A Look at Energy with Oil racing back to $60

Oil, like many investment vehicles had been battered along the hard road from peaks in 2007 nearing $150. The fall in fact, had been so dramatic that prices for the commodity were down to $34 a barrel in February of this year. Set against the backdrop of American economic problems and the ongoing 'Carpocalypse' the slide in oil is completely understood.

However, of late, things are changing, and with a resurgence of market participation in the last 2 months, oil has enjoyed a steady climb and has now almost doubled off its lows. The traditional American big oil names have held steady as Exxon Mobil (XOM) is down 5% in the last 3 months, and up 1% in the last month, while competitor Chevron (CVX) has been virtually flat for 3 months. Nothing to light the socks off in any portfolio. These big names, which have enjoyed such outlandish record profits in recent years are being propped by their cash and their dividend payments, but none of that spells growth during a bullish run on the markets in this still economic-headline driven marketplace.

What has been making noise have been the smaller players. In the oil and energy business, small is of course relative. ConocoPhillips (COP), which reported recently an 80% year over year drop in profit has risen 12% in the last month, including a 4% pop on earnings day and its S&P rating of Strong Buy. Not to be outdone, Haliburton (HAL) has rallied strongly with a 34% gain in the same single month time frame.

In Canadian markets the big story of late was the deal stuck by Suncor (TSE:SU) to purchase Petro Canada (TSE:PCA) in a stock deal worth approximately $15Billion. On the news of the deal, Suncor stock fell but has since rallied back to the $35 level, which is about 6% higher than pre-deal prices. Petro-Canada, being the takeover target has consistently rallied from $30 to its current levels of $45/share. Who says M&A activity is dead?

Shifting to the drillers and the market has seen a similar story. Bigger Transocean (RIG), being outgained by smaller Nabors Industries (NBR). Despite estimate-topping earnings and a buy recommendation from Citigroup, RIG has performed only admirably when compared to gains from its smaller counterpart. Rig is higher by 22% and 10% in the 3-month and 1-month periods, while Nabors has shown gains of 59% and 40% in those same periods.

While the smaller players may have risen faster with the market ramp-up, Investors shouldn't let themselves get carried away, and take some energy-related profits when they present themselves. Headlines are already starting to change from a tone of "Go Bullish Rally" to "Is It a Suckers Rally" and it may just be that over the next couple of months the staple behemoths of the Energy industry will make the safest investments.

Disclosure: Author owns NBR, SU, recently sold PCA

How much is Too Much? Exxon Mobil posts record Profit

A record profit for Exxon Mobil (XOM), but nonetheless an increase year-over-year that was smaller than expected by analysts. Smaller?!? The company made just shy of $11.7Billion in profit on $138Billion in Revenue. Both all-time highs, not only for Exxon but for any company in America's history!

And nonetheless the Street is not impressed. Granted the incredible spike in Oil Prices have driven most of the revenue upside, resulting in 40% year-over-year growth in the top line. Profit grew 14% ($2.22/share vs. $183/share last year) from the lasting effects of record high oil. Analysts were expecting $2.52/share for the quarter, however, to put things slightly in perspective; Exxon could buy Ford outright from this quarter's profit alone, or it could almost buy General Motors twice over. The sheer size of Exxon makes it an intriguing Investment, and one that shouldn't be unjustly punished by the market for breaking records.

Granted, a stock like this, with a market cap of $430Billion, isn't going to blow any doors off in terms of dramatic stock price growth, however, there isn't a more profitable company out there these days, and eventually all that cash is going to earn more in simple Interest than most companies through Operations. There are problems within Exxon, that's without a doubt, as most of the earnings increase came solely from the spike in Oil Prices (What happens when oil fully stabilizes?). The refining arm of the company saw dramatic margin degradation due to expansion in oil prices, but it is only natural when the upstream business expands, the downstream business will contract.

There's chances for money to be made here and Exxon in the low 80s is a comfortable buy. Oh and the company is also buying back a further $8Billion in stock, and it yields about 2%, and should be in a PE range of approximately 10-12 currently. Did I mention almost $12Billion in quarterly profit! No wonder a major election issue in the US is Taxing Big Oil.

Disclosure: Author holds no position in XOM

Rise in Retail Sales Causes Market Rally

The Dow Jones closed up almost 180 points and the Nasdaq added over 50 points on a day where optimism ruled The Street. January retail sales data posted a 0.3% rise after the December metric declined. Analysts expected a further decline in January also.

