The media loves to hate on coal right now. And the latest news about Obama wanting to massively cut carbon emissions at fossil fuel-burning power plants certainly isn’t helping.
Don’t listen to the pundits.
Coal isn’t going away anytime soon. Not with more than 40% of the world’s energy still being provided from coal generation.
It’s still the top source of energy for electricity generation worldwide – thanks to increased consumption in emerging markets like China.
What’s more, as the long-term price trend in natural gas continues to push toward higher prices, we’re certain to hit a tipping point where coal becomes attractive again.
In fact, that tipping point is closer than you think.
Today, however, let’s focus on what’s presently in favor, natural gas and oil.
So which of the two makes for a better investment?
Time to Flip a Coin?
Deciding whether to invest in oil or natural gas isn’t easy, especially since (like coal) there are positive and negative factors swirling around each resource.
Oil is still the king of transportation, while natural gas is still moving forward in power generation – especially in power plants and consumer usage in homes.
Plus, as I wrote last week, the oil industry might not be as robust as today’s prices are indicating. More oil is being produced in the United States – and that supply is compounded by strong production out of the Middle East. Combine that with slowing growth in China, and we may actually see oil prices trade down to the $90 level before the end of this year.
For natural gas, prices have come down from their highs set in December and January – when freezing temperatures sent demand skyrocketing. Still, they’re up by more than 150% from the lows set just a couple years ago.
So do you place your bets on natural gas or oil right now?
A Potent Combination
The answer is actually much simpler than you might think: Invest in both.
Indeed, the best way to play this see-saw between oil and gas is to buy companies that are producing both.
Now, there are several companies to choose from. But to narrow down your search, focus on the best-performing global integrated oil and gas companies that are increasing their natural gas assets, as that’ll provide longer-term growth.
Here are two options for you to consider:
Combo Play #1: Total SA (PARIS:TOTF). This French energy giant currently trades at less than 12 times this year’s earnings – and pays a healthy 4.6% yield.
Combo Play #2: Statoil (NYSE:STO). This Norwegian energy powerhouse will benefit not only from increased global consumption of non-coal fuel, but also from the situation in Ukraine, which is forcing Europe to rethink its relationship with Russia. It sports a dividend yield of almost 4%, while also trading at less than 12 times earnings.
Energy is still the best sector for solid returns and strong dividends. But if you’re seeking sustained capital appreciation, your focus should be global and diversified between both oil and natural gas.
And “the chase” continues,
BY Karim Rahemtulla