How to Make 21% In One Day In Energy Stocks
by Matt Badiali
July 21, 2006
Kurt Wulff called his shot over a year ago…
It was the financial equivalent of standing at home plate and pointing to the right field fence, then hitting the next pitch out of the park. He did it in a Barron’s interview last year, so the evidence is clear.
Wulff, the founder of energy research firm McDep Associates, followed natural gas producer Burlington Resources for years. It was one of his favorite stocks… and a company he pointed out as a likely takeover candidate.
Last year, he forecast Burlington would shoot up to a stock price of $86 and suggested ConocoPhillips as a buyer for the company’s assets. Wulff’s prediction was nearly exact. Last December, ConocoPhillips announced a buyout of Burlington for around $89.50 per share… paying a 21% premium to lucky Burlington shareholders.
Big integrated oil companies like ExxonMobil and BP are on hunt for more reserves just like ConocoPhillips. They’re looking to spend some of last year’s profits to acquire next year’s production.
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The qualities these supermajors are looking for in acquisitions are the same ones I look for in the best oil stocks.
The first is efficiency. An oil company that became lean and efficient during the $20 per barrel years will make a lot more money at $60 per barrel. It must continue to be efficient, because the costs of finding new reserves are rising quickly.
The second is proven and potential reserves that extend well into the future. I include potential reserves because those companies that need to acquire areas to explore are going to be at a significant disadvantage in the future.
Prices are rising on all the goods and services that exploration and production companies need… like wages, drilling equipment, and transportation. We want to invest in those companies who saw this coming.
Kurt Wulff and I happen to agree on several companies that are most likely to be taken off the board in acquisitions… which could result in immediate windfalls for shareholders.
The last big consolidation boom gave us the current crop of supermajors: ExxonMobil, ChevronTexaco, and ConocoPhillips. Now those beasts are flush with cash and looking for reserves.
Early this year, I added independent producer Occidental Petroleum to the S&A Oil Report portfolio as a likely buyout candidate for these giants.
In addition to interests in Latin America, Russia, and Libya, Occidental has tremendous U.S. assets, including a strong position in the Permian Basin and a former strategic naval petroleum reserve in California.
Even though Ecuador expropriated Occidental’s property in Latin America, the company is still worth $117 per share according to Wulff. I certainly agree. So far, S&A Oil Report subscribers have made double-digit gains and Occidental is still a great value. There is certainly more room to the upside, and the Ecuador theft is now priced in.
The bottom line? If you’re looking to make a lot of money in oil stocks, takeover situations like Burlington Resources and Occidental Petroleum offer outstanding opportunities.
Good investing,
Matt Badiali
Editor's note: Matt Badiali is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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