In this issue:

Despite our best efforts to predict it, the future remains unknowable. Oil might be back at $100 per barrel in two years as Nigeria continues to fall apart, or if the security of Mideast supplies starts looking shaky once again. Or it might be no more expensive than today if shale producers continue to cut costs while Iran and Iraq extend output gains.

More likely, crude’s course will pass somewhere between those extremes, but we pick stocks based on our expectations for their performance under a range of scenarios, not just the most obvious.

That explains the attraction of the companies able to finance their drilling out of operating cash flow even at today’s low prices. They’re not having to worry about selling stock like some rivals still looking to grow aggressively, nor are they borrowing the money to pay dividends like the super-majors are these days.

Companies like EOG (NYSE: EOG) and Apache (NYSE: APA) don’t need oil to rally soon in order to salvage a deteriorating balance sheet. Their downside risk is relatively small as a result. Yet they still have the financial strength and the drilling prospects to capitalize quickly on materially higher oil prices. The fact that the stocks of these conservatively managed companies have lagged behind those of the aggressive growers and the leveraged dividend distributors to this point in the energy rally is an added bonus.

Our survey of the companies that have made the biggest recent cash flow gains highlights some of Apache’s strengths. We’re adding this underappreciated explorer to the Growth Portfolio this week, and have a detailed analysis of its challenges and opportunities.

Our latest leveraged trade recommendation is a hyperactive natural gas proxy with explosive potential, both up and down. This is one we hope to recommend you sell at a nice profit soon, because extended holding periods almost always result in losses. As such, it’s only suitable for gamblers.       

Portfolio Update

• Apache (NYSE: APA) added to Growth Portfolio; buy below $60

• VelocityShares 3x Long Natural Gas ETN (NYSE: UGAZ)  profiled as a short-term speculation; buy below $32.60

Commodity Update

Gary Shilling’s recent prediction of $10/bbl oil continues to look extremely far-fetched, with the decline in WTI reversing after a single close below $40. Oil has since bounced back by more than 10%. Natural gas prices have once again retreated to that $2.50 mark I have highlighted many times before. To reiterate, when natural gas prices have dropped below $2.50 over the past 20 years, they have typically doubled within a couple of years. The freefall in refining margins seems to have stabilized over the past month, while already strong ethanol margins continue to improve.

In Other News

• ExxonMobil (NYSE: XOM) has sued Massachusetts Attorney General Maura Healey to block a subpoena into the company’s use of climate change data

• Saudi Arabia reported that it pumped an all-time high of 10.67 million barrels of oil a day in July

• The 2nd U.S. Circuit Court of Appeals in New York has ruled that Ecuadorean plaintiffs cannot collect a $9 billion judgment in the U.S. against Chevron (NYSE: CVX) for rainforest damage and affirmed a RICO judgment against American attorney Steven Donziger

• In laying out his economic agenda, Donald Trump promised to bring about an “energy revolution” if he is elected president

• Harvard economist Michael Porter says natural gas will further lower U.S. emissions, and that its sudden abundance and cheapness have revitalized the entire U.S. economy

• The American Petroleum Institute launched a new advocacy campaign that argues that ethanol mandates hurt consumers, and is aimed at reforming or repealing the federal Renewable Fuels Standard.