Energy Manager Buys With an Eye on U.S. Growth

The energy story isn't over by a long shot.

"Any long-term portfolio must have a significant energy stake," says Kent Croft, co-portfolio manager of the CLVFXCroft Value fund. "We have entered a new era of higher energy prices primarily for three reasons: geopolitical risk, supply constraints and global growth."

Croft's multi-cap, go-anywhere fund has certainly benefited from the run-up in energy prices. Almost 15% of the $30 million portfolio is in energy stocks. The fund is up nearly 17% year to date, 11 percentage points better than the S&P 500. It has returned an average of 17.5% annually over the past five years, 5.6 percentage points better than the index.

Fund Manager Fond of Foster Wheeler, Ultra Petroleum

In order to limit geopolitical risk, Croft prefers to own North American names like Petrobank Energy and Resources, an oil and gas exploration and production company with operations in Canada, and Oil Sands QuestBQI, which has exploration rights to approximately 700,000 acres, primarily in Saskatchewan.

He has also owned Houston-based Ultra PetroleumUPL since the natural gas company's market cap was less than $500 million. Now it's close to $10 billion and Croft says it will head higher once the Rockies Express Pipeline opens in early 2008.

"We look for catalysts like the Rockies Express Pipeline when we search for stocks," says Croft. "We also look for contrarian plays and, of course, growth at a discount because we are a value fund."