February 28, 2013 at 05:41 AM EST
Best Turnaround Trade in Years May Be on the Horizon

Best Turnaround Trade in Years MayThe spot price of oil keeps taking it on the chin, while gasoline prices remain lofty, padding the pockets of the big integrated oil companies even more. What a great business to be in. Which is why, of course, a stock market portfolio should have some exposure to large integrated oil and gas companies.

U.S. domestic oil production continues to experience a renaissance, but Bakken oil stocks aren’t going up with oil prices stuck in the low $90.00s.

I’m still amazed at the strength of the major integrated oil and gas companies on the stock market. Here we have a glut of natural gas and declining oil prices; yet on the stock market, Chevron Corporation (NYSE/CVX) is trading at an all-time record high. Frankly, I like Chevron, and if the stock is at a record high with these fundamentals, just imagine where it will go when the cycle changes.

Speaking of which, a great trade may be coming down the pipeline, and it could be one of those rare buy low/sell high opportunities. The trade is in natural gas. It isn’t going to happen tomorrow, but natural gas prices are going to turn; and when they do, there will be a lot of organic leverage available in the right stocks. I’d be scoping the stock market now for candidates.

One group of stocks that are down right now and worth looking into is the small-cap oil and gas services stocks. Large-cap oil and gas services are doing better on the stock market, but there’s more growth available from Bakken oil and gas services than from in the Gulf of Mexico. On the stock market, many small-cap energy services companies have been trending lower with the spot price, yet their growth prospects haven’t changed.

One smaller company with huge growth expectations is Heckmann Corporation (NYSE/HEK), which was recently downgraded by the Street. This company is based in Coraopolis, PA, and it provides water and wastewater solutions for shale and unconventional oil and gas drilling. The company has a lot of debt, but its revenues are expected to double this year, and double again in 2014. Heckmann’s stock chart is below:

HEK Heckmann corp stock market chart

Chart courtesy of www.StockCharts.com

The stock market has been punishing resource stocks lately, more so than the actual percentage change in the underlying commodities. Costs have been going up big-time in precious metals mining, which is why I’m not so keen on investors speculating in mining stocks. You’re better off now just betting on the spot price.

Realistically, the stock market is telling us something with Bakken oil stocks. These fast-growing energy producers have the growth, but with oil prices waning, the market prefers large-caps.

Chevron could be a good bet for diversified stock market portfolios. (See “The Only Way to Beat Rising Gasoline Prices.”) The company isn’t expensively priced right now, and it has its hand in new shale production, all over the world.

But I have to say that the best buy low/sell high trade is going to be in natural gas. It will take some time to play itself out, but natural gas is actually the better play on U.S. energy independence.

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