“U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world’s biggest producer.”
It’s not very often that a true revolution sweeps through the economy. It happened in the late 1800’s with the industrial revolution, providing huge productivity gains. It happened again in the 1990’s with the Internet, forever changing the way businesses and people interact. And now, it’s happening once again.
I’m talking about the energy revolution being driven by shale and natural gas. Make no doubt about it, the natural gas revolution is here and it is very real. Through recent developments in advanced energy technology, energy companies have been able to tap into shale formations and extract previously inaccessible deposits of natural gas. And as it turns out, the United States and Canada are sitting on the world’s largest reserves, with many analysts calling the United States the new Saudi Arabia. The Associated Press just released a new report saying just that:
“U.S. oil output is surging so fast that the United States could soon overtake Saudi Arabia as the world’s biggest producer. Driven by high prices and new drilling methods, U.S. production of crude and other liquid hydrocarbons is on track to rise 7% this year to an average of 10.9 billion barrels per day.”
This revolution is creating huge opportunities for investors to score big profits in energy companies cashing in on the boom. But even though many companies will benefit, my favorite pick is Carbo Ceramics (NYSE: CRR), a company that produces a material called ceramic propant that drillers use to extract natural gas from rock formations in the hydraulic fracturing process, commonly referred to as “fracking” on the Street.
Carbo traded up to $180 in the spring of 2011, but proceeded to fall with the entire energy sector in the next two years as an oversupply of natural gas rocked the industry. But now, with gas prices stabilizing and demand growing, Carbo looks like a great buy. Carbo’s forward P/E (price-to-earnings) ratio of 21 times is a discount to its 10-year average of 23 times. And that’s not including 2014, where the company is expected to grow earnings by a whopping 34%.
After suffering big losses in the last two years, energy stocks are once again on the comeback. But valuations across the industry still look amazing at all-time lows. So now is a good time to be looking at energy stocks as the group moves back into favor with investors but still trades at historically low valuations.
Your Investment Partner,
Mike
