"Nowhere is the supply and demand balance as tight as it is with oil; with the somewhat stronger economy here and abroad, the oil gap is closing again," says Jim Powell.
The editor of Global Changes & Opportunities explains, "I think the best way to benefit from rising oil prices is to buy Exxon Mobil (XOM), the world's largest, and one of its most reliable, energy investments.
"I think the price will reach the psychologically important $100 mark by this summer, and maybe a lot sooner.
Exxon Mobil (XOM) has been dragged down right along with BP (BP) since oil started spewing into the Gulf of Mexico from the Deepwater Horizon on April 20. Since that date, Exxon has lost nearly 13% of its value, while BP has lost nearly 52% of its value.
However, Exxon seems to have found support around $59. The stock plunged to a low of $58.46 on May 6 during the "Flash Crash," and it hasn't dropped below that level since. It has come close a few times, but during the latter part of May and the early part of June, Exxon has managed to stay above this support level. This price range also served as support for Exxon during the Financial Crisis of 2008.
ExxonMobil (XOM) is a tricky stock to consider. The integrated oil entity reported fourth-quarter results on Monday, and there was good news and bad news. According to Jonathan Berr over at DailyFinance, net income was $1.27 per share, several pennies ahead of estimates. The top line also came in better than expected.
Unfortunately, profit on a dollar basis dropped over 20%. And higher oil prices are making things difficult at the refinery stage. While the earnings beat is good, these elements to the story must be given ample consideration.
Unconventional energy -- which comes from hard-to-get sources like shale -- is red hot. The biggest sign of this is Exxon's (XOM) recent deal to pay $30 billion for XTO (XTO).
As a result, the expectation is that there will be many more deals in the sector. This week Total SA (TOT), which is one of the largest oil companies in the world, agreed to form a joint venture for natural gas with Chesapeake Energy (CHK). The deal may involve as much as $2.25 billion.
OPEC oil ministers agreed to keep production unchanged. Saudi Arabia has made it clear that it does not want oil prices to fluctuate too much, fearing that it would stunt the fragile recovery of world economic growth. They want to keep prices in the $70 to $80 per barrel range.
The key problem for OPEC is adherence to output quotas. At present, member adherence is about 60%. Oil demand is on the weak side. Edward Meir of MF Global said: "We suspect the ensuing price bias will be to the downside."
Deutsche Bank upgraded Wells Fargo (WFC) to buy from hold as it believes the TARP repayment should remove uncertainty and that the company will report strong Q4 results. The firm raised its target price on shares to $36 from $29. Keefe Bruyette upgraded Wells Fargo to market perform from outperform following the TARP repayment and raised its target on shares to $28 from $24.
Wells Fargo believes News Corp's (NWS) newspaper and TV station segments are finally outperforming budget, while cable nets continue to perform well. The firm upgraded shares to outperform from market perform and has a $16 to $17 Valuation range.
BofA/Merrill upgraded Starwood Hotels (HOT) to buy from underperform as they expect "strong cyclical recovery in lodging earnings" in late 2010. The firm raised its target to $40 from $25.
ArcelorMittal (MT) was upgraded to buy from neutral at UBS.
JA Solar (JASO) was upgraded to hold from sell at ThinkEquity.
Acxiom (ACXM) was upgraded to overweight from equal weight at Stephens.
Why is this purchase noteworthy? Exxon Mobil (XOM) traditionally has been a pure oil company. Now Exxon makes a bold move into the natural gas segment by buying one of the largest US natural gas producers, XTO Energy (XTO).
The markets were slightly up most of the day, but traders seemed to be unsurprised by big news from Dubai and Citi. Many of the "most actives" only moved up or down a percentage point or two. It was not a day in which the market showed any conviction which was surprising given the number of potential catalysts early in the day.
TheStreet.com's Jim Cramer says its buy of XTO is a clear signal that natural gas works.
