With 40 percent of the world’s oil transported through the Strait of Hormuz, a crisis involving Iran could easily send the price of crude soaring as fears of supply disruptions dramatically increase short-term demand. A handful of high dividend-paying oil stocks with strong fundamentals, including Chevron (CVX) and Statoil (STO), are positioned to rise quickly in the event of bad news from the Persian Gulf.
LIGNET’s advice to oil sector investors is simple: protect against downside risks while simultaneously positioning capital to reap a large upside reward if economic and political conditions suddenly change and push stock prices upward. The companies we’re highlighting are inexpensive relative to their earnings and stand to profit in the event of a crisis with Iran, which many experts now believe is inevitable.
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Because oil is a necessity of modern life that propels our cars down the highway and lifts our planes into the air, it is in one sense a safe investment. Consumer demand for it is not likely to disappear anytime soon. And even in bad economic times, when prices tend to fall, there is much less risk of a gig
antic oil company going bankrupt than there is of the same happening to a small Silicon Valley start-up. The tradeoff for investors is that oil companies do not usually grow quickly. The relative safety of oil sector stocks and their stability compared to stocks of more volatile industries makes them attractive to investors as "dividend plays" that generate a predictable return on investment with little downside risk.
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Investing in oil sector stocks as a "growth play" is not usually a sound strategy, but current geopolitical conditions in the Persian Gulf have created a new investing environment. The six oil industry stocks singled out by LIGNET were determined to be attractive investments based on metrics that measure their value. But more importantly, they were selected because they are poised to spike upward in price if a conflict with Iran erupts.
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