VALUE ADDED High Energy Prices Could Fuel Your Portfolio by Steven Goldberg
Given that it's an election year, it's really no surprise that gasoline price increases would become a national issue. OPEC's announcement that it will, indeed, cut oil production 4% seems likely to push prices even higher. But the price hikes, while they may cost you at the pump and be fodder for politicians, also offer opportunities to pump up your portfolio -- with energy stocks.
Sen. John Kerry (D-Mass.) said in San Diego, Cal., where unleaded gasoline tops $2.12 per gallon, that he has a plan to make the U.S. energy independent in ten years.
The Bush Administration, meanwhile, places blame for the high prices on Congress' failure to pass the president's energy initiatives in 2001.
Regardless of blame, as fueling up America's SUVs becomes more expensive, investing in energy companies is likely to become more profitable.
The Leuthold Group, a Minneapolis-based investment research firm, has turned bullish on energy stocks -- both oil and gas exploration stocks, as well as much more speculative alternative energy stocks.
Only the beginning
Although higher gas prices are grabbing all the headlines, Leuthold points to other reasons to invest in energy that may not be so obvious:
Even if surging oil prices decline $5 or more from their current mid-$30 a barrel level, they'll be high enough to spark new exploration. Prices, says Leuthold, "appear poised to remain at high levels for some time."
A growing world economy, especially in Asia, is consuming more oil and gas. China's oil imports have tripled in the last five years, and automobile sales are growing 20% annually.
In recent years, the big oil companies haven't spent much on finding oil and gas. "World annual crude oil production is currently about three times annual discoveries," Leuthold says. Common sense tells you that can't last. Also bolstering demand are the recent admissions by major oil companies' that proven reserves are actually less than they had said.
The bottom line: Strong earnings ahead for companies that find and produce oil. The stocks of these companies have risen sharply over the last six months. But Leuthold thinks it's still only the beginning.
Where to dig
The conservative way to play this trend is to invest in a fund that specializes in energy stocks. Vanguard Energy (VGENX) is a good, low-cost performer. T. Rowe Price New Era (PRNEX), the grand daddy in this sector, is another fine fund. Fidelity Select Energy Services (FSESX) is more aggressive.
Leuthold doesn't like the major oil companies. They generally benefit far less from rising prices than these smaller oil service and independent firms.
Alternative energy is clearly a long-term solution to demand. The question, of course, is, how long-term? None of the companies Leuthold recommends is making money. What's more, large, diversified companies are also working on alternative energy. So the following stocks are extremely high-risk.
"Ups and downs of this group are staggering and not for the weak of heart," Leuthold says.
Leuthold's picks:
Active Power (ACPW), manufactures, and markets power products including an energy storage system that provides a non-toxic replacement for lead-acid batteries.
Ballard Power Systems (BLDP), FuelCell Energy (FCEL), Hydrogenics (HYGS) and Plug Power (PLUG) develop and manufacture fuel cells for transportation and power generation purposes.
Distributed Energy Systems (DESC), makes and markets alternative energy products for energy producers.
Millennium Cell (MCEL), this hydrogen fuel cell manufacturer is still in the development stage.
Syntroleum (SYNM), provides a gas-to-liquid process to create synthetic crude oil.
Leuthold's stock selections are based mainly on quantitative criteria. The firm-whose research goes almost exclusively to large, institutional investors-is much better at identifying trends than analyzing individual stocks. So use their stock picks as ideas, and plan to do further research before you invest.
GETTING STARTED
