After a debilitating fall from the high $70s in July, crude oil appeared to find a bottom near $50 last week, and the resulting rebound from that base in the related stocks, which put the group among last week's best performers, was not lost on the gurus in their Monday morning missives."Our sense remains that crude oil is close to a bottom despite rumors that Saudi Arabia is pressuring oil prices to bring Iran to its knees," writes Jeffrey Saut, chief equity strategist at Raymond James. Saut refers to the notion that Saudi Arabia is ignoring calls from other OPEC members for emergency production cuts to shore up crude because of geopolitical concerns. "U.S. allies in the Arabian Gulf -- especially Saudi Arabia -- are heeding the calls of Washington, by extending the recent decline in oil prices in order to prevent a U.S. economic hard landing," Ashraf Laidi, chief FX analyst at CMC Markets recently opined. "In return, the increase of U.S. forces in Iraq preempts Iran-backed insurgency from spilling over to Saudi Arabia." Beyond such geopolitical and realpolitik concerns, Saut observed that Friday's Wall Street Journal article "Who is Hurt by Oil's Fall" is the kind of story that typically gets published near an inflection point. "We think oil stocks are bottoming, a sense confirmed by the action of various energy-centric indices," he writes, citing the Energy Select Sector SPDR ( XLE), Amex Oil & Gas Index, and the Philadelphia Stock Exchange Oil Service Index, which each rose between 0.9% and 2.2% last week. (On Monday, the XLE and Oil & Gas Index each fell 0.7% as crude
For more conservative investors, Saut recommends Blackrock Global Energy ( BGR), a closed-end fund that boasts a 5.6% dividend yield. "And yes, we still like the Canadian Oil Sands names," despite uncertainty over the tax status of such trusts, he writes, citing Suncor ( SU) and EnCana ( ECA) among the U.S.-listed selections. Meanwhile, alternative energy stocks such as Pacific Ethanol ( PEIX) and Verasun Energy ( VSE), along with small-caps Hoku Scientific ( HOKU) and Environmental Power Group ( EPG), were notable winners amid Monday's gloom that dragged the major indices down across the board. Although SunPower ( SPWR) was hit by a Piper Jaffray downgrade, excitement about alternative energy stocks is building ahead of President Bush's State of the Union address, as I previewed
here . Monday's podcast featured an interview with Chris Nelder, a blogger who writes about alternative energy issues for publications such as Energy and Capital, Wealth Daily and The Green Chip Review. Among his picks are Pacific Ethanol and The Andersons ( ANDE) in ethanol; Zoltek ( ZOLT) in wind power; and Hoku, SunPower and Distributed Energy Systems ( DESC) in solar. Distributed Energy, which rose 1.1% Monday, also provides exposure to hydrogen power, but Nelder says that technology is "too far in the future" from being successfully implemented to merit anything more than speculative investment dollars. The threat of climate change is critical to most alternative energy investors and the subject of an extensive report Monday by Edward Kerschner, chief investment officer at Citigroup Investment Research.
"For investors, the issue is not whether climate change is occurring," Kerschner writes. "Today, a variety of entities are reacting to the perceived climate change threat, creating a number of near-term opportunities." Kerschner's 120-page report identifies 74 companies in 21 industries and 18 countries that seem positioned to benefit including "classic" alternative energy names such as Evergreen Solar, SunPower, Ormat Technologies ( ORA), and Suntech Power ( STP). In addition, his list includes other areas with climate change opportunity, such as the examples below:
U.S. natural gas exploration and production companies such as Chesapeake Energy (CHK), Southwestern Energy (SWN) and XTO Energy (XTO); Farm-equipment suppliers including Deere (DE) and Potash (POT); Agricultural biotechnology companies such as Archer Daniels Midland (ADM) and Bunge (BG); Select U.S. property insurers such as ACE Limited (ACE) and Arch Capital Group (ACGL); Companies focused on building energy efficiency such as Itron (ITRI), ESCO Technologies (ESE) and Johnson Controls (JCI). (Among the aforementioned, Citigroup has investment banking relationships with ACE, Archer Daniels Midland, Bunge, Constellation Energy, Deere and Johnson Controls.) Kerschner was a guest on TheStreet.com TV Tuesday. Click here for more of his insights on those (and other) names, as well as his broader thematic approach to an issue that's rapidly becoming a focus for more than just the "loony left."