財經觀察 2155 :E nergy Stocks Will Surge When Recession Ends

Energy Stocks Will Surge When the Recession Ends: John Dorfman
2009-06-22 04:01:00.17 GMT

Commentary by John Dorfman
     June 22 (Bloomberg) -- The U.S. produced about 88 percent more oil in 1970 than it does today. Production has been declining for 39 years since hitting that level.
     When will world oil production peak? Many energy experts believe it already may be happening or will within four years.
     One of them is Matthew Simmons, head of Houston-based Simmons & Co., an investment bank specializing in the energy market. His 2006 book, “Twilight in the Desert,” popularized the idea that Saudi Arabia has less oil than widely supposed -- and that therefore the world has less of the fuel than we think.
     The theory is controversial, though I believe it. Finds of monster oilfields are rare these days, and depletion of existing fields is quickening. That’s one reason the portfolios I manage tend to be heavy in energy stocks.
     Energy stocks may be especially timely now. They usually do quite well after the end of a recession.
     No one knows when the current recession will end. A few months ago, most economists were guessing 2010 or 2011. Today, many are predicting it will end this year -- a view I share.
     I examined the performance of three energy indexes after the end of the past five recessions. By my calculation, oil drilling stocks rose 22 percent on average over the ensuing 12 months. Oil exploration and production companies gained 13 percent, and integrated oil companies 9 percent. By comparison, the S&P 500 Stock Index’s average gain was 8 percent.

                         Suspicious of Solar

     Energy stocks come in many flavors. Should an investor look at oil, natural gas, coal, nuclear power, solar, geothermal, hydro or wind?
     Stocks of alternative-energy companies, such as solar or wind, tend to sell for high multiples of earnings. They may be a growth investor’s delight, but I’m a cheapskate unwilling to pay now for success that might be achieved later.
     That’s especially true because it’s hard to pick future winners in a nascent field. Commodore was a big name at the birth of the personal computer industry, but the ultimate winners were companies that joined the fray later.
     Coal and nuclear-energy companies are appealing, at least in theory. In practice, there are a few hang-ups. For more than a year before the recession, coal-mining stocks sold for high valuations reminiscent of technology companies. Now, the struggling economy has knocked them back to about eight to 14 times earnings.
     Many coal companies, though, have total debt that exceeds stockholders’ equity. I don’t like high debt in normal times, and during a recession I’m especially leery of it.

                            King Coal

     Coal companies that are attractively priced and have decent debt-to-equity ratios include Walter Energy Inc., based in Tampa, Florida, at four times earnings; Alpha Natural Resources Inc. of Abingdon, Virginia, at 10 times earnings; and Consol Energy Inc. of Canonsburg, Pennsylvania, at 13 times earnings.
     In the past I’ve indirectly invested in coal by owning Freightcar America Inc., a maker of coal-carrying railroad cars.
My efforts were unprofitable, and I’m currently out of the stock. I must say, though, that it looks attractive again at 10 times earnings and 0.3 times revenue.
     Choosing nuclear stocks presents a different challenge:
It’s hard to find pure plays. In the U.S., the companies that build nuclear plants or reactors are mostly large, diversified operations such as General Electric Co. In France, there’s Areva SA, the world’s biggest builder of nuclear facilities. Alas, it never seems to be in my buying range. Right now, for example, Areva shares fetch 26 times earnings.
     Even USEC Inc., a Bethesda, Maryland, uranium-enrichment company whose stock sometimes is inexpensive, sells for 19 times earnings.

                       Occidental, Chevron

     That brings us back to the most traditional energy stocks, oil and gas. Here I find several ones I like.
     Among the big integrated oil companies, I recommend Exxon Mobil Corp., Occidental Petroleum Corp. and Chevron Corp., all trading at seven to 10 times earnings. Each one is huge, geographically diversified, and has debt less than 15 percent of stockholders’ equity.
     Among oil drillers, Schlumberger Ltd. sells for 13 times earnings. The Houston-based company is usually considered the cream of the drilling specialists, and its stock the past six years has sold for an average price-earnings ratio of 32.
     A large natural gas company I favor is Devon Energy Corp.
of Oklahoma City, the biggest U.S. independent oil and natural- gas producer. With natural-gas prices currently on the low side (about $4 per million British thermal units compared with about
$8 during parts of 2006), you can scoop up Devon shares for seven times earnings.
     Some smaller oil and gas stocks that I believe offer good appreciation potential are St. Mary Land & Exploration Co. of Denver and Oil States International Inc. of Houston, both at five times earnings, and Cal Dive International Inc. at seven times profits.
     Disclosure note: Personally and for clients, I own shares of Devon Energy. For a couple of clients I own Exxon Mobil or Occidental Petroleum. I have no long or short positions in the other stocks mentioned in this week’s column.

     (John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)

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