Do you think Exxon (XOM) (Cramer's Take) is going to buy XTO (XTO) (Cramer's Take) -- the best of the best -- if it doesn't see the writing on the wall that it needs to have natural gas as part of its filling station repertoire? Do you think Exxon just wants to be in the home heating business? Do you think the most conservative company in the industry is all about just picking up some good domestic reserves when it has ignored doing so for years?
This is the biggest game-changing transaction in the nat gas patch that I can recall, because Exxon just endorsed both its reliability and its cleanliness. Remember, you do not see Exxon bidding on the Iraq fields. While it is doing some exploration across the globe, you bring in XTO because you want to dominate in natural gas at home.
TheStreet.com's Jim Cramer says the biggest companies can lobby their way to huge profits.
Anyone serious about climate change knows that coal is the worst enemy of the environment. We can have all of the electric cars we want, if they are hooked into a coal-based utility system then the gains are irrelevant. We can also be sure that while all sorts of companies, like the General Electrics (GE) (Cramer's Take) and Cokes (KO) (Cramer's Take) and Nikes (NKE) (Cramer's Take) and Nestles, support climate control, they are not equal to one Southern Company (SO) (Cramer's Take), which is an important coal-burning company and a huge lobbyist for the coal industry.
Our nation has a two-pronged climate philosophy: pushes on conservation and on renewables. Neither is enough to get us through the next 10 years; we can't produce enough renewable energy at a cheap price and we can't caulk our way out of the jam.
UBS upgraded Apple (NASDAQ: AAPL) to Buy from Neutral and raised its target to $265 from $170, citing higher iPhone expectations, new partnerships, and likely upward revisions to Street estimates driven by gross margins.
Wells Fargo upgraded Comcast (NASDAQ: CMCSA) to Outperform from Market Perform. The firm views a possible deal between end General Electric's (NYSE: GE) NBC Universal positively, as it thinks NBC will provide higher-margin growth for Comcast.
Janney Montgomery upgraded Michael Baker (AMEX: BKR) to Buy from Neutral after the company completed the sale of its Energy business. The firm raised its target on shares to $46 from $40.
Jefferies assumed coverage of Endo Pharma (NASDAQ: ENDP) and upgraded the stock to Buy from Hold. The firm cites valuation, a strong base business, and solid cash flow for the upgrade, and has a $30 target price on shares.
Marten Transport (NASDAQ: MRTN) was upgraded to Overweight from Equal Weight at Stephens.
U.S. Bancorp (NYSE: USB) was upgraded to Outperform from Market Perform at Keefe Bruyette.
Thomas Weisel upgraded PerkinElmer (NYSE: PKI) to Overweight from Market Weight on valuation as it sees limited downside to consensus estimates. The firm raised its target on shares to $20 from $18.
Jefferies upgraded WuXi PharmaTech (NYSE: WX) to Hold from Underperform following the Q2 results as it believes the company's cross-selling strategy is paying off. The firm raised its target on shares to $12 from $5.
FBR Capital upgraded J. Crew (NYSE: JCG) to Outperform from Market Perform to reflect the company's trend-right product, inventory control, unit growth, and strong management. The firm raised its target on shares to $36 from $25.
Popular (NASDAQ: BPOP) was upgraded to Buy from Neutral at B. Riley.
Baird upgraded Western Digital (NYSE: WDC) and Seagate (NASDAQ: NSTX) to Outperform from Neutral citing better than expected industry conditions. The firm believes supply has tightened, resulting in price increases in certain market segments.
RBC Capital upgraded XTO Energy (NYSE: XTO) to Outperform from Sector Perform citing free cash flow and stable growth.
Goldman upgraded Manpower (NYSE: MAN) to Neutral from Sell and raised its target to $29 from $20 based on balanced risk/reward.
Energy Conversion (NASDAQ: ENER) was upgraded to Buy from Neutral at Piper Jaffray.
Infineon (NYSE: IFX) was raised to Hold from Sell at RBS.
NetSuite (NYSE: N) was upgraded to Acummulate from Source of Funds at ThinkEquity.
