 and 2006 levels and over 50% less than the peak in 2008. Natural gas is selling at very cheap levels (< $2.50 per thousand cubic ft) even after the recent bounce this week.

Reason #2: The oil supply is disappearing much faster than new sources are being found and some experts have argued the “peak energy” story for years now.

It is true that the probability of finding a large undiscovered oil source is probably close to zero at this point. In addition, the recent trouble with deep water and offshore oil rigs in the ocean obviously doesn’t help the situation. The emerging market middle class growth is still strong and the demand placed on energy from that explosive growth will stay high. China’s and India’s growth in automobile purchases alone is daunting for oil and refined products to keep up with. This means higher energy prices are coming and investment opportunities in top energy stocks, especially  the oil service and equipment stocks, makes sense.

Reason #3:  The oil service and equipment ETF chart is a good example of a consolidation and basing pattern. It has been gaining momentum in 2012 and it broke a significant 7 month downtrend line. Now the price action is moving up to breakout above the 500 SMA and the 200 SMAs. This is an opportunity to scale into some stocks in this sector before a breakout occurs.



Reason #4: Inflation will become a huge issue in the next few years and beyond. This will put significant upside pressure on oil and all commodities as it did in the 1970’s and early 1980’s. The recent Fed stance of keeping interest rates very low through 2014 will eventually spark inflation.
This reason alone supports a strong move up on energy and therefore a positive environment for oil service and equipment stocks. Even though the stock market was in a bearish trend in the 1970’s and early 1980’s, energy related stocks still showed significant gains. Many of the oil and gas equipment stocks even showed gains of several hundred percent.

The following chart lists our favorite Oil and Gas Service and Equipment Stocks:



Take partial positions after the next pullback in the market which should happen in the next few days and probably some next week. Add to your position on drops to build out your investment position. Use any breakout above the 500 SMA or 200 SMA for trailing stops. Our top picks and their risk level are highlighted in yellow.

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