If you read my last blog on oil you hopefully topped up on oil stocks and had a bit of a lift when oil rocketed to $106! Oil has come back down for the moment but over the long time it’ll keep going higher. I had a bunch of requests asking how I pick my stocks so here are my big tips.
What I do is look for stocks that pay a sweet sweet dividend and have some upside. I like larger companies that have been around for a while. I buy the stock and keep it through the ups and downs as long as the story continues (oil needs to keep going up). I don’t watch the day to day value as much as I focus on the dividend increases each year.
1. Use an ETF to pick the largest stocks in the industry. The ishares ETF XEG is a great way to find out which oil stocks are the largest on the TSX. IYE will tell you the largest in the US. This brings the cream to the top of the list.
ishares.ca XEG
| SUNCOR ENERGY INC. | 18.88% |
| CANADIAN NATURAL RESOURCES LTD. | 14.35% |
| CENOVUS ENERGY INC. | 7.53% |
| ENCANA CORP. | 6.79% |
| TALISMAN ENERGY INC. | 6.57% |
| CANADIAN OIL SANDS LTD. | 4.18% |
| NEXEN INC. | 3.73% |
| IMPERIAL OIL LTD. | 3.65% |
| CRESCENT POINT ENERGY CORP. | 3.45% |
| PENN WEST PETROLEUM LTD. | 3.42% |
ishares.com IYE
| EXXON MOBIL CORP | 23.74% |
| CHEVRON CORP | 11.96% |
| SCHLUMBERGER LTD | 6.60% |
| CONOCOPHILLIPS | 5.96% |
| OCCIDENTAL PETROLEUM CORP | 4.55% |
| APACHE CORP | 2.72% |
| DEVON ENERGY CORPORATION | 2.48% |
| HALLIBURTON CO | 2.46% |
| MARATHON OIL CORP | 2.34% |
| ANADARKO PETROLEUM CORP | 2.32% |
2. Scan each one for yield. I like to grab a 3% or higher. I own Penn West from this group and it’s been great over the last few years from the XEG.
3. Look to see how they performed on a chart of the last few months. When we had the crisis and oil shot up what stocks performed the best. You can also check out the return over the last year. The trick is to get a great yield with lots of upside from the stock!
4. Review what other analysts are saying about the stock. You can check this out on CNBC.com or Yahoo Finance. Just see how many anaylysts rate it as a buy vs. hold or sell. That’ll give you a feel for what the market expects from your stock.
5. Now don’t buy an ETF – buy the stock in an online discount broker and keep it until the story changes. You’ll pay $7 or less and then have that stock, moving up with the market and paying each quarter sweet sweet dividends.
Love your money and it’ll love you back with stocks that go up and pay you on the way!
Dave
