This post is part of a special annual report -- Top Stock Picks '09 -- in which TheStockAdvisors.com asked 75 leading newsletter advisors to select their favorite investment for the new year.
"ProShares Ultra Oil and Gas (NYSE: DIG), my top idea for 2009, is an exchange-traded fund that positions itself with the performance of the United States' top oil and gas companies," says growth stock specialist Paul Tracy.
In his StreetAuthority Market Advisor, he explains, "The 'ultra' part of its name means that the fund uses leverage, which magnifies returns by a factor of two relative to the Dow Jones U.S. Oil & Gas Index."
The advisor continues, "DIG is a leveraged ETF. In short, for every 1% the U.S. Oil & Gas Index rises, DIG should rise 2%. That means the performance of DIG is dictated by the moves of the largest industry heavyweights like ExxonMobil, ConocoPhillips, and Chevron.
"In addition to integrated oil companies, DIG is also exposed to major oilfield service companies like Schlumberger and Halliburton and gas-industry leaders like Apache.
"The world simply cannot, in its current form, live without fossil fuels. Global demand for petroleum is roughly 85 million barrels of oil a day, which means the activity in the oilfields simply never stops.
"That's true in the deserts of Saudi Arabia, in West Texas, in Prudhoe Bay and deep offshore on tiny drilling platforms in the Gulf of Mexico and elsewhere. This constant and steady demand will continue to benefit companies involved in the energy industry and ensure it is one of the most cash-flow positive sectors in the world.
"Though oil prices (and many oil companies) have fallen precipitously since summer, the long-term picture for crude has never been more bullish.
"Continued energy demand from around the world, coupled with economic recovery, will put a floor under oil, and I believe lead to strong gains for the commodity in 2009.
"Consider that in the United States there is roughly one car for every person of driving age. But in China there are fewer than three automobiles for every 100 people, and that figure is even lower in India.
"The emergence of a middle class and population growth in nations like China and India could bring the total number of cars on the road today from its current 700 million to three billion. That demand will no doubt be a strong catalyst for the oil giants, and DIG should be a direct beneficiary."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
1-06-2009 @ 9:18PM
Kevin White said...
I trade DIG and DIG intraday frequently and I've netted several thousand dollars in the past three months. I would never hold a leveraged ETF as an investment -- I make it a point not to own them at the bell, but any leveraged ETF is a poor long-term play. They do not hold up in an up and down market. They're meant to approximate double or triple the DAILY moves of their underlying index, which means over time they will almost certainly fall short.
Compare the closing share prices of DIG and DUG for three months ago to their closing share prices for today. Or FAZ and FAS. Or DDM and DXD.
I'd rather buy USO and FSENX.
1-07-2009 @ 10:09AM
numerwan said...
Yikes... saying that if USO goes up 1% dig will go to 2% is actually wrong... Theres more to it... I've followed DIG the last few months and make a couple bucks on it, and you have to take the "double leveraged" idea with a grain of salt... You can see it go double, triple, same, half all at the same time...
Readers should also be aware that just because it may spike up 4-15% in a day, it has the same movement downwards... Please know what youre doing before jumping in... Its an awesome fund with DUG (2Xinverse)...
just REMEMBER YOUR STOPS!! stop stop stops... Stops will save your profits, and minimize your losses... (saved my ass on SRS lol)