Oil that is, black gold, Texas tea.
So, where to invest? Stock market P/E is too high, the yield curve is flattening, Greenspan is raising rates, no obvious tech breakthroughs: it looks bearish. Bonds are risky when interest rates rise, maybe short term and money market are OK, but pay little. Real estate is showing signs of a bubble - half of new Calif. mortgages are no down, variable rate, interest only - a recipe for disaster if the market takes a dip or interest rates rise.
Oil stocks are promising. World oil production seems to have peaked. It's been years since discovery of a major field. OPEC is pumping all it can and still prices are rising. China and India are buying more and more cars, and building more and more roads. How high would gas have to go for Americans to cut back? Are you gonna ride the bus if gasoline hits $3? No? How about $4? Still no? I'm thinking maybe $8 gas would have an impact. What is now a $40 fill-up would become a $120 one. That might give folks pause.
But there's oil stocks and there's oil stocks. We need (non-gov't) ones with reserves, reserves in safe places where they won't be nationalized or taken in war. Let's have a look at some US oil companies.
| Company | Reserves | Mkt Cap | $/Bbl | P/E |
|---|---|---|---|---|
| ExxonMobil (XOM) | 12,623 | $379B | $30 | 14 |
| ChevronTex (CVX) | 8,668 | $123B | $14 | 9 |
| ConocoPhillip (COP) | 5,137 | $81B | $16 | 9 |
| Marathon (MRO) | 720 | $18B | $25 | 14 |
| Amerada Hess (AHC) | 782 | $10B | $13 | 12 |
| El Paso Energy (EP) | 136 | $7B | $51 | N/A |
| Anadarko (APC) | 1,131 | $19B | $17 | 12 |
| Devon (DVN) | 636 | $23B | $36 | 11 |
| Unocal (UCL) | 681 | $18B | $26 | 13 |
| Burlington (BR) | 588 | $21B | $36 | 13 |
Crude oil is currently selling for about $60/barrel, so all these companies are trading well below their oil asset value. These companies have other assets as well, such as natural gas, refining and retail. The four with oil reserves priced in the teens and low P/Es are: CVX, COP, AHC and APC. All operate globally. COP has a stake in LUKOIL, the Russian giant. Prices today: CVX $59, COP $59, AHC $107 and APC $82. I bought some APC and later sold it at a profit. Wish I'd kept it.
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