Category: Stock Pick of the Day


Which Natural Gas ETF is right for you?

Filed Under: Stock Pick of the Day by Bill — Comments Off
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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Canadian Stocks

Filed Under: Stock Pick of the Day by Bill — Comments Off
October 16, 2009

Since the federal government isn’t going to stop printing money anytime soon I’m fairly certain that the US dollar is going to keep falling.  One way to offset the falling dollar is to invest in companies in foreign countries.  That way you don’t only well from the companies doing well, but you get the currency exchange bonus.  If you pick companies that buy a lot from the US then you’ll see another bonus there since they will be saving money on the purchases.  I know many people don’t feel very comfortable purchasing in the far off lands of China and Europe.  Let’s not forget the Canadian stocks of the great white north though.  You could still visit these companies on a weekend trip, a passport (or specialty license), and some heckling from the border patrol. 

The Canadian Stock Exchange

The biggest Canadian stock exchange is the Toronto stock exchange or TSX.   The hours of this exchange are roughly the same as the NYSE (9:30AM to 4:00PM EST) with some different holidays:

  • New Year’s Day – January 1, 2010
  • Family Day – February 15, 2010
  • Good Friday – April 2, 2010
  • Victoria Day – May 24, 2010
  • Canada Day – July 1, 2010
  • Civic Day – August 2, 2010
  • Labour Day – September 6, 2010
  • Thanksgiving Day – October 11, 2010
  • Christmas Day – December 27, 2010 (in lieu of December 25)
  • Boxing Day – December 28, 2010 (in lieu of December 26)

U.S. Holidays*

  • Martin Luther King, Jr. Day – January 18, 2010
  • Memorial Day – May 31, 2010
  • Independence Day – July 5, 2010 (in lieu of July 4)
  • Thanksgiving – November 25, 2010

The Canadian economy is strongly based in exports of commodities and they have some famous large banks.  My Canadian stock picks will definitely fall in these two industries.  One Canadian oil stock I particularly like is Canadian Oil Sands Trust.  I believe the US will look to purchasing oil from non Middle East sources.  While drilling in the US is ideal, we’ll look to our local neighbors first, and Canada has no political inflammatory implications with it.  The oil sands have been known about for a long time it just wasn’t worth going after until oil prices shot up over the last few years.

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I’m Interested in Oil Stock

Filed Under: Stock Pick of the Day by Bill — Comments Off
September 23, 2009

As long as the majority of oil comes from outside of the country I believe oil stock is going to rise. One factor is we are definitely monetizing the debt in the US right now (don’t even deny it) and this will reduce the US dollar against other world currencies. If our money is worth less then the price of oil will go up. Also, regardless if our use of oil rises or drops OPEC is going to fix the price of oil, maybe even fix the profit per year from oil. If they do get the economy churning again (which I think we will) then our oil use will rise with a still falling dollar making much higher oil prices.

One oil stock I like is Valero Energy Stock Ticker: VLO

Even at today’s low prices the stock has gained an average of 20% per year for the last 20 years. That is pretty freaking amazing I don’t think most people’s mutual funds have done that well through the boom and bust cycle.  My only real concern is the growth rate.  If it’s not sustainable the stock could sit idle a bit longer especially with its variable positive/negative cash flow and earnings per share.

Logarithmic Chart VLO

I think the best oil stock out there right now is Stock Ticker: SII or Smith International Inc.  I particularly like this stock because they make their money in drilling equipment, waste management, and supply chain logistics for the oil drilling industry.  So regardless of oil stock prices this company has the potential of doing well.   If oil prices are high then the oil companies will have more money in invest in drilling equipment, if it’s low then demand will go up and more drilling equipment will be needed.  It’s a win win with their consistent increase in dividend payouts and improved earnings per share.  If you look at the chart SII has consistently bounced back from steep drops, just a nice repeating pattern.

Logarithmic Chart Sii.jpg

I know these are some crude oil stock picks.  (Ha Ha get it?)  I just wanted to show a stock pick still using my usually CAGR screening, but with some more ties to current affairs.  We’ll see how my current event analysis works out.

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History of Stock Market Performance

Filed Under: Investment Strategy, Stock Pick of the Day by Bill — Comments Off
July 24, 2009

Often you’ll hear numbers thrown around by stock market advisors saying things like “the stock market performance has been 8% a year…” however, this hasn’t always been true, this is only been true for a given slice of stock market history.  It’s interesting to look at stock market performances over different periods of time.

Stock Market Performance Pre WWI (1871-1911): The stock market (S&P) went from 4.44 to 9.27 for a CAGR of only 1.8%

Stock Market Performance WWI to WWII (1912-1944): During this period the stock market only returned 0.7% per year raising to 11.85.  The Great Depression followed by a New Deal government spending it was hard for poor and rich to gain any traction.

Stock Market Performance WWII to Vietnam (1945 – 1965) Here was the first era of serious prosperity with the stock market climbing nearly 10% (9.9%) per year each year.  Imagine the wealth gained by those savers who learned to earn in a time of 1 – 2% returns.  I believe part of it was the beginning of woman moving into the workforce (though most returned after the war until the 1960s and a serious improvement in manufacturing productivity.

Stock Market Performance Vietnam to Desert Storm (1966 – 1991) 5.2% returned a year during this period.  I think it’s interesting to note that this period and after Desert Storm to present are about the same rate of return.  It almost appears the economy is becoming so large, or the face of war has changed so much that the war doesn’t have as much impact on the financial markets.

Stock Market Performance Desert Storm to Present (1992 – 2009) 5.7% returned – again about the same as Vietnam to Desert Storm, though the number would have been a bit better if I would have stopped it at the return to Iraq.

Why did I choose wars as a point to break down eras?  Why not?  You just never know what will pop out at you when you take the time to look at the details and not just muck it all up in one round number.  Why not try the numbers in some way that makes sense to you and tell us all about it?

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