Energy Stocks for Three Different Time Frames

In a column last week I wrote that "figuring out what stocks to buy for this kind of vicious long-term dollar/energy cycle is actually pretty easy." I still stick by those words, but for the record, I'd add, "It's when to buy them that's likely to drive investors crazy."

So in this column, I'll begin by giving you a way to figure out when to make your investments in energy shares so that you don't either buy high and sell low, buy too early and grow old waiting for your investment to pay off, or buy too late and risk being the greater fool.

And I'll end with a list of what to buy as well: 10 energy stocks for the short-, intermediate- and long-term periods.

Break Down the Trend

First, start by breaking down the trend of rising oil prices and the falling dollar into three time frames.

In the short term, there's the truly scary volatility of oil prices. The January futures contract for light sweet crude is trading near $41 a barrel. That's more than 30% off October's high. We're talking about a 30%-plus move in two months.

In the intermediate term -- say five years -- there's the very tricky transition as the market stumbles around searching for alternatives to high-priced oil and gas. The mix will include contributions from coal, ethanol, wind, nuclear, other sources and conservation -- as well as continued reliance on high-priced oil and gas. But the profitability of investing in any one of these will hinge on how quickly the market moves to find substitutes for oil and gas and how big the move is toward any particular substitute.

In the long term -- say one to two decades -- we can list the technologies that are likely to be part of the energy fix. But it's devilishly hard to point to specific products and predict their relative market share, or even to ballpark the point at which any of these products will hit the sweet spot in the growth curve. And given what we don't know about global supplies of oil and gas, putting a price on energy stocks in this time frame takes on even more uncertainty.

Of course, while all of this is happening in the energy marketplace, the dollar will be dancing its own jig. At times, the U.S. currency seems headed for the dustbin of history. But that very pessimism is likely to produce short-but-significant rallies in the dollar.