Buying opportunity. It’s one of the portfolio updates in today’s Energy Letter: http://www.investingdaily.com/energy-strategist/articles/20433/america-revs-its-engines-2/

Thanks very much for your suggestions. I can’t speak to Denbury because I haven’t researched it in depth

We don’t have hard requirements and market cap limits and have in fact recommended small-cap and illiquid plays in the Aggressive Portfolio. (See GST, JONE, EOX, etc.) Obviously, we’ve also noted the greater risks these pose. Unfortunately, if a stock is not already in one of our recommended portfolios, it’s likely that we haven’t done enough research to provide an intelligent opinion, with an exception here and there.

“My portfolio has some oil/energy stocks (prior to subscribing to the Energy Strategist) and there is no reason to
ask your opinion if you do not follow the stocks.”

Harold, I would add to what Igor wrote by saying that we will often look at a company at the request of a subscriber. We have portfolio holdings as a result of a subscriber mentioning a company in the monthly web chat and asking us to look into it. I will often take questions like that and answer them in more detailed fashion in an article, and sometimes we will recommend the company on the basis of the deeper dive. So feel free to ask us about any energy company. We may have to dig, but we like to dig.

Oasis is a stock we like a lot and it’s only a bit above its buy limit in our Aggressive Portfolio (we’re due for a buy limits review, coming next issue.) We have not recommended oilfield services supplier Weatherford, to our loss of late. But I’m happy sticking with the cheaper, higher margin and more diversified Schlumberger over the long haul.

CBI is under short-selling attack alleging that acquisition-related accounting improprieties are masking weak cash flow. I’m doing more work on the claims but my initial impression is that this is a long-term buying opportunity, and at least two Wall Street analysts, one of whom previously had the stock rated a Neutral, agree.

Harold, their debt is a little higher than I like, but they look pretty good going forward. They took an impairment charge last year that hammered the company, but they are shifting more capital to the Permian Basin and expect production to be up about 5% this year (most of that oil and NGLs). My impression is that they are undervalued, especially given the recent climb in oil prices. This should be a good year for them.

Hi William,

I had to get confirmation of where they had put this report. I am told it is here: http://www.investingdaily.com/res/reports/term1y/TES-How_ToProfit_From_Canada%5Es_20_Trillion_Oil_Ultimatum.pdf

Harold, it’s a general rule that those in the Aggressive Portfolio will be more highly leveraged. So if you are worried about the bite of interest rates, those are the ones to watch. There are some in the other portfolios that are more leveraged than others, but I would have to do a screen on each one to see where each one stands. But Continental Resources, for instance, is more highly leveraged than Whiting.

One thing I would add is that MLPs that have had significant run-ups and depressed yields will be especially susceptible to increases in interest rates. Even those upstream MLPs with high yields are highly leveraged in cases, and they could see a significant correction should interest rates start to rise.

There are some out there, like Dominion Resources Black Warrior (NYSE: DOM), ECA Marcellus Trust I (NYSE: ECT), Hugoton Royalty Trust (NYSE: HGT), and Mesa Royalty Trust (NYSE: MTR), but we aren’t recommending any of these presently. I don’t favor these trusts in most cases because they can be extremely volatile for investors who are chasing yield. Check out the recent price action for DOM as an example.

It’s a Hold for me at this point, but I would still be a buyer if it pulls back below our buy price. The yield is down to 2.5% though, so it may have limited room to run at this point. I have several in my own portfolio like that. For instance, I have a nice gain in Devon, but I have to weight the short-term capital gain implications against holding on for a few more months. I am opting for the latter, even though I wouldn’t buy Devon at the current price.

We don’t have Atlas Resource Partners in our portfolios at The Energy Strategist, but it is a Buy at the current price in the portfolio of our sister publication MLP Profits. Targa Resources Partners has gotten a bit rich for our blood lately, and we are advising those with large gains to take profits.

The pipeline is owned by Kinder Morgan Energy Partners LP (NYSE: KMP), but we think investing through Kinder Morgan Inc (NYSE: KMI) is a better option.

I don’t think there’s a single right number. It would depend on the cost of debt, liquidity, valuation and growth prospects.

I honestly wouldn’t recommend any energy stocks on the basis of their possible response to an unpredictable macro-economic factor like inflation. You might assume that commodity producers would have some pricing power in that environment, but then again commodities might cave if market came to believe rate hikes were around the corner. Interstate gas pipeline operators charge regulated tariffs indexed to inflation, so they might do OK. But equities tend not to do well overall during inflationary scares, and I would expect MLPs, for example, to prove more allergic than most sectors.