The Rude Awakening
Wall Street, New York
Tuesday, June 20, 2006 ------------------------- - Exploiting your edge over the hedge funds in the oil
markets,
- Intrepid vs. skittish – how well do you invest?
- The week's markets thus far and plenty more...
------------------------- --- Special Investment Alert --- The "Alternate" Investment That Can Make You Very Rich...
in 6 Months GUARANTEED or your money back! It doesn't involve buying stocks or bonds... in fact it
SOURS when stocks fall apart. 45 years of data shows that
this secret investment gives you 20% LESS risk than stock
investing... AND could make you a lot richer. In only 4
minutes a week, you too could be on your way to tripling
your money over the next 6 months. Find out how... www.isecureonline.com/Reports/RTA/ERTAG664
-------------------------
Advantage: Little Guy
By Eric J. Fry Skittish hedge funds are selling oil stocks; intrepid
individuals should be buying them. The S&P Supercomposite Integrated Oil and Gas Index fell
nearly 3% yesterday, which means that it hasn't gained any
ground whatsoever since February 24, 2005 – a span of 16
months. Over the identical 16-month span, the price of
crude oil has jumped 34% - From $51.39 a barrel to $69.00 –
while unleaded gasoline has soared more than 50%. After a comprehensive analysis of these surprising data, we
arrive at the following conclusion: Either oil and gasoline
are overpriced or oil stocks are underpriced. If forced to
choose between these two opposing interpretations, we'd
choose the latter. Large cap oil stocks seem downright cheap – both in
relation to the prices of crude oil and gasoline, and in
relation to the rest of the stock market. For example, the
S&P Supercomposite Integrated Oil and Gas Index (which
trades on Bloomberg under the symbol: S15IOIL Index) trades
for a mere eight times annual earnings – or less than half
the PE ratio of the S&P 500. Eight times earnings would seem like a much more reasonable
valuation if the price of crude oil were $39 a barrel
instead of $69. But it isn't. Energy prices remain close to
their all-time highs, which is why the earnings at most
major oil companies have been growing more than 50% year-
over-year. And yet, oil stocks attract about as much
interest as day-old French fries. Long-term investors
should probably seize this opportunity to express an
interest...by buying an oil stock or two. Eight times earnings is a low valuation...very, very low.
It is the sort of valuation that one normally finds only
among Wall Street's walking wounded – companies that, for
example, might earn lots and lots of money until the day
that asbestos litigation forces them into Chapter 11. But
oil companies are hardly wounded. They might face rising
taxation, but nothing that would greatly impede their
growth prospects. No fundamental rationale justifies such lowly valuations.
Perhaps, then, fear is the reason that oil stocks command
such pitiful valuations. Nothing says "fear" like eight
times earnings...except maybe six times earnings. Single-
digit PE ratios are common when fear prevails. In 1982, for
example, the S&P 500 sold for less than 10 times earnings.
An 18-year bull market followed. We would not be too
surprised to see history repeat itself. At the moment, most investors harbor an extreme and
irrational fear of oil and oil stocks. They are afraid of
Chevron and Murphy Oil and Tesoro and all the other lowly
valued oil stocks. They fear that these stocks, even though
they sell for only eight times earnings, and even though
they are reaping the benefits of high energy prices, might
continue to slide lower. Investors are simply afraid to
believe what lies right before their eyes. The graph below tells the tale: Even though the S&P Oil and
Gas Index (the white line) has been rising steadily for
more than three years, its PE ratio (the green bars) has
been FALLING. That's because earnings are rising even
faster than the price of the index itself. At 8.2 times
earnings, this index sits are multiyear lows, and sells for
only half the valuation of the S&P500. 
[Source: Bloomberg] If there is a third plausible reason for the lowly
valuations that prevail in the energy stock sector, it
would be the prevalence of "hot money." Throughout the last
24 months – and especially the last six months –
commodities and resource stocks have become a bit too
popular. Hedge fund money has been pouring into the red-hot
sector looking for big returns. As long as the sector
performed, the money remained. But as performance started
to waver in early May, many hedge funds started tip-toeing
toward the exits...or running. Hedge funds, you see, do not enjoy the luxury of long-term
investing. If they are to attract institutional clients,
they must perform well each and every month...or at least
not perform too badly. Most hedge fund managers, therefore,
don't care how a given stock might perform over the next
six months, they care only about how it might perform over
the next six days. Most funds would sell their
grandmothers, if they thought her presence might trim 10
basis points from their monthly performance. The tyranny of month-to-month performance evaluations
promotes acute performance anxiety among hedge fund
managers, and causes them to do things no reasonable
investor would ever do. It causes them to sell stocks they
should be buying. It causes them to ignore long-term
investment prospects in favor of short-term performance
objectives. And that's no way to manage money. In this unique case, therefore, the little guy holds an
advantage. The little guy doesn't have to worry about
monthly performance analysis, or about mirroring a specific
a benchmark. He simply tries to buy 'em when they're cheap
and sell 'em when they're not. Oil stocks are cheep. [Joel's Note: It is not often that an opportunity comes
along to take down the big guys at their own game. Below is
another strategy that favors you as the smaller investor.
Learn how to annoy the Wall Street jerks by lining your own
pockets with dough in this report below:
Crushing the Street
www.isecureonline.com/Reports/PNY/EPNYG627 --- Special --- This stock is seriously the ONLY stock you
will need to own over the next 10 years. In fact, it's looking to be the next Berkshire Hathaway.
Buffett already has over $300 million in this
company...it's one of the biggest in his portfolio, even
though it's hardly a household name! Find out how you too can get in on this amazing
opportunity! www.isecureonline.com/Reports/FST/EFSTG606 ------------------------- 
| 
