Lance Roberts of Houston's Street Talk Advisors says it's time for investors in the energy space to look further downstream.
We asked Roberts to elaborate on this and other tips for average investors:
When to leave the refiners
"If you look at the Exxons and Mobils, they're so large that (investors) don't get a relative bump," said Roberts, adding that so many people have invested in these companies it's nearly impossible to track the market or reap the results when stocks do go up. However, a producer like Apache that's small and tightly run will offer aggressive investors a real-time look at the markets so they know exactly where they stand.
"Look at Apache, it was $110 in march when the oil stock was $110. Oil prices went to $80, then they rebounded to $84, and that's where their stock is," Roberts said. "There's a direct correlation, so for aggressive traders it's a smart way to play the rise and fall of oil prices."
Roberts recommends investing in high-quality, financially-strong companies such as Rosetta Resources, Plains Energy and other standouts on the production and operation side. Just keep in mind they're very volatile, so if you consider yourself a buy and hold investor you may not want to buy in.
When to stay put
Risk-adverse investors who aren't watching the markets closely or nearing retirement won't want to take the producer and supplier route.
"Don't buy Apache and then turn the lights off and go home," Roberts said. "For somebody who wants to invest in oil and gas and hopefully be OK, then you will need to stay with the big guys and away from the smaller, independent oil and gas investment companies."
In this case, the best place to focus is on master limited partnerships, which aren't as sensitive to the price of oil.
"They're paid a flat rate for the product that they push through their pipeline, so they're revenue streams are much more stable and divident," said Roberts, adding that Kinder Morgan and Target Resources are good places to start. "These tend to generate a 6.8 percent yield, not bad considering you're getting 2-3 percent in corporate bonds."
Whatever you do, make sure to invest with an advisor you trust and in a way that aligns with your long-term goals.
"You've got to weed your garden, harvest some of the fruit, some of the bounty, or the profits, and then you have to fertilize it by adding more money to the portfolio all the time," said Roberts. "If you treat it that way, you'll always have a productive portfolio yielding for you."SEE ALSO: Reddit users present 25 real-life cheats >
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