TheStreet.com's Jim Cramer says the safety theme will come back if only because these companies' earnings will be good in six months.
Editor's note: Jim Cramer will present his 2009 stock outlook for the first time at TheStreet.com Investment Conference on Saturday, Oct. 25. Click for details.
Now they come after the Procter & Gambles (NYSE: PG) (Cramer's Take) and the General Mills (NYSE: GIS) (Cramer's Take) and the like, betting that the action will be better in the cyclicals with all of this money being printed worldwide.
Commodities are also coming back because of reflation. And we have to feel that many of the infra and ag names are finally sold out by the hedge fund redemptions.
Here I am speaking of a Freeport McMoRan (NYSE: FCX) (Cramer's Take), with its good yield and a belief that the hedge funds are at last done.
I don't buy it. I like a balanced portfolio, but I want to buy the GIS/PG all the way down because we are going into a recession, not going out of one. These companies pay dividends, raise dividends and have great commodity tailwinds.
The energy debate rages on as oil and gas futures bounce around with 30% corrections. Which side of the energy debate are you on? Bears say that oil and gas prices are coming back down to earth. Speculators and hedge funds bid them up, global demand is slowing and alternative forms of energy will soon replace the fossil fuels we've come to depend upon. Bulls argue that oil and gas supplies are dwindling at the same time that the emerging market economies (China, India, Brazil and 20 others) need more. As their middle class population builds they too will want cars, air conditioning and electricity and demand will increase. Most oil reserves are in countries with unstable governments and when geopolitical events get ugly, prices tend to skyrocket.
I'm a long term energy bull -- 10% of my money has been in energy stocks for the last several years and today I maintain that allocation for two reasons. First, I believe in five years, oil and gas prices will be higher than they are today. Second, owning energy is a great hedge against other asset classes like stocks, the US dollar, and inflation.
No one knows which way energy prices will go next week or month so I continually rebalance my portfolio. As my energy stocks rise, I trim them and when they fall, I add to them. If my portfolio goes to 12% energy, I sell them back down to 10% and vice versa.
Now comes the easiest part – which stocks do I pick? Easy you say? Yes – because I don't worry about stock picking due to a miraculous new invention I'll discuss below. I own three energy stocks: the U.S. Oil & Gas Exploration & Production Index (NYSE:IEO), the U.S. Oil Equipment & Services Index(NYSE:IEZ), and S&P Global Energy (NYSE:IXC). Through these three stocks, I own about 200 energy stocks in precise allocation percentages to parts of the energy sector, weighted according to my own preferences – 60% is in IEO, 30% is in IEZ and 10% is in IXC. Why pick stocks when I can own them all? Here's what I mean.
"Nowhere is the supply and demand balance as tight as it is with oil; with the somewhat stronger economy here and abroad, the oil gap is closing again," says Jim Powell.
Exxon Mobil (XOM) has been dragged down right along with BP (BP) since oil started spewing into the Gulf of Mexico from the Deepwater Horizon on April 20. Since that date, Exxon has lost nearly 13% of its value, while BP has lost nearly 52% of its value.
Unconventional energy -- which comes from hard-to-get sources like shale -- is red hot. The biggest sign of this is Exxon's (XOM) recent deal to pay $30 billion for XTO (XTO).
OPEC oil ministers agreed to keep production unchanged. Saudi Arabia has made it clear that it does not want oil prices to fluctuate too much, fearing that it would stunt the fragile recovery of world economic growth. They want to keep prices in the $70 to $80 per barrel range.
Analyst Upgrades
Natural gas has been the "black sheep" of the energy sector. Natural gas is trading at historic lows.
The markets were slightly up most of the day, but traders seemed to be unsurprised by big news from Dubai and Citi. Many of the "most actives" only moved up or down a percentage point or two. It was not a day in which the market showed any conviction which was surprising given the number of potential catalysts early in the day.
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Analyst upgrades: 
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Analyst upgrades:
TheStreet.com's Jim Cramer says the safety theme will come back if only because these companies' earnings will be good in six months. 
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