This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Here's What Will Move Energy Stocks

With winter on the doorstep, it's a good time to think about what will impact energy equities during the final 31 days of 2005. This year has been very good for energy investors, especially compared to most other sectors of the market. However, investing is all about what will happen in the future.

I won't attempt to predict the weather, but here's a quick list of factors that will likely dictate energy trading in the coming weeks:

  • Weather: As winter begins, there will be no bigger variable affecting commodity prices than the temperature outside your window. It has been an unseasonably warm fall, which has pressured commodity prices. However, when the mercury drops, it's usually a pretty good time to invest in energy. So, more than anything, watch the weather maps: The coming cold snap in the Northeast will likely provide support for energy.
  • Capital budget announcements: We are in the season where exploration and production companies will begin to announce their 2006 capital spending plans. With robust cash flows, expect budgets to move higher, which should be bullish for many companies. The more they spend, the more oil and gas they should find, which should boost earnings and cash flow outlooks.
  • Consolidation talk: As brokerage firms begin to issue their 2006 outlooks, there will likely be a lot of chatter about consolidation among exploration and energy service companies. Whether it actually happens is another issue, but the M&A speculation alone is likely to get some investors excited about the coming year.
  • History: As I've said before, December is typically a very good month for energy service stocks. Although the recent rally may have squeezed out some of the short-term juice, there will likely be a lot of funds that want to show they own these stocks at the end of the year. As a result, history is on the side of the bulls for energy stocks as we end the year.
  • Rotation: Depending on how technology, retail and financials are looking as we end the year, there is a chance rotation could put a bit of pressure on energy names. While I don't think energy is overowned, there is the perception that there will eventually be rotation out of the OSX, or oil services, and into the SOX, or semiconductors. I don't think this will happen in December, but it's something to keep on your radar.
  • Earnings revisions: December may be a bit early for earnings guidance revisions for most oil companies, but activity in the energy patch does suggest fourth-quarter earnings should again be strong. And, so far, there isn't a lot of anticipation that earnings will be much better than expected. Any upward revisions should help lift the stocks.




  • Of course, the big wild card is commodity prices. I believe oil and natural gas prices will moderate a bit into 2006, but winter isn't traditionally the season for weak commodity prices. As such, $50 oil and $9-$10 natural gas will likely be with us through the season. Although fluctuations in price will yield volatility in the stocks, weakness should yield opportunities through the winter months.

    Consider this list an early holiday gift. December should be a pretty quiet month, but watch the factors outlined above for their impact on the energy group.

    Christopher S. Edmonds is a partner and managing director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

    Select the service that is right for you!

    COMPARE ALL SERVICES
    Action Alerts PLUS
    Try it NOW

    Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    • Weekly roundups
    TheStreet Quant Ratings
    Try it NOW
    Only $49.95/yr

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    • Upgrade/downgrade alerts
    Stocks Under $10
    Try it NOW

    David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    • Weekly roundups
    Dividend Stock Advisor
    Try it NOW

    Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Alerts when market news affect the portfolio
    • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
    Real Money Pro
    Try it NOW

    All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

    Product Features:
    • Real Money + Doug Kass Plus 15 more Wall Street Pros
    • Intraday commentary & news
    • Ultra-actionable trading ideas
    Options Profits
    Try it NOW

    Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • 100+ monthly options trading ideas
    • Actionable options commentary & news
    • Real-time trading community
    • Options TV
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!
    DOW 17,355.66 +160.24 0.93%
    S&P 500 0.00 -2.75 -0.14%
    NASDAQ 4,624.9460 +58.8080 1.29%

    Brokerage Partners

    Rates from Bankrate.com

    • Mortgage
    • Credit Cards
    • Auto

    Free Newsletters from TheStreet

    My Subscriptions:

    After the Bell

    Before the Bell

    Booyah! Newsletter

    Midday Bell

    TheStreet Top 10 Stories

    Winners & Losers

    Register for Newsletters
    Top Rated Stocks Top Rated Funds Top Rated ETFs