By Keith Fitz-Gerald Contributing Editor
Most investors assume that higher oil prices are bad for the markets.
I disagree.
Sure, as consumers, we're all feeling the pinch from spiraling oil-and-gasoline prices. And I don't like feeling mugged when I fill up anymore than you do. But from an investment standpoint, I actually think higher oil prices are great. And, as an investor, you should, too.
Here are three reasons why:
In many ways, this is shaping up as a replay of the early 1970s when the fuel-and-energy crisis caught Detroit flat-footed and heralded the introduction of gas-sipping Japanese compacts. We're seeing the beginnings of this now ... to borrow a marketing slogan from the 1970s: "Have you driven a Prius, lately?"
Even more pointedly, have you tried to buy a Prius lately? There's a waiting list several months long for the Toyota Motor Co. (TM) hybrid vehicle - even as Ford Motor Co. (F) tries to reinvent itself yet again and General Motors Corp. (GM) struggles with behemoth cars and trucks that have so long been its bailiwick.
However, in sharp contrast with the 1970s, we will probably not see a replay of an energy-induced recession. I can't speak for other reasons that we may hit the dreaded big "R" in the next few months, but if there is a downturn, when the smoke clears, energy probably won't have been the cause (barring a terrorist induced supply constriction).
For one thing, we've had serious gains in efficiency across the board, which means that we now use less energy per unit of Gross Domestic Product (GDP) - in real energy terms - than we did 40 years go.
For another, the European euro has risen right along with the cost of fuel. In fact, the high cost of oil is as much a function of a weaker dollar as it is anything else. That's because oil is priced in dollars, which means we bear no exchange risk...for better or worse...and lately it's worse.
Lest we descend into a macroeconomic morass, let's shift gears and talk about how to profit from all this.
You could obviously choose to invest in traditional oil-related companies, but they're already trading at obscene levels, so I wouldn't bother chasing them. If you've already got'em, that's a different matter and I'd be reinvesting my dividends to build my wealth.
For new money, I'd concentrate on companies that are facilitators for the rest of the industry, like Norwegian-based StatoilHydro ASA (STO). This company is an integrated player with plenty of experience in all phases of exploration, production, transportation and marketing for both oil and natural gas.
What's more, because it is one of the few companies worldwide with legitimate deep-water expertise, StatoilHydro has positioned itself as the go-to guy for much of the rest of the oil industry - which must increasingly drill in deeper water in search of new reserves.
I'd also grab a portion of the alternative energy industry, which is really an indirect beneficiary of high oil prices - and which remains comparatively undervalued even after a spectacular run this year.
Among my favorite investments in this arena are:
So the next time you see one of those gas-guzzling, piston-clanking, chrome-laden monsters from Detroit City filling up at the pump next to you, cheer 'em on. Better yet, walk over and shake the owner's hand.
With these choices, the profits in your portfolio will more than make up for the sting you feel in your wallet every time you pull up to the pumps.
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