I've been following the election closely for two years. For the most part, politics is a hobby of mine, but in this year's election my interest went much deeper.
I recognized very early that the 2008 vote would be monumental on so many levels and investment opportunities would abound. I even outlined the impact of the policies of each candidate on the market in an election gallery.
Now that the results are in with the Democrats taking significant control of the executive and legislative branches, I want to drill down and explore one investment idea that I believe will ascend above all the rest.
One common theme with all Democrats is that spending is sure to increase. Democrats are firmly in the Keynesian camp of using government spending to solve economic problems. We will see large government expenditures in the short term from the new administration.
Can anyone say "inflation"?
So much of the market is focused on deflation with current valuations based on the expectation of deflating prices. While it's true that the economy is slowing, I am more concerned about inflation.
Now, with a Democrat in the White House, I am convinced that the way to make money in the market is to bet on inflation. Vast sums of dollars will be printed and distributed into the economy to stabilize it. Doing so will weaken the U.S. dollar, increase interest rates and create inflationary conditions.
Front and center with inflation will be two commodity trades: gold and oil. I am not a believer in gold, so I'll stick to the oil trade. If you want to make money in the early stages of the new administration, I suggest you position your portfolio to profit from higher oil prices. That means owning oil stocks, and there are several names to consider:
"We sense a turn for the better coming in the oil sector," says Peter Way who tracks 'big money' investors for his Block Trader Oil & Gas Report. Here's his look at the "big block" traders.
"When we use the hedging analysis employed in our stock price forecasts, there are significant differences between some adjacent futures expirations. Here's the current picture:
"Front month (November) hedging suggests likely near-term higher prices. But the December contracts are likely to continue the past 3-month price decline – briefly.
"After that we could see crude rise over a few months into the $115-125 area or even higher, providing a bullish backdrop for most energy stocks. We sense a turn for the better coming in this sector.
"Several issues are selling at attractive prices now. Among major integrated producers, the standout prospect among the big oils is Petrochina (NYSE: PTR).
"Prices for energy stocks, including the drillers, are bombed-out and should be aggressively accumulated now," says resource expert Eric Roseman.
Here, the editor of The Commodity Trend Alert explains, "The absolute worst thing we can do is sell now." Here's his outlook on energy and drilling and a trio of buys.
"The pain felt by commodity bulls should abate shortly; this mind-blowing expansion of credit will ultimately fuel inflation to much higher levels. Eventually, long-term interest rates will rise sharply in the United States as the government grows hungrier to finance its out-of-control spending habits.
"What we're seeing now is a market that has gone from being obsessed with inflation just two months ago to one now worried about rapid deflation or an environment of declining prices. Combined with bad economic news overseas, the U.S. dollar has seen a violent reversal exacerbating the plunge in raw materials. It's been a brutal sell-off and the worst decline I've seen since mid-2006.
"We are moving headlong into oil," notes John Reese, who analyzes stocks based on the criteria used by "legendary" investors such as Buffett, Graham and Lynch.
In his Validea newsletter, he says, "My fundamental models indicate that the oil industry is where the best values in the market are." Here's a look at W&T Offshore (NYSE: WTI), which is based on the criteria used by contrarian David Dreman.
"The economy and stock market have gone through a legitimate crisis because of the credit woes, and it takes time for something like that to work itself out.
"But the important thing to remember is that we've been through financial crises before -- even bad-debt financial crises like this one -- and the market has always stabilized and then pushed higher.
"And history has shown that those who can stick with the stock market through down times like these will be rewarded.
"David Dreman -- one of the gurus I base my strategies on -- notes in his recent Forbes column, 'If you pack up now, chances are you'll miss a good part of the next bull market. A large part of the gains are always made in the first few months of one, when market-timing investors are still on the sidelines.'
Upset about paying $3.80 a gallon for gasoline? Hank Paulson, former Goldman Sachs Group (NYSE: GS) CEO, argued that it was all supply and demand so quit your bellyaching. I thought speculation was playing a big part -- traders who bought oil and sold the dollar to drive up the price. Indeed, a few months agao I found a source who thinks 60% of the volume was from speculators.
Seems even that was too low an estimate. The Washington Post reported Wednesday that the Commodities Futures Trading Commission (CFTC) has analyzed the books of oil traders and calculated that 81% of oil trading volume was conducted by speculators.
