4 Stocks to Energize Your Portfolio
Apr 27th 2012 1:41PM
Updated Apr 27th 2012 5:02PM
There's simply no denying how important energy is not only to our economy, but to our very existence. If we need it to live, your portfolio should have it, too. Below I've outlined four stocks to diversify an energy-less portfolio.
A solid bet: Chevron (NYS: CVX)
According to PFC Energy, Chevron turned in the best performance of 2011 out of the 10 biggest integrated oil and gas companies by market cap. The company posted 17% year-over-year growth in share price, better than ExxonMobil and Royal Dutch Shell, the only other members of big oil who mustered positive growth last year.
In 2012, Chevron has faced legal battles abroad and production declines in the first quarter as a result of asset divestitures. Consequently, its share price has declined a bit, down around 6% year to date.
Fellow Fool Isac Simon says to avoid Chevron for a bit, but I'm going to be more specific: Watch this stock like a hawk. Long term, Chevron is invested in a major liquefied natural gas project in Australia that is scheduled to come on line in 2014 that will allow the company to cash in on high demand in Asian markets.
In the short term, the company's international gas production is climbing, and its refining margins are up both from last quarter and year over year. A slight production hiccup isn't enough to scare me off the stock. It's all about waiting for a perfect entry point now. And let's be honest, oil prices aren't coming down anytime soon and nothing is kinder to an oil company's bottom line than high prices.
The riskier move: Valero (NYS: VLO) As a subsector of the oil and gas industry, refining tends to be the least popular among investors. If the price of oil falls too low, refiners get absolutely hammered on the bottom line. However, the price of oil has been high for some time now, and if there is any refiner to make investors second-guess leaving refining out of their portfolios, Valero is it.
The company is uniquely positioned to make the most of the current state of domestic oil production. Its refineries are on the Gulf Coast, the perfect location for exports. While East Coast refineries were shutting down last year, Valero grew revenue from $82 billion to $126 billion. Its proximity to cheap American oil and American ports were the reason its share price jumped 35% year over year. Expect more of the same this year. Energy demand across the globe is increasing, and Valero stands to make a killing on exports.
The toll road: Williams Cos. (NYS: WMB)
After the KinderMorgan/El Paso merger, Williams Cos. became the fifth largest midstream company by market cap. Its 29% year over year stock growth was second only to Enbridge last year, and the company continued that success through the first quarter of this year.
Earnings were up $0.70 per share compared to $0.54 per share last year. Part of that was because of a 2010 divestiture, but part of it was also due to improved higher fees and higher margins from the general partner interest in its pipeline business, Williams Partners (NYS: WPZ) .
Looking ahead, Williams Cos. expects to complete its acquisition of natural gas processing company Caiman Energy shortly. The company also plans to bring a Canadian pipeline online next month, ahead of schedule.
The hedged bet: Eni (NYS: E)
Italian oil giant Eni is one of the biggest oil companies in the world. What I like about Eni, however, is its commitment to developing alternative energies, particularly solar power, a hedge against traditional fossil fuels.
The company has a partnership with the Massachusetts Institute of Technology to research and develop innovations in solar technology. Eni committed to investing $25 million over the course of five years. To date, the Eni-MIT Solar Frontiers Center has produced some interesting results. This past December, the center announced it had developed thin, flexible solar cells that could be placed on paper and crumpled yet still function.
The energy industry offers a ton of options for investors looking to diversify their portfolios. If your portfolio is already chock-full of energy stocks (brilliant!) consider checking out nine more ideas with the Fool's special free report: "Secure Your Future With 9 Rock-Solid Dividend Stocks."
At the time this article was published Fool contributor Aimee Duffy holds no position in any company mentioned. If you have the energy, check out what she's keeping an eye on by following her on Twitter@TMFDuffy.Motley Fool newsletter services have recommended buying shares of Chevron and ExxonMobil. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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