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Editor's note: To view the stock screen mentioned in this column, download the free MSN Money Investment Toolbox.
Thanks to surging oil and natural-gas prices, the energy sector is one of the few bright spots in this market.
Over the past month, while the S&P 500 Index ($INX) and Nasdaq Composite Index ($COMPX) were down 3%, most energy-related indexes recorded gains of 11% or so.
Is it too late to hop on the energy bandwagon? Many pundits tell us that a weak U.S. economy will reduce demand for oil and natural gas, forcing prices down.
Maybe yes, maybe no. Energy prices reflect supply versus demand. Currently, those two factors are more or less in balance, running around 87 million barrels per day. In the short run, depending on its degree and length, the economic slowdown could depress demand. But long-term demand is expected to increase annually by 1 million to 2 million barrels per day.
Whether long-term production can keep up with demand is controversial. Many experts, including those in the Organization of Petroleum Exporting Countries, say there's sufficient oil still in the ground to meet demand for the foreseeable future.
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However, others say global oil production has more or less peaked. New discoveries, they theorize, will only compensate for depletion of existing reserves. Further, the burgeoning middle-class populations in emerging countries will increase energy consumption faster than expected. And geopolitical tensions or terrorist attacks could disrupt oil supplies at any time. Record high oil and natural-gas prices seem to support these views.
Just about a year ago, on Feb. 28, 2007, I opined that because oil prices were heading up, energy stock prices, then in the doldrums, would soon follow. (See "11 stocks for oil's next surge.") I described a screen, relying to a large extent on MSN Money's StockScouter, for pinpointing the best stocks for riding that trend.
My screen turned up 11 stocks: six independent producers of oil and gas, two refiners and three providers of drilling and exploration equipment. My timing was right, and, as of March 7 of this year, the portfolio had averaged a 42% gain. By contrast, the S&P 500 and the Nasdaq were down 8% over the same period. Even better, 10 of the 11 picks recorded gains. Denbury Resources (DNR, news, msgs), up 117%, did the best. The only loser, Valero Energy (VLO, news, msgs), dropped 8%.
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A sour bet on crudeGary King, the CEO of the Dubai Mercantile Exchange, and CNBC's Mark Haines discuss another way to trade oil.
Given those returns, it's probably time to take profits on that portfolio. However, in my view, the bullish argument for energy stocks is intact. For those who agree, I've devised a new screen for finding energy stock candidates. It's similar to last year's screen. But last year energy stocks were underperforming the market. This year they are outperforming, so I've adjusted the screening requirements to match market conditions. I'll explain the changes as I describe the screen.
Select an industry
MSN Money's Deluxe Screener lets you pinpoint several particular industries within the energy sector:- Independent oil and gas.
- Major integrated oil and gas.
- Oil and gas drilling and exploration.
- Oil and gas equipment and services.
- Oil and gas refining and marketing.
- Oil and gas pipelines.
Continued: Screening parameters
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