While many previous articles on this site have been bullish on oil and natural gas stocks, investors should hold off on buying anytime soon for a variety of factors.
Yes, it is certainly impossible to time the market, and buying for the long term is always best. But, due to the record cold weather in the United States, the price of the exchange traded fund for natural gas, United States Natural Gas (NYSE: UNG), is up nearly 12 percent this week.
United States Natural Gas has risen for the last week, month, quarter, six months, and year of market action.
Energy Prices Will Fall Come Summer
When the weather heats up later this year, the price for oil and natural gas securities should come down. Investors should then look to buy. As always, there is a wide range of very attractive stocks in the energy sector.
David Einhorn, a billionaire hedge fund manager, just announced that he had established a huge position in BP (NYSE: BP), the British oil giant. That follows the opening of positions in ExxonMobil (NYSE: XOM) and Phillips 66 (NYSE: PSX) by legendary investor Warren Buffett.
Due to the low interest rate environment resulting from the policies of global central bankers, major oil and natural gas stocks have become very appealing due to the high dividend yields.
Still Look For Dividend Yields in Energy Stocks
For those looking for that income feature, there are still very alluring buys.
But if the share price falls, the dividend yield will rise by that much. BP is up by almost 10 percent for the last quarter. Over that same time period, ExxonMobil has increased by over 8 percent.
Some oil companies like BP and Royal Dutch Shell are very volatile, so investors can move in and buy when the share price falls. That is a profitable way to accumulate a position for long term gains.
As always, there are small caps in the sector that are appealing due to the growth opportunities.
Octagon 88 (OTC: OCTX), a Swiss company with attractive reserves in Canada, is reported to have Chinese investors interested in the company. As the Chinese have spent more than $40 billion since 2008 buying energy assets in North America, that would seem to make sense due to the promising reports on the holdings of Octagon 88 in the oil rich region of Canada. China needs fossil fuels to feed its growing economy, and companies like Octagon 88 have tremendous potential, despite being small caps.
For growth, value, and income investors, there is something for everyone in the oil and natural gas sector.
Time is on Your Side
Time is on the side of buyers, though: especially those willing to hold for the long term. Natural gas prices have soared due to the frigid weather in the United States. It is very likely the price for United States Natural Gas and other pure plays on natural gas will fall.
Time is even more on the side of income and growth investors in the oil and natural gas industry.
Energy firms have a history of increasing the dividend yield. The longer a shareholder owns, the higher the yield will go, based on the history of ExxonMobil and others. For growth plays like Octagon 88, the more that China and other countries grow, the more in demand the rich oil and natural holdings will become. Long term, the oil and natural gas sector should be profitable. But in the short term, it is a good time to wait until the natural gas spike reverses.
Are you concerned about a major fall off in price for energy companies this summer?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.