All energy investing starts with oil.
Let me explain...
I like alternative energy. But the bottom line is... the bottom line. See, in order for oil alternatives to really gain big demand, oil needs to be inconvenient (read: expensive). Sure, oil alternatives will be great investments, but rising oil prices will get them there.
The more expensive oil becomes, the more appealing its alternatives. It only makes sense to start with oil and take advantage of those rising prices. The good news is oil prices are already starting to rise. In the past month alone, prices have nudged past the $90 per barrel mark.
How to Build an Energy Portfolio: Oil Leads Energy
The first to benefit from this energy boom will be oil barons of the world. That's why I suggest you start your energy portfolio with a few oil companies. In fact, oil companies should comprise 40%-60% of your energy portfolio.
If you invest in oil companies that also have exposure to other areas like natural gas, go for the higher end of that 40-60% range. If you invest in pure oil plays, 40% is plenty.
I suggest you start with big players like ExxonMobil (XOM) or Conoco Phillips (COP) for their stability and generous dividends.
But for bigger gains, you're going to have to invest in smaller companies focused on exploration. That's where the big money in energy has always been... and always will be.
Already, my favorite oil play, a small-cap Canadian player in my Exit Alert Strategist portfolio, is trading at a substantial discount to book value. It's also made a major discovery this year. Based on the value of its assets alone, you only have to shell out a quarter for every dollar of value you get right now.
Even better, I expect oil prices to surge thanks to strong demand for energy commodities and a weak dollar. Once oil spikes further, the company's value will continue to increase substantially.
This gem is just one of many that I'm currently looking at. If our recent energy plays are any indication (now up 65%, 24% and 9%), this small-cap energy player could rise as much as 40% in the coming months.
Again, as conventional energy prices increase, alternatives will become more viable. That's a big, multi-decade trend you'll want to get behind. And I've already got three alternative energy plays in the Exit Alert Strategist portfolio in wind, lithium battery technology and uranium.
But this simple rule of energy investing — lead with oil — is the best way to start your own energy portfolio. As we look to a "green future," rife with oil alternatives, we can't lose sight of what will get us there - skyhigh prices for "black gold."
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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