Buckling Up to Ride the Oil Roller Coaster

A hike in energy prices often leads to a hike in energy production, both of which benefit companies in this group.

"It's an interesting way to play" the current energy market, said Les Childress, an analyst at the independent research house J.M. Dutton.

Childress is particularly fond of Panhandle Royalty (PANRA Quote - Cramer on PANRA - Stock Picks), a small Oklahoma company with an "enviable track record" for delivering strong dividends and financial results to investors. Childress believes that Panhandle, which is heavily leveraged to natural gas reserves in its home state, has positioned itself to profit handsomely from the surge in energy prices.

Childress triggered a 20% jump in the stock when he strongly recommended it in December. The stock, up 28 cents to $18.27 on Monday, continues to handily outperform the broader market with its 20% gain this year.

Veteran energy analyst Kurt Wulff is touting his own "discovery" in this sector. He has zeroed in on the San Juan Basin Royalty Trust (SJT Quote - Cramer on SJT - Stock Picks), which set a new 52-week high during last week's spike in natural gas prices. Since Wulff first recommended San Juan in late 2001, the company's stock has surged 50% to $15 -- and promises to soar higher as quarterly profits grow.

Wulff, who owns the stock himself, favors royalty trusts over master limited partnerships, which are similar in nature. Both types of companies distribute all their free cash flow to investors. But royalty trusts like San Juan pay out no hefty management or financing fees before they do so.

In general, Wulff also tends to prefer Canadian energy companies over their American counterparts. He singles out EnCana (ECA Quote - Cramer on ECA - Stock Picks) as a particularly strong prospect.

"EnCana has had a remarkable record of new discoveries in just the past two years -- even in the U.S.," said Wulff, who personally invests in the stocks he recommends. "They had a big discovery in Wyoming, right under the noses of the U.S. companies. And they've discovered the biggest oil field in the North Sea in the last 10 years."

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