Oil Stocks: Only Patient Investors Need Apply (72% increase profits)

[BR_Parkway]

http://www.businessweek.com/magazine/content/05_11/b3924056_mz011.htm

Like texas wildcatters, stock market investors have charged into the oil sector this year -- and they've hit a gusher of profit. While the overall market has gone nowhere since the start of the year, since the start of the year, shares in ExxonMobil (XOM ) soared 22% through Mar. 2, while ChevronTexaco (CVX ) rose 18%, BP (BP ) 11%, Royal Dutch/Shell Group (RD ) 10%, and France's Total (TOT ) 8%. Those are only the latest surges in a two-year rally that has sent the collective market capitalization of the oil world's Big Five up a phenomenal 72%, to $1.14 trillion, since early 2003.

All that has raised questions about whether a bubble is forming in energy stocks. Vanguard Group was so concerned about piling on that it closed its Energy Fund (VGENX ) to new accounts in December for a "cooling-off" period after it had racked up a 55% annual return.

So is Big Oil still worth owning? For long-term investors, probably yes. Stock prices aren't as high as they would be if investors really thought today's high oil prices were here to stay. Michael Mayer of Prudential Equity Group (PRU ) uses historical patterns to project how much oil companies can expect to earn at any given oil price, and what stock prices should be based on those earnings expectations. By that analysis, he figures investors are braced for oil prices to drop gradually to below $30 a barrel by 2007. That's plenty cautious, considering that crude hit $52 a barrel on Mar. 2, and Saudi Oil Minister Ali Naimi said as recently as Feb. 24 that he expected prices to range between $40 and $50 a barrel for the rest of 2005.

more at link

[bemildred]

1. Thirty percent in 3 months is not bad.

But I think we are still early in the bubble, and prices are
nowhere near topped out.

[indepat]

2. My SUN is up 249% in a little over four years: my SUNW is down 82%

during the same period. (I actually thought SUNW would do better, not thinking B & C coming from the oil patch would make all that much difference. WRONG, WRONG, WRONG doggie breath!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!)