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Top Energy Stock Picks for 2012

Stocks in this article: XOMCOPSLBHPRIG

Speculative Stocks: For me, a speculative stock offers the potential to at least double in the next 12 months, but it also carries lots of downside risk.

In energy, one such stock springs quickly to mind: Transocean (RIG). RIG dominates deepwater drilling floaters, but the company is on the verge of drifting into junk bond territory, and it has court cases pending that will define its financial responsibility for the Macondo disaster of last year.

Still, in 2008 RIG shares traded for $160. Back then oil prices were not much higher than they are today and daily rig rates weren't much different. RIG trades for about $42 a share today.

Another speculative idea might be trying to gain exposure to the exploding development of the Bakken or Permian basins with smaller-cap explorers and producers such as Cabot Oil & Gas (COG) and Kodiak (KOG). But both are richly priced already, and you are mostly wagering on a takeover bid -- not normally an easy pick to make.

So there you have it: my picks for 2012 in energy. What's most important to remember is not the specific picks but the thesis that energy should continue to outperform the rest of the stock market. Using that thesis, you should look for your own investment ideas.

At the time of publication, Dicker owned XOM, COP, SLB, HP, RIG.

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