In the days of the California Gold Rush it was said that you could commonly make more money selling picks and shovels than panning for gold in the streams of the Sierra Nevada. Such may be the case today when investing in oil services and exploration ETFs instead of big cap oil stocks. There is an oil rush on in the USA as investment in sustainable fracking technology is bringing up huge amounts of oil and gas from deep shale deposits. The USA has significantly reduced its dependence on foreign oil and is set to ship natural gas to Asia once the Panama Canal expansion project is completed. There is an excellent article in the current online Barrons regarding Energy Stocks oil services and exploration ETFs.
I want to focus on exchange-traded funds (ETFs) in oil services and exploration and production. John Person, president of NationalFutures.com and co-author of the Commodity Traders Almanac, points out that starting in February and running through mid-April, these groups tend to outperform the market.
We suggest you read the Barrons article after you finish reading about our take on ETFs, oil investments and specifically oil services and exploration ETFs.
The Best Investments Year after Year
The best investments are those based on trends that you get into early and which run a long course. The best investments are in things that people want and need. The best investments are in products and services that entail a high cost of entry to make. The USA always uses energy. Exploration, drilling, extraction, shipping, storage, refining, shipping and sales are all necessary to move oil extracted from the Bakken Formation in Western North Dakota to a gas pump in Towaco, New Jersey. As the USA increases the amount of energy it produces there is more need for all of the skills and services needed at each step along the way. The Barrons article focuses on seasonal pricing changes and the potential for technical analysis to engender profits. Our take is that there is an awful lot of oil and natural gas trapped in the rock formations below the USA. We believe that this simple fact will lead to a long term bull market in oil services and exploration ETFs as well as individual stocks. So, if this is such a good deal, why not pick individual stocks instead of ETFs?
Exchange Traded Funds
How do you pick the best and most profitable oil drilling company, oil exploration outfit or oil storage and shipping companies? This is a technical field and takes a good deal of technical knowledge in order to pick the best of the best versus those in the middle of the pack. The virtue of oil services and exploration ETFs is that someone with the appropriate expertise picks the right stocks. They maintain the ETF so that it represents the sum value of the included stocks. You simply need to buy or sell shares of the ETF as you would an individual stock.
How Long Will Oil Services and Exploration ETFs Be a Good Deal?
Unlike the folks at Barrons we are not looking at short term technical factors but rather the fact that the US oil and gas boom is just getting started. We present this discussion in an educational context so that investors can work through deciding if they want to invest in oil services and exploration ETFs or similar investment opportunities. As always we suggest that you do your own homework and technical analysis and review any stock tips very carefully before investing your hard earned money.