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How To Profit From Low Oil Prices: An Energy Takeout Targets Portfolio

July 8, 2015 2:06 pm
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Motif Investing constantly looks for “trends, ideas and world events that could create an investment opportunity,” and then picks 10 to 30 related stocks to build portfolios around, weighing them based on their exposure to the coinciding idea, event or trend.

This week, the site selected the Energy Takeout Targets motif as the Motif of the week, alleging that, with such low oil prices, small energy companies – especially those with high debt levels – have found themselves short of cash. This situation has, in response, led to increased merger and acquisition activity.

“For acquirers of oil, gas, and pipeline providers, it's cheaper to assume a struggling firm's debt than to buy rights to new sources of energy,” the people behind this Motif explained.

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“Energy companies in the U.S. have seen mergers and acquisitions reach a 10-year high of $321.5 billion in 2014, setting records in both the number and size of deals. In the first half of 2015, there were six deals in which the price included a median 17 percent premium for the target company,” they added.

So, to profit from this trend, below is a “list of U.S.-listed securities of companies that have characteristics in common with firms that have recently been acquired.”

Tap Into Energy Industry Consolidation

Since its creation a few weeks ago, the Energy Takeout Targets portfolio has lost 11.9 percent, widely underperforming the S&P 500.

This Motif’s volatility is also very high, but so are dividends, which currently stand at 3.7 percent.

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This Motif includes 25 stocks from three different industries. 44.9 percent of the portfolio’s assets are allocated to Gas Production stocks, 36.3 percent to Oil Production companies and 18.9 percent to Pipelines stocks.

Stock Allocation

Below is a look at the top stocks in this portfolio by allocation:

  • 5.0 percent: QEP Resources Inc (NYSE: QEP)
  • 5.0 percent: Rosetta Resources Inc. (NASDAQ: ROSE)
  • 4.9 percent: Pengrowth Energy Corp (USA) (NYSE: PGH)
  • 4.8 percent: Vanguard Natural Resources, LLC (NASDAQ: VNR)
  • 4.8 percent: W&T Offshore, Inc. (NYSE: WTI)
  • 4.8 percent: Boardwalk Pipeline Partners, LP (NYSE: BWP)
  • 4.7 percent: Newfield Exploration Co. (NYSE: NFX)
  • 4.5 percent: Encana Corporation (USA) (NYSE: ECA)
  • 4.4 percent: Sanchez Energy Corp (NYSE: SN)
  • 4.3 percent: Bill Barrett Corporation (NYSE: BBG)
  • 4.3 percent: Stone Energy Corporation (NYSE: SGY)

Image Credit: Public Domain

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