Unloved Securities Offer Opportunity in '08
- 01-01-2008
Is now the time to jump on opportunities in gold and energy, like unloved Canadian oil trusts, while putting unusually high percentage in money markets and short-term bonds? Just consider:
• Despised Canadian oil trusts offer value —Canadian royalty trusts don’t seem to have a friend in the world, making them attractive value investments. These trusts of oil- and gas-producing properties in Canada and the western US sport high yields, like 16% for Advantage Energy Income Fund (AAV) and 12% for Enerplus Resources Fund (ERF). Canada is stripping the trusts of tax advantages, and the prospective loss of the tax advantage is more than reflected in the current price.
• Gold shines as money supply inflates—Money supply has been expanding at an astounding 21% annual rate worldwide, which must eventually undermine paper currencies. Gold is the only currency that can’t be manipulated by governments, so bullion is an attractive opportunistic investment.
• Energy companies in stable countries are a foundation—The best energy investment strategy is to own oil and gas reserves in the most politically safe areas of the world, especially North America. I like Apache Corp. (APA), an exploration and production company that has consistently grown its production and its reserves, and Exxon Mobil (XOM), the largest integrated oil company in the world with a powerful balance sheet.
• Price-earnings ratios to contract in general—This is because the complacency that investors felt until recently has evaporated. With the S&P 500 trading at 17 to 18 times earnings, stocks seem pretty rich by historical norms—hence the overweighting in safe havens.
