“Buffett’s big bet on big oil” was the headline for an MSN Money piece on investing trends in 2014. Obviously, since investing is buying the future income stream of an asset, that means that Warren Buffett, considered by many to be the best investor in history, is bullish on oil in the years ahead. Beyond Buffett, we've discussed why all investors should be positive on the oil and natural gas sector.
The main reason is basic supply and demand.
The Demand for Energy
The demand for energy is going to increase greatly. That has been the basis of every report and study. This is especially true in nations such as China and India, home to almost half of the world’s population. Around the globe, the consumer class is increasing. That will result in a growing demand for energy to fuel the cars, heat the homes, power the factories, and perform the other tasks of a modernizing economy.
The Supply of Energy
For the supply, there is no other energy source out there as appealing as oil and natural gas.
Alternative energy does not even come close to meeting the needs of an economy. Nuclear power is in disfavor due to the perceived danger. Coal is too dirty. Even China, the world’s largest consumer of coal, pledged in its recent economic reform measures to reduce the amount burned.
That leads to an increased demand for oil and natural gas.
Where to Invest in Oil and Natural Gas
For investors, there is a wide range of companies to choose from for a portfolio. These range from Exxon Mobil (NYSE: XOM), the biggest energy company in the world, to Octagon 88 (OCT: OCTX), a small cap operating in Canada with very promising holdings. Energy firms like Octagon 88 and Suncor Energy (NYSE: SU) that operate in Canada are particularly appealing.
That is due to the overall attractiveness of North American for energy investing.
It is a politically stable continent with a secure economy. Many major oil companies such as Occidental Petroleum (NYSE: OXY) and Royal Dutch Shell (NYSE: RDS-A), the second biggest in the world, are selling off holdings in The Middle East and Africa due to the turmoil. As a result, Suncor Energy, Octagon 88, and others in Canada, which is very pro-energy, become much more desirable.
It is tough to go wrong following the lead of The Oracle of Omaha.
Buffett is a major shareholder of Exxon Mobil, Suncor Energy, and Phillips 66 (NYSE: PSX). All are blue chip firms. Like many oil and natural gas companies, each pays a strong dividend to the shareholders. Exxon Mobil is a Dividend Aristocrat, which means it has increased its dividend annually for at least the last 25 years.
That will certainly be easy for Exxon Mobil to do in the years ahead as it was up almost 20 percent for 2013. Phillips 66 did even better, rising nearly 50 percent for the year. Suncor Energy jumped around 7.5 percent.
Oil and natural gas stocks are solid investments for the long term. There is tremendous value in small caps like Octagon 88 due to the potential, along with proven performance from blue chips like Exxon Mobil, Phillips 66, and Suncor Energy. You don’t have to be Warren Buffett to recognize the potential in oil and natural gas stocks for the years ahead, but it is comforting to know that one of the best investors in history is betting the same way.
Are you bullish on oil and natural gas in 2014?