Transforming Into Oily Plays

 | Jan 03, 2012 | 7:01 PM EST
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A bit amused by the worries about my nat gas positioning here as people are all atwitter on twitter that I am contradicting myself. The action is all going the way of oil over gas and whoever can get there "first-est" with the "most-est" is going to win.

That's why I like EOG Resources (EOG) so much. It has transformed itself in an oily play. It is why I like Continental Resources (CLR) and why I like Occidental (OXY) and Noble Energy (NBL). Anadarko Petroleum (APC) fits this bill, too.


The nat gas plays that are trying to get to be oily but aren't there yet seemed like they could bounce to me but nat gas, the commodity, didn't comply. So, that makes the drilling gap harder for some companies.

I didn't think nat gas could go this low. I don't know anyone else who did, either.

Then there are the takeover plays, like Cabot Oil & Gas (COG), the best in the S&P 500 and an old ActionAlertsPlus name that we gave up on before fruition. It was up 100% this year. And Range Resources (RRC), which also had a terrific year. These are takeover names with good growth. They are hard to analyze, but, as you saw on Mad Money, you have to take a shot, and both are doing a lot of things right.

The toughest one is Chesapeake (CHK). Try as it does to become less nat gassy and more oily, it won't get credit for doing so. I think that's wrong, hence my judgment that people just aren't willing to buy oil and gas stocks that have a preponderance of nat gas. The second toughest is Devon (DVN) because it has sold a lot of its oil properties and has a ton of nat gas, but it also has a lot of oil. It gets more credit for the transformation than Chesapeake does.

There are nuances here.

The broad brush doesn't work because of the hybrid nature of the industry.

So, I apologize for the confusion, but if you are in a pure nat gas play you are doing it for the takeover or because of vast holdings that are much bigger than anyone realizes (COG). Otherwise, I think EOG, NBL and CLR make a ton of sense even up here, as long as you remember that if oil drops a couple of bucks, these stocks might shed 10, eight and six points, respectively.

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