Skip to main content

Drilling for Opportunities

Several model portfolio names stand to benefit from surging oil prices, and we continue to look for new opportunities.
  • Author:
  • Publish date:
Comments

The markets are trading slightly lower today, and we wanted to offer readers our take on the action. Also, we are adding several new names to the Stocks Under $10 Watch List.

The International Energy Agency issued a report today that stated global demand will continue to rise for the rest of the year, which sent the price of crude oil sharply higher and stocks lower. The report mentions that China could increase demand its demand for oil by more than 5% -- a considerable amount -- in order to account for reconstruction work due to the devastating Sichuan earthquake last month.

Whether the rise in oil prices is based on demand or a weaker U.S. dollar has lately been the center of a huge debate. The finger-pointing by politicians has been quite entertaining, as some suggest we open up the Pacific and Atlantic coasts to drilling while others believe a tax should be placed on major oil companies -- such as Exxon Mobil (XOM) -- unless they invest in alternative-energy projects.

We find the latter argument from politicians interesting given that Exxon Mobil's return on investment for shareholders was north of 24% per year over the past five years, and the company paid an average of $27 billion in taxes to the government over the past three years. In our opinion, it may not be wise for the government to pressure one of its largest corporate tax sources simply because it's an election year.

While the various debates and opinions make for great television and newspaper headlines, it does not change the fact that we are in the midst of an oil crisis where crude is $135 a barrel and gasoline prices hit an average of $4 a gallon for the first time in U.S. history. Many companies have been adamantly raising prices in order to offset the huge surge in raw material costs; however, many people are expected to curb their spending, according to recent consumer confidence readings. This could lead to some earnings warnings over the next few quarters.

Also, the financial and homebuilder stocks continue to feel the effects from the credit crunch -- although many analysts predicted that crisis had bottomed months ago -- and pharmaceutical names are hitting new lows on a daily basis. While there are numerous risks in the marketplace, there are several sectors that are working including technology, energy and special situations that do not have exposure to the weakened U.S. economy.

Turning to the model portfolio, more than 20% of it consists of oil-related stocks -- companies that will benefit from oil prices that are more than $100 a barrel. Last week we added Kodiak Oil (KOG) to our Watch List, and we continue to search for new ideas in this sector.

This week, we ran a screen of under-$10 names that have seen insider buying over the past month. These stocks meet our criteria in that they have market caps of more than $100 million and daily volume exceeding 100,000 shares. Some stocks on the list include Adaptec (ADPT) , Cirrus Logic (CRUS) , Insight Enterprises (NSIT) , Marathon Acquisition (MAQ) , Novamerican Steel (TONS) , Secure Computing (SCUR) , Toreador Resources (TRGL) and TXCO Resources TXCO.

We are in the very early stages of research on these companies, but as always will let readers know if we find anything interesting.

Frank Curzio is a research associate at TheStreet.com.

TheStreet.com is a publisher and a registered investment adviser. TheStreet.com Stocks Under $10 contains the authors' own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You further understand that the Stocks Under $10 Investment Team will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in TheStreet.com Stocks Under $10 may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Past results are not necessarily indicative of future performance. Investing in the stocks chosen forTheStreet.com Stocks Under $10 model portfolio is riskyand speculative. The companies may have limited operatinghistories and little available public information, and thestocks they issue may be volatile and illiquid. Trading insuch securities can result in immediate and substantial losses of the capital invested. You should use only risk capital, and not capital required for other purposes, such as retirement savings, student loans, mortgages or education. As an editorial employee of TheStreet.com, Curzio is restricted from owning individual securities other than stock or options in TheStreet.com, Inc.

-----------------------------------------------------------Visit the TheStreet.com Stocks Under $10 site (available to subscribers ONLY) by clicking here: http://www.thestreet.com/k/su/index.html

To view TheStreet.com Stocks Under $10 portfolio on theWeb, click here:http://www.thestreet.com/k/su/portfolio.html

For customer service on your account please visit:https://secure2.thestreet.com/cap/selfserve/

-----------------------------------------------------------

(c) 2008 TheStreet.com, Inc., 14 Wall Street, 15th Floor,New York, NY 10005, Attention: Customer Service Department