If you mention oil or gas stocks to energy investors, you’re apt to get a big eye roll.
Prices for commodities are plunging, and it takes a brave soul to venture out looking for bargains.
With that said, there are several opportunities for you to consider right now – ones that many investors are overlooking in this treacherous market.
Focus on companies that have the money to pay (and maintain) dividends.
And there are three companies that come to mind as bargain buys that’ll pay.
The Case for Kinder
The first is Kinder Morgan (KMI), the largest pipeline operator in the country. The company’s shares have barely blipped during this recent downturn and are trading much closer to 52-week highs than lows.
Kinder is going to make money regardless of where oil prices trade, unless they absolutely crash and burn… But even then the company will still pull in some profits.
As a natural gas pipeline operator, it’s involved in storing gas, oil, and other energy liquids. This means it isn’t very dependent on any one fuel. Plus, filling the role of transporter and storage player means Kinder is used regardless of price.
Kinder is currently paying 4.2% and will likely raise that dividend next year, barring a wholesale collapse. There is history to back that position up, too. Kinder was making money when natural gas prices were well below what they are now.
With the United States in strong economic shape, more natural gas being used, and oil still in high demand, Kinder is sure to be a winner regardless of the daily price moves in the underlying commodities.
Kinder is a strong place to invest. But I would also stand behind two other companies with slightly different positions.
Investors should also consider a major producer, like Exxon Mobil (XOM). The shares currently sport a 3%-plus dividend, much higher than the average stock in the S&P 500.
Exxon is a good bet because it’s sitting on billions in cash and brings in billions more every quarter. The company’s earnings will definitely be hurt by lower oil prices. But unless oil dips to around $40 per barrel, they will still be able to make money from production and their other operations, including refineries, natural gas, and transportation.
And if oil recovers in the next 12 to 18 months, which I expect it will, Exxon’s stock will be even more valuable.
If you’ve got the stomach for an investment that carries more risk but could have a much higher yield, then preferred shares of energy producers are the way to go. The yields there are moving significantly higher, especially for some of the smaller, lesser-known names, like Magnum Hunter (MHR).
This company, which was primarily involved in the oil industry, sold most of its oil assets close to the recent peak in prices and used that money to get into the natural gas sector.
It seems someone at Magnum must have had a crystal ball because the company is now in a position to make profits on their preferred stocks, even at current natural gas prices. It has several preferred issues that are paying anywhere between 9% and 13% at current prices.
The oil and energy patch is going to be under pressure for some time, but I’m confident that all three of these companies will weather this storm well.
A Realistic View
Investing with a view of the here and now will require tremendous fortitude, not unlike when the markets tanked in 2008 and 2009.
It’s never pleasant to watch your portfolio sink, especially under the pressure of a largely fabricated crisis. However, buying low and selling high is the name of the game.
We may not ever see better opportunities to buy into the energy sector at “low” prices than in the coming weeks and months.
And “the chase” continues,