Leading the way was Technology and Energy stocks. Traders are weighing the recent market weakness in the Tech sector and trying to time the "bottom" in Growth-Tech. The situation in Venezuela is putting pressue on Energy and led to Oil rising to $93. The country said that it would not sell Exxon Mobil (XOM), America's Largest Company.

Markets Advance ahead of Fed Meeting, Oil hits New Record

Overall trading tones were positive on Monday and stocks advanced on both sides of the North American border. Canada's TSX advanced almost 1% while Major American indices were up about half a percent. Oil prices continued to climb near $94 a barrel.

Markets are almost already fully pricing in a 25 basis point rate cut by the Federal Reserve as American currency slided lower again. The US Dollar is facing tremendous pressures as global economies become stronger and the anticipation of a rate cut further drives the benchmark currency lower. The strong Euro is worth almost $1.45 US and the strong Canadian economy is pushing the Canadian Dollar further past parity and is now worth about $1.05 US. Multi-national US firms are reaping the benefits every quarterly earnings report that the US Dollar slides while International Investors in US companies are feeling the pinch as their holdings absorb the conversion rate loses.

While a rate cut is what the market expects, there has to be a balance here and the Fed knows it. Economy stability and Inflation/Currency issues have to be at the forefront of the Fed policy discussions, as I'm sure they will be. The last time the Fed met and cut rates the market on the whole rallied and this party, with few hiccups, has continued into late October. The market expects more now and a stand by the Fed will likely be met by selling so a cautious stance will be taken by traders in the days leading up to an announcement.

Major financials are holding seemingly steady now awaiting the Fed but the solid Investment Banks are seeing Money flow back in. Goldman Sachs (GS) hit a new high today over $244/share, and Lehman Brothers (LEH) advanced also, both stocks showing gains of over 3%.

Oil continued its upward trek hitting near $94 a barrel. An incredible run so far that has seemingly been pushed by fear of conflicts or worldwide production slowdowns every other week. Even with a milder Fall, than historically seen, in most regions, Oil prices continue to remain high pushing the likes of Exxon Mobil (XOM) closer to new highs.

Markets Lull Ahead of Earnings but Tech Continues to Sizzle

An overall negative market day in North America was propped by continued strength in Technology stocks. The Dow Jones and S&P were both lower but the Nasdaq managed to eek out a quarter percent gain. Volume levels were lower across the board as earnings from major companies are seemingly around the corner.

Technology was at the forefront all day as many new all time highs were not only reached but breached once again. Google (GOOG) most notably passed the $600 mark closing at $609.62.
Apple (AAPL) and Research In Motion (RIMM) continued to show strength with gains of 4% and 3.7% respectively. Previously beaten down names like Akamai (AKAM), up 8.4%, and Garmin (GRMN), up 4.5%, made rebounding strides today.

The winter season has so far been mild, which has put a dent in oil prices, dragging down Exxon Mobil (XOM) and Co. Gas Prices however, have sustained at high levels and that re-ignites investor fears that consumers will take their holiday spending down a notch. It'll be a battle between the bulls and the bears over the next few weeks as the markets seeks a true direction throughout the winter months. So far the Bulls are proving they have the edge, especially in Technology.

Disclosure: Author is long AAPL, GOOG, AKAM

$80 Oil and the Effect on the Marketplace, Time to Book Profits but Still Watch Energy Stocks

Price stabilization; the new key buzz word coming out of investment circles around oil futures. Consumers want it, oil companies probably not so much. Record breaking profits have become the norm at Exxon Mobil (XOM) but the average consumer will continue to feel the pinch at the pump.

OPEC, the world's oil production oversight organization, instilled an increase in production of 500,000 barrels per day in order to achieve some form of price stabilization. The fear of a sharp decline in oil stock piles has led to a continued surge in prices. Oil prices broke through a record barrier today and closed above $80.

Exxon, the largest of the "big-oil", rose another 1% to close at $88.62. Still $5 off its all time high, hinting that momentum and the market theory of "$80/share leads to $100/share" could be in full effect. Exxon stays shy of a half a trillion in market cap and with oil at these levels you have to wonder whether its just a matter of time before the company crosses that barrier. The one wild card is the Fed meeting on September 18th which could put a wrench into the spokes of this mini-recovery rally.

