The real bump in the road for energy stocks has been low natural gas prices that have curtailed natural gas drilling. However, many energy companies have still managed to report average sales and revenue growth and are forecast to post strong sales and earnings in upcoming quarters.
Therefore, I plan to maintain positions in energy companies — such as my recommendation of Eagle Rock Energy Partners (NASDAQ:EROC) in this month’s buy list. After all, this is the time of the year we start to see rising prices at the pump — spring is fast approaching, and seasonal demand for gasoline and diesel is rising. That said, it’s almost certain that crude oil prices will remain high for the next several months.
This is all good news for refiners such as Arabian American Development (NASDAQ:ARSD), CVR Energy (NYSE:CVI), Delek U.S. Holdings (NYSE:DK) and Tesoro (NYSE:TSO).
If the seasonal rise in gas prices wasn’t enough, the European Union recently approved a ban on oil from Iran, which is set to take effect July 1. The EU also agreed to freeze the assets of Iran’s central bank and ban all trade with its petrochemical industry.
In addition, last month Britain, France and the U.S. sent six warships, including the aircraft carrier USS Abraham Lincoln, through the Strait of Hormuz. Iran has threatened to close the strait in response to the EU oil embargo, but Iranian President Mahmoud Ahmadinejad more recently said Iran is ready to revive talks with the U.S. and the other permanent members of the U.N. Security Council (including Germany).
Clearly, these talks are likely to intensify before the EU embargo takes effect, so I expect crude oil prices to remain high for the next few months. I also think we’ll see a near-term bounce in many of my energy-related picks.
Finally, the fracking boom is still under way in the U.S., so oil-service companies are still expected to post strong sales and earnings despite low natural gas prices. Also, pipeline companies are benefiting from the fact that crude oil, natural gas and refined products are being transported at record levels.
I expect they will continue to pay the extraordinary dividends that attract investors seeking high yields.
Click here to take a look at my Top 5 Emerging Growth Stocks for February.