The Decline In The Cult Of Equity? Where Next To Invest?
I've been a happy member of the E&P investment community for many years now, mostly based on my views on macro economic issues. However now, based on Keynes famous quotation "when the facts change, I change my opinion........" I am beginning to think about alternatives. In my particular case, the facts that I think are changing are:
- As I get older I am ever more interested in income (however I'm perfectly happy to take income from capital gains)
- As I get older I am less inclined to risk
- As a baby boomer I'm conscious of the effect of fellow boomers driving up asset prices over time (including stock markets) - and the looming possibility of the reverse happening as we all enter retirement.
- As western markets and western style capitalism give way to eastern competition, their focus may be more on productive capacity and wealth distribution rather than asset inflation.
- Did I mention I am less inclined to risk?
Given all this - and more - I am wondering where I should begin to look for investment opportunities. My initial thoughts point towards income stocks - large, stable companies, operating in global markets, generating solid income which they will be happy to share with me. This is not exciting I know - but probably safer than most - and yes I know all about Lloyds Banking Group (LON:LLOY) and BP (LON:BP). This on the basis that stock markets will continue to exist but in order to attract investment companies will have an increasing need to deliver dividends.
Not much more than musings at the moment - there's plenty more left in the E&P sector IMHO - but one must look to the future. I'd be most interested in other's opinions
regards
ftf
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Lloyds Banking Group plc, is a financial services group providing a range of banking and financial services, primarily in the United Kingdom, to personal and corporate customers. The Company operates in five segments: Retail, Wholesale, Commercial,Wealth and International, and Insurance. Its main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision. Its International business comprises its international banking businesses outside the United Kingdom. Services are offered through a number of brand, including Lloyds TSB, Halifax, Bank of Scotland, Scottish Widows,and a range of distribution channels. In February 2010, Computershare Limited acquired HBOS Employee Equity Solutions (HBOS EES) from the Company. In January 2011, the Company disposed its interests in the two wholly owned subsidiary companies. more »
BP p.l.c. (BP) is an integrated oil and gas company. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. It operates in two business segments: Exploration and Production, and Refining and Marketing. Its Exploration and Production segment is responsible for its activities in oil and natural gas exploration, field development and production; midstream transportation, storage and processing, and the marketing and trading of natural gas, including liquefied natural gas, together with power and natural gas liquids. Its Refining and Marketing segment is responsible for the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals products and related services to wholesale and retail customers. The segment comprises three main businesses: fuels, lubricants and petrochemicals. more »
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Interesting thread - similar thoughts or concerns to those mirrored here: http://www.stockopedia.co.uk/content/investing-for-gloom-44613/
My view is that, rather than abandon the Cult of Equities, it's time to turn East. There's going to be pretty of scope for value creating investing in Shanghai and Shengzhen... But you won't see reward like this without embracing risk.
Maybe you should concentrate more on the P than the E? Asia has an inceasing appetite for oil & production has been pretty flat for 5 or 6 years now.
Thanks for that tgg - such a subtle reorientation of my strategies had escaped me and has set me thinking. My view is that oil will certainly at least keep up with inflation so investments in producers hold out hope for income and/or capital appreciation.
After the majors (maybe BP is about to morph into something interesting in this regard) do you have any ideas? Dana is about to exit stage left and shares like SMDR and COP are in the doldrums (but maybe that just means they're opportunities?)
ftf
Two to maybe have a look at -
Coastal Energy Co (LON:CEO) (not without risk, but they have a lot of oil in the Gulf of Thailand, but the geology is not straightforward - porosity issues), currently very busy &
Jkx Oil & Gas (LON:JKX) (main ops in Ukraine & Russia, strong cashflow being spent on a Russian redevelopment & unlocking tight gas in Ukraine, modest explo budget adds a bit of spice- Hungary is interesting)
I have interests in both of them.
Another to consider is Bankers Petroleum (LON:BNK) in Albania (no position) & as a wild card Global Petroleum (LON:GBP), currently trading at a small discount to cash with near term attention on its US asset, where it already has modest production & some explo potential in Uganda (hold them as well)
If you are prepared to look overseas you might be able to get the benefits of E&P and income in one package. I refer to the Canadian energy income trust sector, where realistically you might get a sustainable yield of 6-7% combined with 5-10% production growth. No drilling "excitement" either, all the operations are in mature oil and gas fields.
There are two UK listed funds (investment trusts) which are heavily involved here, being NCE (New City Energy) and MCT (Middlefield Canadian). Or, if you go direct there are a large number of companies to play with.
FWIW my three favourites are PEY.UN (Peyto), VET.UN (Vermilion) and ZAR.UN (Zargon).
Peyto is the best performing E&P on the Toronto market over the last 10 years, where it provided a 50% CAGR if you assume distributions re-invested. It is a wet gas producer, and the NGLs basically pay for the gas. So it is profitable at almost any Henry Hub (or actually AECO) price. The current yield is around 9% and AFAIK there is no plan to reduce distributions going forward.
Vermilion is amongst other things the largest private oil producer in France, where it has a large land position in the Paris basin, which looks likely to become one of Europe's hot fraccing plays. It also operates in Canada, Australia, the Netherlands and Ireland. The current yield is 6.8% and I believe this is sustainable.
Zargon is a bit of a niche player, taking on "oil and gas pools" in Canada which are too small for anyone else to take an interest in. They then apply various secondary and tertiary recovery techniques to these plays, with a very firm focus on profitability. The current yield is 12%, but the company has stated that this will reduce by around 30% after conversion to a corporation later this year. So maybe 6-8% or so going forward.
There are loads of other companies available, and personally I feel that any of these companies is a better option for those who want income than the oil majors.
The Vermilion website is a good place to start - http://www.vermilionenergy.com