Guess who broke open the opportunity for oil speculators to trade oil in a loosely regulated fashion? Goldman. The Post reports that In 1991, its J. Aron unit argued that "it should be granted the same exemption given to commercial traders because its business of buying commodities on behalf of investors was similar to the middlemen who broker commodity transactions for commercial firms."
The editor of Dow Theory Forecasts says, "While stocks in the equipment and services group tend to move with oil prices in the near term, their profits depend more on exploration spending than on commodity prices."
"Concerns about slowing demand for crude oil and re?ned products both in the U.S. and overseas have many investors worried. But investors in the equipment and services group should not panic.
"Most producers continue to spend aggressively. And U.S. crude-oil inventories remain well below the average for this time of year, with fewer than 20 days of supply in storage.
"Demand for offshore-drilling services remains strong, giving Transocean excellent growth potential. Consensus estimates project per-share profits will rise 69% in 2008 and 15% in 2009. Transocean, the world's largest offshore drilling contractor, operates in every major drilling region.
"A combination of tight global rig supplies and the ongoing discovery of new offshore reserves have driven rig lease rates higher and kept Transocean's fleet busy. The company's largest, most expensive rigs are 95% sold out for 2009, and the backlog is growing.
In his WStreet Market Commentary, he explains, " The company involved in the super exciting Haynesville shale region, which could be one of the largest domestic on shore natural gas fields ever."
"The stock has been coming on lately as more investors learn about the company's potential in the Haynesville shale region.
"Discovered in March of this year, the Haynesville field -- according to Energy and Capital -- could conservatively hold 168 trillion cubic feet of natural gas. Chesapeake Energy (NYSE: CHK) has declared Haynesville the most important find in its 19 year history.
"There was always a notion that a big find was in the space that the company currently owns (2,700 acres), but when it was first explored back in the 1950 crude oil prices were much lower and there was no technology to get to the natural gas.
"In general, investors are still seeing selloffs as buying opportunities even though the majority of stocks are in a bear market. We are not sure how long this can continue.
"Our 'Crazy Investor Index' does not yet show the type of extreme fear that is typical at a bottom, so it will probably mill around in short-term rallies and selloffs until something motivates them to panic simultaneously.
"In the meantime, we prefer to buy excellent companies just as the herd decides to stampede. And while our portfolio is now slightly net short we are adding one new long position: Petroleo Brasileiro S.A., often referred to as Petrobras.
"One of my favorite indicators for the energy markets is the quarterly conference calls and earnings releases from Schlumberger (NYSE: SLB)," says energy sector expert Elliott Gue.
In his The Energy Strategist, he explains, "In this quarter's call, Schlumberger's management team was notably upbeat, the most positive on industry growth expectations in more than a year. This is a key shift in sentiment that has broader implications for the energy patch at large."
"Schlumberger's reports and conference calls have proved extraordinarily useful in the past for determining the most profitable trends and investment themes. The reason for that is simple: Schlumberger is the largest oilfield services company and has its hand in just about every imaginable market all over the world.
"In addition, the company has traditionally offered long, detailed conference calls; CEO Andrew Gould often relates far more than the outlook for Schlumberger and offers considerable color and detail concerning trends for the industry in general.
"This quarter's conference call was no exception. Schlumberger's outlook this quarter was far more upbeat than in its third and fourth quarter 2007 earnings calls.
During Thursday's trading, Anadarko Petroleum (NYSE: APC) hit an all-time high of $78.75 and closed at $77.62. Anadarko was one of my first recommendations after I started writing for BloggingStocks, and is nearing 100% appreciation from the $40 price tag it had when we acquired it.
The 10-year chart below indicates the strong long-term performance of Anadarko, rising about 500% and paying dividends to boot. I cannot say the stock is a bargain at recent highs, but I can emphatically state that this company belongs on your watch list.
"When it comes to oil services, the world's most dominant company by far is Schlumberger (NYSE: SLB)," says Stephen Leeb, editor of The Complete Investor. Here, he looks at this "extraordinary" company.
"The question isn't whether inflation will worsen-it's how to protect yourself. Major and obvious lifelines we've stressed include precious metal and commodity companies, especially ones able to boost production.
