There's more than one way to play the bull market in crude oil. These five oil & gas pipeline stocks are one way that many investors have not yet considered. But the high Long Term PowerRatings on these stocks are likely to change that.
When most investors think about investing in oil stocks, they no doubt turn to the big names like Exxon (XOM | Quote | Chart | News | PowerRating) and Chevron (CVX | Quote | Chart | News | PowerRating). And while these stocks will certainly provide exposure to the oil industry, they may or may not be the best opportunities for investors looking to take advantage of the ever-increasing price of oil.
Often, the stocks that move the most in any industry are not the most obvious ways to gain exposure to that industry. Jim Cramer of CNBC's Mad Money had a theory he liked to refer to as "pin action". "Pin action" was a bowling term he borrowed to explain how an effect in a stock or type of stocks can have additional effects-effects that might even be more powerful--on stocks that are related.
Atlas Pipeline Partners LP (APL | Quote | Chart | News | PowerRating)
"Pin action" of course refers to the degree to which an initial pin, while bowling, helps knock over other pins.
In the case of exposure to oil, there may be some interesting "pin action" where oil and gas pipeline companies are concerned. After all, oil doesn't walk--or drive--to the places it is needed and wanted. It has to be transmitted from one location to another--and pipelines are built to do just that.
Moreover, compared to the two oil stocks noted above, Exxon and Chevron, a number of oil and natural gas pipeline stocks are much more attractive right now from an investment perspective. Both Exxon and Chevron have, for example, average Long Term PowerRatings of 6. In other words, oil exposure or no, both stocks should be expected to perform about as well as the average stock over the next year.
Enbridge Energy Partners LP (EEP | Quote | Chart | News | PowerRating)
By contrast, all five of the stocks in today's report have Long Term PowerRatings of 9. Our research, based on thousands and thousands of simulated stock trades between 1995 and 2007, indicates that stocks with Long Term PowerRatings of 9 have not only been more reliable than the average stock, but also have outperformed the average stock by a significant margin.
We found that 9-rated stocks have been higher one year later more than 79% of the time. Compare that to the average stock, which has been higher one year later less than 68% of the time. Additionally, stocks with Long Term PowerRatings of 9 have tended to gain, on average, more than 18% after one year. The average stock? Somewhere between 12-13% in a year's time.
Energy Transfer Equity LP (ETE | Quote | Chart | News | PowerRating)
Even better from the point of view of an investor is the fact that these high Long Term PowerRatings stocks also come from an industry with a superlative PowerRating. In fact, the Oil & Gas Pipeline industry group has earned our highest PowerRating for an industry group, a rating of 10.
Our research found that industry groups with PowerRatings of 10 have produced average annualized returns of more than 35% since 1995. This compares very favorably with the average industry group's performance over the same time period, which was approximately 14.61%.
Nustar Energy LP (NS | Quote | Chart | News | PowerRating)
True enough, oil and gas pipeline stocks are not the most exciting stocks in the world. But to steal a phrase, investors do not need stocks with good taste. They want stocks that "taste good." And our historical testing suggests that a few servings of high Long Term PowerRatings stocks--especially if they come from top rated industries—can make up a meal that will leave investors coming back for more.
Oneok Partners LP (OKS | Quote | Chart | News | PowerRating)
Looking for more long-term solutions to your investing problems? Don't let the volatility of this market lead you to miss out on stocks you'll be glad to have bought a year from now. Click here to get a copy of our special, Free Report on the "5 Secrets to Successful Stock Investing," and learn what you need to know as an active investor looking to invest in companies with a history of financial strength and a track record for growth. Call us at 888-484-8220 to get your copy of the "5 Secrets to Successful Stock Investing" today.
David Penn is Senior Editor for PowerRatings.net.
