"Oil is moving back up, and energy stocks look strong as we head into the final months of 2007," says Mark Skousen, who sees opportunities in the energy sector for both growth investors and income investors.
In his The Turnaround Trader, he looks at Patterson-UTI Energy Inc. (NASDAQ: PTEN), an independent oil and natural gas operator that provides pumping services and remedial work on existing wells in North America. He says, "Patterson-UTI Energy has been in a two-year bear market.
"Two years ago, the stock topped out at $38 a share. This year, it reached a high of $28. In the most recent quarter, its revenues and earnings fell unexpectedly by 18%. But Patterson-UTI Energy is sporting a 25% profit margin and now is selling at only six times current earnings.
"The stock is deeply undervalued and easily could move back up to $28 a share or higher. Zacks Investment Research predicts the stock will reach $29 this year, 'well within historical trading range.' Let's buy Patterson-UTI Energy and set a protective stop of $18 a share. For those willing to take a gamble, consider buying the January $30 calls."
For investors seeking income, he recommend Harvest Energy Trust (NYSE: HTE), which he explains is the only Canadian oil and gas trust that he holds in the model portfolio of his High Income Alert.
Skousen notes, "I believe that oil and gas prices are likely to stay high in the face of steadily rising demand and limited refinery capacity.
"We also see escalating political tensions, concerns about disruptions to Middle Eastern crude supplies, and a growing view that domestic supplies aren't sufficient to meet fourth-quarter demand. Overall, I'm inclined to keep positions in this stock; in my view, the 'harvest' from Harvest Energy is coming soon."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
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