Four Energy Stocks Worth a Look in 2012

For much of 2011, there was little opportunity in the stocks of major integrated producers.

They tend to lead stable, solid market lives. Often they are the hiding place of big-money investment organizations when market uncertainty appears and more volatile issues are in retreat. They tend to go down less, partly due to this attention.

What tends to run them up is substantial price appreciation in crude oil, or for individual companies, a major resource field find. For much of the year, crude prices were retreating from well over $100.

The principal resource finds have centered around US developments of natural gas by horizontal fracking. The success there has created a price-depressing oversupply bubble, raising questions as to the ultimate value of natural gas, and questions as to how quickly distribution facilities and alternative markets can be created.

The only current excitement seems to be in the Chinese National Offshore Oil Company, now known as CNOOC Limited (CEO), and Anadarko Petroleum (APC). Both have long (five to 10 years) forecast histories providing favorable reward-to-risk opportunities at present balances in their upside-to-downside outlooks.

CEO has averaged gains from forecast date on the following three months of 22%, compared to drawdowns of -10%. Andarko’s similar gains have been 14% in contrast to drawdowns of only -6%, ranking it better than 94% of our population of more than 2,000 stocks and ETFs.

The advances in natural gas drilling and recovery have been more meaningful to the independent exploration and production (E&P) companies than for the integrated producers.

EV Energy Partners (EVEP)
Only five years old, this a prime example of recent development success. Forecasts at least as encouraging as the present have occurred in nearly 170 days. Market prices in the following three months have been higher than at the forecast day three-quarters of the time.

Gains average 13%, compared to drawdowns of -5%. Further, proposed buys at time of these forecasts produced profits in almost 80% of the cases. Gains in all 166 averaged an annual rate of 97%. On our reward-risk scale, EVEP outranks 95% of all others.

Energy XXI (Bermuda) Ltd. (EXXI)
This is only a year older than EVEP, and produces principally oil from properties developed onshore in Louisiana and Texas, and in the Gulf of Mexico.

It also has an enviable record of providing stock gains following 192 days’ forecasts at least as attractive as today’s. Profits could be had in 83% of those, and all 192 averaged 11% in holding periods of a month and a half, for an annual rate of 134%.

No promises of the future here, but these examples show what can, and does, happen. Other E&P stocks with combined odds & payoffs above our 5% hurdle rate are buyable, but these two are the best performers to date.