On the Canadian side of oil related news; Encana (TSE:ECA), Petro Canada (TSE:PCA) and Canadian Oil Sands Trust (TSE:COS.UN) are climbing back towards 52-week highs. Still a few dollars left to go for ECA and PCA but if supply fears continue to press on the market these companies will be breaking barriers left and right. They are the two prominent Gas and Oil companies the TSX has to offer. Canadian Natural Resources (TSE:CNQ) is eyeing its $78/share high after a 2.5% up day. CNQ has come far from its January lows of $53/share and as with, most of the Energy Sector in Canada it would be a great time to book some profits. For CNQ, the Alberta based oil and gas exploration play, I would like to see another pull back to the low 70s, high 60s before buying up more. This company has its headquarters in the sweet spot in Alberta's oil industry and has raised output guidance in its latest report. The anticipation of sustained greater output coupled with the rising commodity environment have spearheaded CNQ's run to its highs.

Buying into Oil at these levels I think is risky, as psychological record levels of $80 a barrel are broken. I would expect a slight pull-back in Oil prices from these levels as price stabilization comes into effect providing more workable supply numbers for the coming months. While some predict oil to reach $100 sooner rather than later, my stance would be that oil will sustain itself close to, but lower, than these records levels throughout the upcoming winter months.

Disclosure: Author is long CNQ

Market Musings: Oil Records, Interest Rate Uncertainty put Market on Edge

As North American Markets rallied today oil prices soared towards record highs on fears that OPEC would be unable to meet demand. Oil approached records of around $78/barrel as investors bought up these futures into the winter season, expecting diminished oil supply numbers from the US.

Before you run off to buy Exxon Mobil (XOM) or Chevron (CVX), it's important to note that these mega-oils already saw around 2% gains today and stand close to 52-week highs. OPEC, the world oil production policy maker announced that it would increase production by 500,000 barrels per day to help ease prices. The general fear of market uncertainty due to the US Credit situation is putting the world economy on notice and forcing policy making organizations to take steps to control pricing of various goods. The news of the production ramp sent oil futures back to the $77/barrel range.

The recent US jobs number came in drastically softer than expected as payrolls were actually cut. Analysts expected a drop in jobs but not a complete loss. This data however, carried forward the notion that the Fed must act on Interest Rates at its next meeting later in September.

I would be cautious up to this meeting because the market's resilient rally here is based on the fact that the Fed will in fact cut rates by .25 or .50%. This is a key decision for the Fed as it balances a seemingly US strong economy and a disaster situation with credit that threatens to spill over into all consumer segments. Investors need to be cautious through the next week and beyond as the markets seek to establish a direction while waiting for the Federal Reserve to make its policy announcement. With the market having priced in a 25 basis point rate cut (.25%) and now working to price in a cut of 50 basis points (.50%) investors need to understand the upcoming risks. If action by the Fed is limited it would spark a sell off that could see the Dow back into the high 12000s.

If the Fed provides further relief for the markets, come the September meeting, we could be off to the races for the annual Santa Rally starting as soon as October. Technology companies making those must-have items such as Apple's (AAPL) iPod & iPhone, Nintendo's (NTDOY) Wii and Sony's (SNE) PS3 stand the most to gain, as would Internet advertising giant Google (GOOG), and auction house pioneer Ebay (EBAY). High growth will be the name of the game for the end of the year provided the expected relief comes by way of Bernanke and the Federal Reserve.

Disclosure: Author is long APPL, GOOG and does not own any of the other companies mentioned.

Earnings Week: July 23-July 27

Some earnings of note for the week of July 23rd to the 27th

Monday July 23
Merck (MRK): expected $0.72/share

Tuesday July 24
AT&T (T): expected $0.67/share
LeggMason (LM): expected $1.24/share

Wednesday July 25
Akamai (AKAM): expected $0.30/share
Apple (AAPL): expected $0.72/share
Baidu (BIDU): expected $0.43/share
Colgate-Palmolive (CL): expected $0.83/share
GlaxoSmithKline (GSK): expected $0.94/share

Thursday July 26
ExxonMobil (XOM): expected $1.94/share

Interesting week ahead as more financials and world banks report, and big oil takes center stage later in the week with Exxon. All eyes will be on AT&T and Apple for an incling of how well the iPhone sold in the first 2 days of its launch.