Best Energy Stocks - Oil & Gas Calls For 2008

By Jim R Regan

The investing environment for oil & gas producers remains bullish in 2008, as record oil prices headline the news almost daily... and analysts see a lot more coming. Since Goldman Sachs predicted a two-year move to $200 in the commodity, people have had renewed confidence in buying up companies that deal with oil, and its cleaner alternative, natural gas.
There have been many doubters out there that you need to be made aware of. With the most recent dramatic upward spiking in commodities, many investors claim that prices are artificially inflated. While this may hold true, it does not mean they won't continue to inflate artificially... making you money along the way. Despite the fact that all of these companies look expensive as heck, I think that the trend up will continue... and it's always better to get in on the action than be sitting on the sideline, sucking your thumb. ;)
The Net Fool's Stock Performance
Back in January, I advised buying four energy superstars, all of which would have made you double-digit profits by now. Transocean (NYSE: RIG) is up 15.20% since my call back at $140.10, and I am still bullish on their solid oil drilling capabilities after their fantastic first quarter results on May 07, I'm maintaining a "buy" on the stock. If you bought into Schlumberger (NYSE: SLB), you'd be sitting on a nice 10.42% profit from my original pitch at $96.57. Schlumberger is the largest oil-services company in the world, so if you like the security of a large company... you'll love SLB, who still has a lot of upside. My best recommendation in the sector was with Halliburton (NYSE: HAL) which would have given you a 31.70% return since my buy at $37.26. I think it might be time to take profits off the table on Halliburton, moving into another energy stock. The upside is still there, but I think your money would be better off elsewhere. Finally, XTO Energy (NYSE: XTO) has absolutely torn it up since my pitch at $53.88, rising for a 25.95% profit. XTO is an oil & gas exploration company that I maintain a "buy" rating on, still very bullish with plenty of room to move.
Where To Go Now
The energy sector as a whole has been rising off the charts over the past few months. But I don't want you in the companies that are the staple crop of energy, your Exxon Mobiles and your Chevrons... go to source! I'm talking about the guys that are drilling the oil and natural gas directly, spinning them off for profits. Now you've heard from the drillers... I want you in those hybrid oil/gas companies like XTO Energy to capitalize on both markets and diversify risk. Personally, I'm much more bullish on natural gas than oil. I feel that the gas is much more valuable as an energy source but has been largely undiscovered compared to oil by the media, and hasn't seen the same value appreciation that it deserves. So here are some cream of the crop hybrids with a favorable slant toward natural gas!
Chesapeake Energy Corp. (NYSE: CHK):
Chesapeake is the number one independent producer of natural gas, but still has a lot of hedged risk to thwart the volatility factor. It's the number one driller with 254 rigs and has beaten the market over and over again with its superior hedging strategies. You can bank on the fact that they grew production by a bigger percentage than any other large-cap competitor. Lot's of worry over the share price is cast toward Chesapeake, but they have performed past expectations time and time again, so you can sleep soundly with the fact that they have issued stronger guidance than any competitor in my opinion. There are some huge reserves that CHK has actively pursued, and I think the best is yet to come.
Anadarko Petroleum Corp. (NYSE: APC):
Well, they crushed earnings consensus of $1.22/share with $1.55/share... can't say you couldn't expect such stellar news from a great company that has been growing faster than the industry for a while now. This trade isn't done yet, and after an upgrade by Lehman Brothers on May 16th, it's clear that investors still see the upside. Following earnings, it feels like sunny skies all year long for Anadarko... a company trading at just 15.5 times earnings compared to an industry ratio of 23. APC has proven to investors that it can be the best in a high-growth industry... and I'm still buying.
Helix Energy Solutions Group (NYSE: HLX):
Helix does a lot of oil & gas production in the Gulf of Mexico, and I believe they fly largely under the radar in the energy sector because of their low market cap. Their new Danny-Noonan fields should really benefit earnings for 2009, and could even be a catalyst in 2008. But more importantly than new exploration activity, Helix has taken a hit that I feel is undeserved, essentially because of how their petroleum services unit is tied to their exploration unit. Because of this, Helix has one of the more attractive valuations in the sector. While they may not have the profit margins to beat out competition, HLX is a silent assasin with a low P/E of 11 and a chip on their shoulder.
Apache Corp. (NYSE: APA):
High operating costs and expenses were largely offset by earnings from high oil and gas prices as well as increased volume production over the first quarter. Apache has one of the best managed companies in the business, and I see them outperforming the industry in the long run... despite the fact that there are bordering target prices. Apache has benefited as well as anyone else from five major discoveries, and I feel that APA can fully explot their North American reserves to profit in a beaten-down market in 2008.
Average growth rates for natural gas drillers is 15%, so it's really quite hard to find a loser in this environment. I see the following companies outperforming the industry in 2008: Chesapeake (CHK), XTO Energy (XTO), Anadarko (APC), Helix (HLX), Transocean (RIG), Schlumberger (SLB). I am rating these energy stocks as market-perform based on valuation: Apache (APA), Halliburton (HAL), Noble (NE), Devon Energy (DVN), Southwestern Energy (SWN).
One thing is for sure, the oil and gas explorers are outperforming nearly every corner of the market. These stocks are poised to outperform in 2008. My investment strategy would be to wait for a $5-$10 pullback in the price of oil before pulling the trigger on one of these companies, primarily because I do feel that the run-up was a bit too quick.
The author of this article is Jim "The Net Fool".
He is owner of theNetFool.com If you'd like to learn more about the stock market, you can visit http://www.thenetfool.com You'll find all the information you need!
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