Tags: Profit | Trends | Energy

Two Ways to Profit From Long-Term Trends in Energy

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Tuesday, 13 Dec 2011 10:11 AM Current | Bio | Archive

$150 oil. That’s what the options market is currently pricing Texas tea at one year from now.

It’s tough to disagree with that analysis. Demand for oil is surging globally. New supplies of oil are smaller than previous major finds. Any way you cut it, the price of oil will rise eventually, even if it’s not by the end of 2012.

So investors can get paid to wait with an international oil company offering some growth from new finds and a solid dividend yield.

In this space, consider Statoil (STO). Headquartered in Norway, Statoil has a global energy presence. Besides exploring and developing oil resources, Statoil refines and sells its fuel through company-owned service stations.

While major oil companies in the US have focused on increasing their reserves by buying natural gas, Statoil has struck oil. In August, the company announced that its recent North Sea find was larger than expected, with a range of 500 million to 1.2 billion barrels of oil.

Statoil trades at nine times forward earnings, and has a dividend yield of 3.6 percent.

Oil is the growth play in the energy market. But there’s also a value play you should consider too. I’m talking about one of the most unloved sources of energy out there today, uranium.

2011 has been a terrible year for uranium. Following the tsunami in Japan, several countries have put the brakes on building new reactors, such as the United States. German has gone so far as to make the ambitious plan to go nuclear-free in 10 years with heavy investments in renewable energy.

Remember, the Fukishima disaster was caused in part by the plant’s outdated design. It had already gotten an extension prior to the disaster. New power plants built today will have a better safety record.

So while some countries are moving backward to other sources of energy, other countries are still moving forward with nuclear energy. In particular, China’s plan to ramp up nuclear energy production by building over 50 state-of-the-art plants puts a strong floor under long-term demand for uranium.

Since the start of 2011, uranium prices have gone from $70 per pound to a hair over $50. That’s about a 30 percent decline, but producers of uranium have fared far worse as the investment community turned against uranium companies. Among the wreckage is Cameco (CCJ), the blue-chip of uranium production.

Cameco mines, refines, and sells uranium. It has long-term contracts with its clients. So even if the public completely turns against nuclear power, the company will still manage to continue bringing in cash. The stock is currently hanging near its 52-week low, and offers a historically high yield of 2.1 percent.

Energy, like consumer staples, provides something that people simply can’t do without.

Investors are betting on rising energy prices to be an investment theme in 2012. Even if that doesn’t pan out, buying large-cap energy companies at a discount to their historical prices offers higher yields and upside price potential.

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AndrewPacker
$150 oil. That s what the options market is currently pricing Texas tea at one year from now. It s tough to disagree with that analysis. Demand for oil is surging globally. New supplies of oil are smaller than previous major finds. Any way you cut it, the price of oil...
Profit,Trends,Energy
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2011-11-13
Tuesday, 13 Dec 2011 10:11 AM
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