I am retired and take educated guesses on all things financial.

August 31, 2006

August 31, 2006: Oil

I do not believe that now is the time to buy oil (on price retreats). Oil has lots farther to go on the downside before the buying should begin. If you do not trust this opinion and still want to play the oil game, look at one of the Canadian oil sands trusts where you will receive a decent yield for your risk, or a driller. I like the driller CPX .It has good upside potential that excellent management provides. PEO provides a conservative cushion as it holds stocks other than oils to mitigate risk. PEO also provides a nice total return via dividends, especially in December. I think it would be a nice addition to tax deferred accounts.

Oil is going down for several reasons. Here are a few: Oil use is not growing as fast as predicted, Democrat gains in November will ease tensions of conflict in oil-producing areas (some would call it cut and run - I agree, but let's play the cards we are dealt), a slower economy, more efficient refining techniques, more rigs in use (with more huge rigs now shortly to be completed) and OPEC pumping oil as if there is no tomorrow to prevent a larger exodus to alternative fuels.

The point being: Oil is not going to $100.00 the barrell, or $80.00 the barrell. It is more likely to be at $45.00 than $75.00 the barrell by January.

Where should you put money taken out of oil stocks? If you still want energy, I say look at MDU, CHK, LNG and ETP (on a pullback to 42). ETP is a limited partnership that has been a superior performer and looks great for the future. It has a rich dividend. Or, Smithfield Foods on a modest pullback. SFD happens to have a large biodiesal operation using pig poop. Or, buy it because it is a superior company in less rancid operations.

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