"For additional inflation insurance, look to what Warren Buffett likes to call 'great companies.' These have two crucial characteristics that allow them to take inflation in stride.
"First, a great company is so dominant in its market that it can pass rising costs along to its customers. And second, it's in a market growing faster than the world's economy.
Devon Energy (NYSE: DVN) is an oil/natural gas exploration company, with operations in the U.S., Canada, and abroad.
Readers of this space know that one argument forwarded here is that in the era of elevated energy prices, oil/natural gas companies are likely to remain promising plays for the foreseeable future, baring the discovery of a cheap, widely-available, alternative energy. And among oil/natural gas companies, Devon Energy is worth an evaluation.
Analysts like DVN's sizable proved oil/gas reserves of 2.34 billion barrels of oil equivalent. Production volume should increase 4-5% in 2007 and 7-11% in 2008. Analysts also like Devon's strategy decision to sell international assets with lower growth prospects. Meanwhile, the company's overall costs remain reasonable.
TheStreet.com's Jim Cramer says that people who've pooh-poohed the sector as overheated are creating some great bargains for smarter buyers.
The oil bears come out in 30 seconds every time the per-barrel price of crude loses 3 points. What a joke. OPEC doesn't have more capacity. We have done nothing in this country in the last two years to knock off oil use. There has proven to be no price that people won't pay at the pump. The ethanol move is a total bust. We have had only two new applications for nuclear power plants. Coal use in this country is going down. The abundance of natural gas means no one is switching to this plentiful fuel.
Yet people want to blame the price rise on speculators?
The first thing that Cramer noted was his buddy and cohort Doug Kass of TheStreet.com, a perma-bear, said he thinks we'll close up on the markets today. That's his call according to Cramer. ExxonMobil Corporation (NYSE: XOM) is one he'd buy at $83.00 or $84.00, but the oil names are in the tube right now with even Chevron Corporation (NYSE: CVX) posting solid earnings and seeing its shares sell off on the news.
We'll have to see if Jimbo's level on Exxon Mobil is a good one or not, and we'll know in an hour if the DJIA can make up another 70 point deficit or not. Shares of Exxon Mobil are still only down about $6.50 from new all-time highs, so even that huge sell-off is hard to just jump all over. Cramer may be right there, but of course you also run the risk that it doesn't go there for a long time. Ultimately, oil stocks should follow their underlying commodity prices and oil was up more than $2.00 per barrel today to close over $77.00. But we all know you can be right and still lose your shirt.
In one of Cramer's earlier video sessions on TheStreet.com today, he also reviewed housing stocks with a pairs trade, and he briefly addressed some tech buybacks and his "New Four Horsemen of Tech" with a statement that 15 of the last 16 years would have given you rewards to buy tech at this time of the year and selling into the end of the year.
Jon Ogg is a partner at 24/7 Wall St.; he does not own securities in the companies he covers.
Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.
Valero Energy (NYSE: VLO) is the favorite conservative investment for 2007 from Ken Kam, editor of Marketocracy's Marketscope. He notes, "In spite of nearly doubling its earnings in the past year, Valero currently trades at a P/E of 6.
"I find comfort in the combination of solid earnings, earnings growth, and low P/E ratio. With the economy slowing, many companies are going to find it harder to keep their earnings growing next year.
"I think many people misunderstand Valero's economics because the stock seems to sell off whenever the price of oil drops. But when oil prices go down, Valero's biggest cost of production goes down and demand for refined products increases. How is this bad for Valero?
"Wall Street accords the stock a P/E of 6 because analysts think refining industry profits are going to fall. To back up their view, they point to the fact that there has been a bust after every previous oil boom.
"They may be right, but I think Valero's profit margins will remain high as long as there are no new oil refineries built in this country. The minute we hear that the government has issued all the permits needed to build a new refinery, we'll have roughly two years before it comes online and begins to affect refining industry profit margins.
"We'll be monitoring the situation, but the last time a new refinery was brought online in the U.S. was in 1976, so don't hold your breath waiting for news on this front."
To see Ken's favorite speculation for 2007, click here.
Upset about paying $3.80 a gallon for gasoline? Hank Paulson, former 
During Thursday's trading, 
TheStreet.com's Jim Cramer says that people who've pooh-poohed the sector as overheated are creating some great bargains for smarter buyers.
To see Ken's favorite speculation for 2007, 
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