Category: Stock Pick of the Day


How To Invest In Oil Stocks

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March 19, 2010

How to Invest in Oil

Even though the last couple of years have been largely dominated by an economic crisis, it is clear that the demand for energy is still increasing. In fact, it seems the world’s hunger for energy is almost insatiable. The implication, when it comes to investments, is that investing in oil still warrants serious consideration. But how can the average investor gamble on rising oil prices?

Oil ETFs

Exchange traded funds attempting to track the price of oil abounds. To invest in them, you simply buy shares, as you would with a company. Shares in Oil ETFs are traded on most, if not all, major stock exchanges.

Oil ETFs attempt to accurately mirror the price of oil through various instruments, mainly by trading in futures contracts and by investing in oil companies. The value of companies producing oil is closely correlated with the oil price, it is not a perfect correlation by any means, but there is a tendency of the value of oil stocks to rise, when the oil price does. In fact, for some companies, the value of the stocks tend to rise proportionally more than the oil price.

Oil Stocks

Smaller oil producing companies tend to see their value increase more than the proportional increase in the oil price. On the flip side, they also tend to see a larger fall in value when the oil price goes down. For the investor willing to tolerate significant risk, this presents the intriguing option of investing in oil companies. If the value of oil does indeed increase, a diversified portfolio of oil company stocks, should more than mirror that increase.

An easy way to invest in a diversified portfolio of oil companies is to invest in an oil mutual fund. Compared to piecing together a diversified portfolio yourself, this will save time and commissions. Compared to investing in just one oil stocks, this will drastically reduce risk.

Mutual Funds, Oil Companies, and Oil ETFs

There are a lot of options for investors looking to gain exposure to the price of oil. Which option you choose, should depend on why you want to invest in oil and how much risk you can live with.

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Bruce Berkowitz- An Intro

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February 28, 2010

Taking an approach to money managing reminiscent of Warren Buffet, Bruce Berkowitz has spurned the traditional advice of his business school education, focusing on a few top performing companies rather than diversifying his portfolios.

His strategy stems from the philosophy that being knowledgeable and intelligent about the companies you choose to invest in is more sensible than picking multiple stocks to throw money at in the hopes this will cover any lack of knowledge about the investment.

These days, the Fairholme fund outperforms much of the competition, yielding positive returns even in this struggling economy.  The fund Bruce Berkowitz founded in 1999 looks for opportunities in the morass of failing businesses where the beginnings of future star performers can be made.  The Fairholme fund has proven that this strategy is effective, delivering comfortable returns  every year that consistently beat the S&P 500.

When the Fairholme fund managers seek out a new investment opportunity, high on the list of priorities are business with heavy cash flow, and a promising line of services or products that won’t soon become obsolete.
Among the current lineup of twenty two stocks, the latest additions to the Fairholme fund include a stake in the health care industry with investments in United Health Group, Pfizer, and Forest Laboratories.

According to bruce berkowitz, health care is ripe to become a top performing industry.  Indicators of this are the projected needs of Baby Boomers as they continue to age, which also makes drug companies like Pfizer an excellent choice for providing the needed medications of future generations.  Drug companies that are well entrenched in the health care industry at present stand to gain significantly in the coming years.

If the success of Warren Buffet is any signal as to how the strategy of the Fairholme fund will perform in the coming years, we can expect Bruce Berkowitz to become one of the most talked about fund managers in the near future.

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Green Investing Ideas: Upcoming IPOs

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February 18, 2010

If your current stock market investments are not performing for you, perhaps you should try another tactic: consider green investing. The question most people ask is, “Can you really make money investing in green companies?” The answer is yes. Just because they are green doesn’t mean that you shouldn’t research their profit potential, debt and earnings ratios, and management history. This is simply another sector that can provide you with upcoming IPOs that will increase your investments.

Going green doesn’t mean preventing profits. It can be considered as revolutionary ideas or creations that will improve your life, or that of someone else, which won’t hurt the environment. One such example is the electric car. There are many new companies that have new patents which have been engineered for it. While the technology is not new, it is becoming more accessible for the general population. This provides a great possibility for a large market share and high stock price.

Another example of green profitability is solar energy. It was very expensive in the past if you wanted to incorporate that in your home. Now solar energy is used not only in the home, but by business and industry as well. You can keep abreast of new technology by watching the latest news, or a blog about green investments. You can monitor the various companies just as you would any other. You can then make your decisions about where to place your money.

The right IPO can provide you with enough profit to make a dent in your retirement, or college fund. You should start taking advantage of these new green inventions and their IPOs . You will find that it is possible to make money with green companies, and you won’t have to worry about sleeping at night wondering about the best intentions of the companies after you’ve purchased shares of their stock.

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Which Natural Gas ETF is right for you?

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December 1, 2009

Much has been written about natural gas. It has been one of the hottest markets this year. You may want to venture into this market, but how do you want to trade it?

Perhaps the easiest way to trade natural gas is to invest in a natural gas etf. ETF stands for Exchange Traded Fund. These investment vehicles are similar to mutual funds. Both are typically made up of a basket of related stocks.

There are several natural gas ETFs to choose from. But which one suits your investing style?

There are many ways to trade natural gas. There is SPDR S&P Oil & Gas Equipment & Services ETF, stock symbol XES. This Gas ETF tracks an index of oil and gas equipment and services companies. What this fund tries to do is to replicate (as close as possible) before fund expenses the total return performance of the S&P Oil & Gas Equipment & Services Select Industry®Index. The goal of this fund is to have low portfolio turnover and lower costs. Some of the companies in this fund are Schlumberger, Haliburton and Diamond Offshore Drilling. These companies may not be in the index when you purchase this ETF. Check the website for its current holdings.

The SPDR S&P Oil & Gas Exploration & Production ETF (symbol XOP) and the Dow Jones US Oil and Gas Exploration & Production ETFs (symbol IEO) invest primarily in natural gas exploration. These ETFs purchase baskets of stocks that are involved in the exploration and production of natural gas. Some of the stocks in these funds have been Exxon-Mobile, Chevron and Conocophillips. Once again, check the fund websites to see the current holdings.

If you want to trade in a fund that attempts to reflect the daily price change of natural gas futures, then the United States Natural Gas fund (ticker symbol UNG) and the United States 12 Month Natural Gas Fund (ticker symbol UNL) may be for you. Both invest primarily in natural gas futures contracts traded on the New York Mercantile Exchange. These are un-leveraged funds, meaning they do not purchase futures contract on margin. By doing so, these funds can never have a margin call. The difference between these 2 funds is that the UNG fund must roll over the entire funds spot month futures contract each month. The UNL is a 12-month fund, meaning it has purchase natural gas futures in each of the firs 12 contract months of trading. Then each month, the fund only need to roll over 1/12 of its portfolio, there by lowering it cost and mitigating the effect of contango or backwardation on the fund.

There you have a brief look at the opportunities to trade the Natural Gas ETF.

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