Secular Trend: Best-of-Breed Wildcatters


Due to the secular forces at work, it seems like Exploration & Production firms should be profitable investments again when oil/gas are done pulling back, and institutional moneys start flowing back into this sector. Prices may have temporarily moved up too far too fast, but it's a good bet their long-term upward trend will continue. I'm preparing watch lists for when that happens.

In compiling this list, I leaned on a few simple criteria. Each company must have:
• At least a narrow moat (Morningstar)
• C or better stewardship grade (Morningstar)
• C or better stock grade (Navellier)
• Natural gas comprising at least 50% of production/reserves

These criteria resulted in a not-so-short list of stocks that also tend to get high ratings from When the markets aren't chasing the flavor of the month, they tend to revert back to fundamentally sound companies like these.

I didn't include Canadian E&Ps in the list because most are involved in oil sands. That requires an extraction/refining process that's even more arduous and expensive than usual â€" a bigger consideration now that prices have pulled back. Here's some background info:

In any case, EnCana (ECA) is an intriguing choice. It seems to have a strong presence in every major natural gas play in North America; it's renowned for its reservoir evaluation expertise and technical innovation; and it's spinning off its oil sands assets into a new integrated oil company. Canadian Natural Resources (CNQ) and Talisman Energy (TLM) would be respectable choices as well.

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