Oil Stocks Surging to New Highs

While crude oil prices have corrected down a bit, oil stocks are surging to new, all-time highs.

Heres why:

First, the oil-price decline has been relatively small not nearly enough to signal a change in its long-term uptrend.

Second, investors recognize that the decline is mostly the result of one-time measures, such as the release of strategic oil reserves, with no lasting impact on supply and demand.

Most important, many of the major energy companies, especially those that service the oil industry, are making money hand over fist!

Readers of These E-Mails
Should Also Be Cashing in

This subject is extremely timely and vital.

So in this e-mail, Im going to review each major stock one by one, show you exactly whats happening now, put the events in perspective, and tell you what I think you should do next.

If you own the energy investments weve been recommending, this is one Money and Markets e-mail that you should read with utmost care. And if you dont own them, all the more so.

For example, if youve bought Enerplus (ERF), the Canadian energy company Ive recommended repeatedly here in Money and Markets, you should be sitting on some very nice open gains right now no matter WHEN you got in.

The stock reached a new, all-time high on Friday, easily surpassing the highs it made in the wake of Hurricane Katrina, and blowing away any recent concerns about the impact of an oil-price correction.

But the latest price surge is nothing unusual for this stock. It is completely consistent with its long-term trend.

Indeed, in recent years, Enerplus has delivered one of the most consistent uptrends in the market!

Ironically, however, that wasnt the main reason I recommended this company. I recommended it because, compared to most other energy stocks, its a relatively conservative, high-yield investment a royalty trust distributing virtually all of its revenues through dividends.

Those dividends, in turn, have given investors a nice, steady yield thats been consistently close to double digits, or about three times what you could make in a bank CD or money market fund.

Unlike a money market, you CAN suffer a loss in principal the stock CAN go down.

But in recent years, it has not gone down very often or very much. Quite to the contrary, on top of the high yield, the capital appreciation enjoyed by investors in Enerplus has been both large and consistent: Back on September 9, 2002, Enerplus sold for $17.44 per share. Exactly three years later, on Friday of last week, it closed at $42.65. Thats up 144% in the three years. Not bad for a stock with a yield thats far above average.

The Next Buying
Opportunity

If you subscribe to my Safe Money Report, you should be doing even better with Enerplus.

You got my first recommendation to buy it years ago, long before I began publishing Money and Markets.

And just a few weeks ago, on August 18, when the stock dipped to less than 37, I sent you a Flash Alert to buy MORE. You should have gotten in the next day.

It was one of those quick price dips that turned out to be a major buying opportunity for Safe Money subscribers.

If you missed this buying opportunity, however, dont fret.

As I explained a moment ago, the latest price surge is consistent with the stocks long-term uptrend. So you can still buy now. Just be sure to limit your purchases to modest amounts, keeping most of your money in reserve for the next buying opportunity.

For example, I wouldnt be surprised to see the stock surge a few more points and then retreat back to approximately current levels. If so, that would be another good time to buy.

Oil Service HOLDRs (OIH)
Also Surges to New, All-Time Highs

Meanwhile, if you bought the Oil Service HOLDRs (OIH), the exchange-traded fund that Ive been tracking for you regularly since I began Money and Markets, you should also be sitting on some nice open gains right now.

And again, that holds true no matter when you got in.

Like Enerplus, the OIH has just surged to new, all-time highs despite the temporary decline in crude oil prices.

Last week, it blasted past the 120 level … broke through its previous high of 120.98 … and ended the week at a brand new closing high of 121.27.

The immediate reason: This ETF is focused on companies servicing the oil industry. And the high price of oil is generating a steady flood of new contracts for new exploration and construction.

Plus, still more business is pouring in to repair facilities damaged by Hurricane Katrina.

These surges in demand, in turn, are not only driving up the VOLUME of business theyre also helping to justify stiff increases in the FEES these companies can charge for that business.

The formula is simple:

more business higher fees = surging revenues

End result: Accelerated profit growth and still higher stock prices ahead in this sector.

But nothing goes straight up. There are bound to be price dips in the days ahead. If so, use the dips as buying opportunities.

And, nothing is guaranteed. So always invest prudently, in modest increments, with funds you can afford to risk.

Call Options
on Energy Stocks

Investors who have bought OIH … the individual stocks it includes … or other, similar stocks … should all be sitting on substantial open gains right now.

Meanwhile, investors who have bought call options on these stocks should have gains that are MANY times larger.

For example, if you are among those following the recommendations in Larrys Energy Options Alert, your gains on the closed winning trades so far 44%, 48%, 52%, 128% and 161% in as little as five weeks should have easily exceeded the few losers.

Plus, Friday afternoon, when the markets closed, I also checked the open positions recommended in Energy Options Alert. The biggest loser is down by less than 9%. The biggest winner is up 114%.

Needless to say, you cant expect superlative performance all the time. But with the surge in energy stocks far from over, I think Larry is just warming up.

He has capped the total membership of Energy Options Alert to a permanent, immutable maximum of 1,000 subscribers, with only 340 slots currently available. If you wish to join, therefore, I suggest you do so before the service is closed out to new members.

Oil Majors: SAME Pattern

The opportunities in energy stocks and their options are not limited to the oil industry service providers.

Consider, for example, big-name diversified companies like Chevron, which Safe Money subscribers should also be holding.

The companys $18 billion acquisition of Unocal will add reserves across Asia and North America and allow the company to stem a production slide. And with oil prices surging, Chevrons timing for making this acquisition was excellent.

But Chevrons stock price is just now starting to reflect the Unocal purchase.

Earlier this year, on February 2, the stock reached a closing high of $62.08, but retreated all the way down to $50.51 by mid-May.

Then, one month ago, when oil prices were surging to the mid $60s, Chevron hit $62.50. That was a new, all-time high but only by a hair.

Now, this past Friday, the stocks surge was far more convincing: It made it all the way to $63.87, closing the session just six pennies below its high, at $63.81.

Thats significantly higher than any peak in history. And it was achieved DESPITE the retreat in oil prices … which leads me to a simple question:

If these oil stocks are rising even as oil prices are down, what will they do when oil surges again?

Alternative Energy

Or, consider the opportunities in alternative energy companies, which are also surging. Yesterdays New York Times, for example, points out how

solar power has been getting its most serious look from investors since President Jimmy Carter pulled on a cardigan and asked Americans to damp their furnaces …

Over the last year, the shares of Evergreen Solar, Daystar Technologies, Energy Conversion Devices and Spire all small domestic companies that make equipment for converting solar power into electricity have more than doubled in price.

Plus, the Times reminds us that, last month, Cypress Semiconductor said it would try to raise as much as $100 million in an initial public offering for its SunPower subsidiary.

This is just the beginning not only for solar power, but also for fuel cells, wind farms, geothermal energy, nuclear energy and more.

The opportunities in all these stocks from the majors to the small alternative energy companies are many. And the profit potential in their options, also covered in Larrys Energy Options Alert, are virtually unlimited.

Why I Still Recommend
United States Treasury Bills

I have yet to meet a stock that never goes down, and I have yet to meet an investor who always wins.

This is true for the stocks I think are among the very best in the market, including the energy companies Ive talked about today. And its especially true for those that I believe to be among the worst, such as …

• airlines and auto manufacturers that are vulnerable to rising fuel costs, plus …
• banks, mortgage lenders and home builders that are vulnerable to rising interest costs.

I have also never seen a long-term bond that cannot go down in value. You can lose money in bonds because the issuers credit is declining. And even with the very best credit quality, you can lose money in bonds when interest rates rise.

Thats why I continue to recommend you keep a substantial portion of your money in the extremely liquid, short-term securities guaranteed by the United States Treasury Department Treasury bills.

Some people say buying Treasury bills is not investing its just a temporary parking place.

I disagree.

I feel they should be an integral part of your investment program. They are the highest quality investment in the world today. Their yield, although still low, is going up steadily. And the interest you earn is exempt from local and state income taxes.

Some people also question the value of owning Treasury bills when the value of the dollar is going down.

I agree with this concern. But the answer is not to abandon Treasury bills. Rather, the solution is to allocate a separate portion of your portfolio to hedge against a dollar decline.

How do you do that? Simple. By investing in sectors that tend to go up when the dollar goes down such as gold and energy.

How do you buy Treasury bills? Some investors buy them directly from the U.S. Treasury Department. You pay no fees. And you get 100% of the interest.

Others prefer using a money market mutual fund dedicated to short-term Treasury securities or equivalent. Theres a modest fee. But you get the advantage of instant access to your money, including free check-writing privileges. My favorites:

American Century Capital Preservation Fund (CPFXX; 800-345-2021)
Dreyfus 100% U.S. Treasury Fund (DUSXX; 800-645-6561)
Fidelity Spartan U.S. Treasury Fund (FDLXX; 800-544-8888)
Vanguard Treasury MMF (VMPXX; 800-662-7447)
Weiss Treasury Only Money Fund, (WEOXX; 800-430-9617)

Good luck and God bless!

Martin